Recalling the Days When Democrats Cut Taxes

Editor’s Note: co-authored by Brian Domitrovic.

Fifty years ago last week, on Feb. 26, 1964, President Lyndon B. Johnson signed into law the sweeping tax cuts that had been championed by his predecessor, John F. Kennedy. The law brought the top marginal income-tax rate down to 70 percent from 91 percent and the bottom marginal rate down to 14 percent from 20 percent. The 22 rates in-between also were cut.

The tax legislation of 1964 was one of three major across-the-board income-tax cuts in the 20th century. The others took place in the 1920s, during the Warren Harding and Calvin Coolidge administrations, and in 1981 and 1986 during the Ronald Reagan administration. After the Tax Reform Act of 1986, the top marginal rate was all of 28 percent. Today it is 39.6 percent.

The 1920s, ‘60s and '80s were three of America’s greatest decades of economic growth. Without them, growth since the inauguration of the income tax in 1913 averages less than 3 percent per year. Each of the tax-cut decades saw at least seven years of growth of 4-5 percent, along with advances in entrepreneurship, employment, living standards and wealth. We would hardly speak of an “American century” if not for the economic expansions that came with these three historic tax cuts.

Today tax cuts are associated with the Republican Party. Yet half a century ago, it was the Democratic President Kennedy who said in his Dec. 14, 1962, address to the Economic Club of New York: “Our practical choice is not between a tax-cut deficit and a budgetary surplus. It is between two kinds of deficits: a chronic deficit of inertia, as the unwanted result of inadequate revenues and a restricted economy; or a temporary deficit of transition, resulting from a tax cut designed to boost the economy, increase tax revenues, and achieve – and I believe this can be done – a budget surplus. The first type of deficit is a sign of waste and weakness; the second reflects an investment in the future.”

When JFK’s tax legislation came before Congress, Democrats in the House voted for it 223-29 and in the Senate 56-11, while Republicans voted against it in the House 48-126 and for it in the Senate 21-10. The GOP candidate for president in 1964, Arizona Sen. Barry Goldwater, voted against.

And after jacking up tax rates during World War I, the Democratic Woodrow Wilson administration proposed the tax cuts that came to pass under the guidance of Republican Treasury Secretary Andrew Mellon in the 1920s. Stretching back into the 19th century, it had consistently been Democrats who had been in favor of tax reductions – and Republicans who had been in favor of high rates.

As generations of schoolchildren used to be taught, the tariff – the principal means of federal revenue before 1913 – was a Republican baby, while Democrats and other “populists” railed against this form of mass taxation and insisted that tariffs be reduced if not eliminated. Democrats of old realized that high tax rates and trade protectionism prompt exceptions and preferences to be written into the law – special deals that crony capitalists thrive on. When the income tax began to replace the tariff in 1913, little changed. High, stifling rates encourage lobbying for loopholes, special carve-outs and backroom deals. Nothing populist about that.

In the 1930s and '40s, President Franklin D. Roosevelt, a Democrat, turned the tables by jacking up marginal income-tax rates (at one point all the way to 94 percent for the very top earners), expanding the reach of the income tax into the humblest of wage earners, and withholding taxes from paychecks. Or as the authors of the textbook “Federal Income Taxation” put it in 1953, under FDR the income tax “changed its morning coat for overalls.”

JFK understood that high tax rates, even on the rich, bring inequities into the nation’s political economy that do not befit America’s traditions of liberty and constitutional rule. He also understood that devaluing tax preferences, as tax cuts do, frees up capital to move to its most naturally productive purpose and spur economic growth.

Reagan had the good sense to use the JFK tax cut as a model for his own historic tax cut in 1981. It is a pity that President Obama, who has unsuccessfully tried massive infusions of government money to spur growth, didn’t follow JFK and Reagan’s lead and make lower marginal tax rates a priority. If he had, we’d likely be in the midst of a vigorous recovery, and on our way to another decade of impressive growth.

The Patriot Post® · Recalling the Days When Democrats Cut Taxes