policy - The Black Vault

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for example,
Kennedy nominated Douglas Dillon, c Republican who had been
Under Secretary of State under Eisenhc ,er, to be the new Secretary of the
Treasury, and sought to fight the battle against the fourth post-World War
II recession within the bounds of a balanced budget. 14/ However,
it soon
became apparent that such policies were too timid to provide the necessary
boost to the US economy, a point driven home by the "Kennedy stock market
crash" of 1962. The administration's fiscal policies thus became more
aggressively interventionist, initially by means of increased government
expenditures. For the first time in US history the government intentionally
tried to run a recession deficit in order to increase employment
and growth. But by the end of 1962 Kennedy became convinced that even this
- was not enough; what was needed was a massive tax cut. 15/
Calling for a tax cut when there was already a budget deficit was
indeed a dramatic departure from the economic orthodoxy of the 1950s. Not
surprisingly, then, this step was only taken after an extended debate
pitting, to simplify things greatly, Walter Heller's advocacy of a large
tax cut against John Kenneth Galbraith's advocacy
spending (coupled,
of increased federal
if necessary, with wage and pric'% cot)Lrols) and Douglas
Dillon's advocacy of more conservative measures. Helier's view prevailed,
with Kennedy deciding not only to push for a tax cut, but '.o seek e 1*H
billion cut in 1963 rather than just a "quickie" cut designed to push the
economy past the "pause" it was experiencing in 1962. 16/
Kennedy's program to stimulate the economy ultimately took the
form of two successive tax breaks: the investment credit of 1962 and the
tax cut discussed above, which finally passed early in 1964.
Each of these
tax reductions was to be accompanied by the closing of loopholes favoring
those with high incomes, but these reforms never got through Congress, a
fact which Kennedy's liberal economic advisers accepted as a necessary
evil. They figured, in any event, that the boost to the overall economy
resulting from the tax cut would benefit all, even if it did benefit the
rich more than the poor. Together, the two measures cut personal and
corporate income taxes by 20 percent, a tax reduction estimated at about
$15 billion. Consumers spent their increased take-home pay; unemployment
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