By Lawrence Kudlow and 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% from 91% and the bottom marginal rate down to 14% from 20%. 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%. Today it is 39.6%.
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% per year. Each of the tax-cut decades saw at least seven years of growth of 4%-5%, 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.