Tax Reforms By John F Kennedy

• The president decided that only a bold domestic program, including taxcuts, would restore his political momentum.

• Declaring that the absence of recession is not tantamount to economicgrowth, the president proposed in 1963 to cut income taxes.

• JFK lowered top income tax rate from 91% to 65%

• In fact, the top marginal tax rate in 1962 was 91% and JFK proposedlowering the top rate to 65% (compared to a top rate of 37% today).

• Similarly, the corporate tax rate in 1962 was 52% and JFK proposedlowering it to 47% (compared to a corporate rate of 15% today).

• He also proposed a cut in the corporate tax rate from 52% to 47%

• Kennedy argued that “a rising tide lifts all boats” and that strong economicgrowth would not continue without lower taxes.

• The House Ways and Means Committee voted a tax bill out of committeein August and the grateful president reiterated that lowering taxes was thesurest path to full employment and lower deficits. Polls showed that over60% of Americans favoured the tax cuts.

• When the federal income tax was enacted in 1913, the top rate was just 7percent. By the end of World War I, rates had been greatly increased at allincome levels, with the top rate jacked up to 77 percent (for income over$1 million).

• After five years of very high tax rates, rates were cut sharply under theRevenue Acts of 1921, 1924, and 1926.

• The combined top marginal normal and surtax rate fell from 73 percent to58 percent in 1922, and then to 50 percent in 1923 (income over$200,000). In 1924, the top tax rate fell to 46 percent (income over$500,000). The top rate was just 25 percent (income over $100,000) from1925 to 1928, and then fell to 24 percent in 1929.

The Mellon Tax Cuts

• In 1924, Mellon noted: “The history of taxation shows that taxes which areinherently excessive are not paid. The high rates inevitably put pressureupon the taxpayer to withdraw his capital from productive business.”

• Detailed Internal Revenue Service data show that the across-the-boardrate cuts of the early 1920s-including large cuts at the top end-resulted ingreater tax payments and a larger tax share paid by those with highincomes.

Conclusion

• The tax cuts of the 1920s were the first federal experiment with supply-side income tax rate cuts. Data for the period show an initial decline infederal revenues as tax rates were cut, but revenues grew strongly duringthe subsequent economic expansion. After the cuts, total tax paymentsand the share of total taxes paid by the top income earners soared.

• President John F. Kennedy brought up the issue of tax reduction in his 1963 State of the Union address.

• His initial plan called for a $13.5 billion tax cut through a reduction of the top income tax rate from 91% to 65%, reduction of the bottom rate from 20% to 14%, and a reduction in the corporate tax rate from 52% to 47%. The first attempt at passing the tax cuts was rejected by Congress in 1963.

• Kennedy was assassinated in November 1963, and was succeeded by Lyndon Johnson. Johnson was able to achieve Kennedy's goal of a tax cut in exchange for promising a budget not to exceed $100 billion in 1965. The Revenue Act of 1964 emerged from Congress and was signed by Johnson on February 26, 1964.

• Implications on economy:

• The stated goal of the tax cuts were to raise personal incomes, increase consumption, and increase capital investments.

• Evidence shows that these goals were met to some degree by the tax cut.

• Unemployment fell from 5.2% in 1964 to 4.5% in 1965, and fell to 3.8% in 1966.

• Initial estimates predicted a loss of revenue as a result of the tax cuts, however, tax revenue increased in 1964 and 1965.

TAX REFORMS BY OBAMA

Tax Relief for Middle-Class Families

President Obama has cut taxes for middle class families every year he hasbeen in office, and federal taxes for middle class families are currently atnearly their lowest levels in decades.

A typical middle class family has gotten a tax cut of $3,600 over the last fouryears – more if they were putting a child through college.

• President Obama's Making Work Pay credit provided 95 percent ofworking families a tax cut of $400 per person or $800 per couple in 2009and 2010.

• The President's payroll tax cut provided 160 million workers a 2 percentreduction in payroll taxes

• Cutting taxes for a typical family earning $50,000 a year by $1,000 .

• Federal income taxes on middle‐income families are now lowest level.

15 million working families with children benefit from the President’s improvementsto the Child Tax Credit and Earned Income Tax Credit.

Starting in 2014, about 18 million individuals and families will get tax credits forhealth insurance coverage averaging about $4,000 apiece, as a result of theAffordable Care Act.

Over the next ten years, the Affordable Care Act will provide middle class individualsand families with almost $700 billion in tax credits to help pay for health insurancecoverage.

Tax Relief for Small Businesses

• Administration have focused on strengthening small businesses by signing into law 18 tax cuts for small businesses, ranging from 100% expensing to the small business health tax credit.

• The temporary tax exclusion of capital gains from key small business investments.