Jan. 30 (Bloomberg) — Florida's voters may remember being adults under John F. Kennedy, but most of the rest of us don't. So whence the staying power of the Kennedy image in this election week? What were people embracing when Caroline Kennedy, endorsing Barack Obama, spoke of a "president like my father"?
Caroline herself supplied the answer when she spoke of recapturing the American Dream. She was reminding us that President Kennedy, like Obama, didn't rise organically from his political party but was grafted onto it because of enormous personal dynamism. She was thinking about social barriers, too — Kennedy the first Catholic, Obama the first black.
Caroline may also have been evoking the general prosperity that JFK generated and that continued long after his assassination. And why shouldn't she?
Two of the things about the '60s were that they belonged to JFK even after he died, and that they felt good. All of us want to see the Dow rise and rise over the course of years and to watch unemployment march confidently down from 6.9 percent to 3.5 percent as it did then. Everyone wants to see the U.S. minimize foreign threats with spectacular technological breakthroughs involving men in big white space suits.
Exactly how that Kennedy high was achieved is therefore worth review.
As Kennedy took office, unemployment was heading up. The economy was slow — there was a fussy technical debate over whether it was actually shrinking or merely on the brink of doing so. Lengthy articles about how the U.S. was losing the global economic-growth race filled the newspapers.
91% Tax Rate
The most recent war — in that instance, Korea — hadn't resulted in a decisive victory. And the top tax rate was 91 percent, though politicians had a hard time believing that mattered. As today, they talked not about altering the tax schedule but rather about which "seasonal stimulus" would work best.
Kennedy didn't choose a short-term tax stimulus. With visible effort, he and his spokesmen punched through the Keynesian fog and forced listeners to understand that they were explicitly rejecting the short-term concept.
In April 1961, the Wall Street Journal reported on a speech by presidential adviser Walter Heller: "Mr. Heller made clear that he wasn't talking about an emergency tax cut to fight the recession, an idea now all but abandoned by the administration."
Heller put forward another idea in the speech: "tax rates could be made permanently lower." Maybe, as he put it, the tax schedule had "more power" than it needed. Maybe the country would grow faster if lawmakers made dramatic across-the-board cuts, the opposite of Clinton-style targeting. Without such universal cuts, others in the administration argued, the U.S. couldn't beat the Soviet Union in the growth race.
This plan for permanently lower taxes met with considerable objection. The Journal published a crabby editorial about the administration's "growth obsession."
Old New Dealers disapproved, too. Gardiner Means, a former member of Franklin Roosevelt's Brain Trust, wrote that the Kennedy tax plan would leave unemployment high. Means preferred a massive monetary expansion and even bet in the Washington Post that such an expansion, plus deficit spending, would cause output to grow 14 percent within a year.
No Anxiety Here
In the end it was Lyndon Johnson who, after Kennedy's 1963 assassination, pushed through the permanent tax reductions. Johnson and Congress reduced the top rate to 77 percent in 1964 and then 70 percent in 1965. In his first State of the Union address, Johnson argued for the lower permanent rates, saying "every individual American taxpayer, and every corporate taxpayer will benefit" — none of the modern anxiety about appearing to help the rich there.
Some would argue that 70 percent is so high that to call it a cut is risible. But as today, what mattered wasn't just the rate but the direction. Today, investors generally understand that Europe, especially France, is trying to help the private sector more than before. Taxes may come down there, whereas in the U.S. taxes are clearly going up. This relative shift has contributed to the strength of the euro, even though Europe's taxes are far higher than ours.
In Kennedy's time, the dynamic was the opposite. The U.S. cuts were followed by years of strong growth, declining unemployment and a leaping stock market.
Ted's Ungreat Era
What about Senator Edward Kennedy, who is also celebrating Obama? He has advocated expansion of the welfare state and taxing the rich. One thing that was wrong with the '70s, his heyday, was that that the emphasis on the welfare state got in the way of growth. Those years were ungreat, people noticed, and even now, no one mistakes Ted for John.
These days, permanent cuts in the income tax have a scandalously low reputation, right down there with the shares of Societe Generale. Mitt Romney, Rudy Giuliani and John McCain (at least sometimes) may endorse the concept of making President George W. Bush's tax cuts permanent, but the Republicans sure aren't making taxes the centerpiece of their campaigns.
Democrats from John Edwards to Hillary Clinton and Obama are for letting the Bush rate cuts at the high end expire. Of course, some of the candidates are less dug in than others. One of Obama's great attractions is that he's so new that his positions aren't solidified — he can be anything to any Kennedy.
If he becomes president, he'll have to make economic choices. And the JFK tax record, along with former President Ronald Reagan's, is something a new executive will have to grapple with. In a competitive world, a country can't get a JFK result without JFK measures. If he doesn't choose wisely, the next president may find himself stuck with Ted, instead of Caroline.
(Amity Shlaes, a senior fellow in economic history at the Council on Foreign Relations, is a Bloomberg News columnist. The opinions expressed are her own.
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