Yoshitsu Compares Tax Cuts, Economic Policies of Kennedy, Bush Administrations

Abbot Scholar Grant Yoshitsu ’05 believes that while John F. Kennedy’s 1964 tax cuts proved the feasability of government deficit spending, the 2002 tax cuts of George W. Bush ’64 prove that tax cuts must be directed toward consumer, and not corporate, economic growth. Yoshitsu spoke Thursday about the differences between Kennedy’s Keynesian and Bush’s supply-side economics, focusing on comparisons between the Kennedy and the Bush tax cuts. Economist John Maynard Keynes introduced the idea of deficit spending as a government tool to stiumulate the economy and avoid recessions. Keynesian economists believe in demand-side tax-cuts. According to Keynesian principles, tax cuts provide more money for the consumer. By spending the money from this tax cut on a certain product, the consumer then creates a higher demand for the product. Surplus consumer cash and higher demand for consumer goods then encourages people to invest. Keynesian economists believe that government deficit spending creates more jobs and lowers unemployment rates, which in turn prevents a recession or counters a weak economy. Keynesians argue that demand-side tax cuts are more effective than normal tax cuts because putting a dollar in a consumer’s pocket has a “multiplier” effect in that it goes to another taxpayer when it is spent, and so on. Consequently, government taxpayers become wealthier and can pay more money in taxes to the government. This makes the government deficit short-lived as economy is stimulated. Before President Kennedy, tax cuts and deficit spending were generally regarded as extremely risky. The U. S. government had a long tradititon of non-involvement in the economy, a la Adam Smith’s laissez-faire economics. After World War II, income tax rose from 16 percent of the government’s revenue in 1940 to 51 percent in 1950. However, during General Dwight D. Eisenhower’s presidency the government was dead-set against operating on a deficit. The Eisenhower administration presided over a significant increase in unemployment, which led to to the 1961 stock market crash. During his 1962 Commencement speech at Yale University, Kennedy said, “The myth persists that federal deficits create inflation and budget surpluses prevent it. Yet sizeable budget surpluses after the war did not prevent inflation, and persistent deficits for the last several years have not upset our basic price stability. …Borrowing can lead to over-extension and collapse–but it can also lead to expansion and strength.” In August of 1963 Kennedy’s Revenue Act went through Congress, though it wasn’t passed until January 1964, after Kennedy’s death. But the results of the cuts were even better than expected. Economists predicted that the Gross National Product for 1964 would be $599 billion, but the GNP for that year turned out to be $623 billion. The unemployment rate in 1966, predicted to be 4.1 percent, was actually 3.8percent. The government deficit for 1964, expected to be $11.9 billion, was only $6.5 billion. By 1966 the U.S. government possessed a surplus of $4.5 billion. Yoshtisu believes that Kennedy’s tax cuts prove that cuts and deficit spending can stimulate the economy. Although Kennedy’s tax cuts have been compared to Bush’s, Yoshitsu believes that Kennedy’s demand-side tax cuts and Bush’s supply-side tax cuts are clearly different. Supply-side tax cuts, like those implemented by George W. Bush in 2002, lower taxes to return money to big corporations and wealthy individuals to invest in a new product. In theory, this then creates a supply that will produce a growing demand for that product. In Yoshtisu’s opinion, there are glaring differences between the circumstances under which Kennedy’s cuts worked and the circumstances under which Bush implemented his tax cuts. He also believes that Kennedy’s demand-side tax cuts were aimed at helping the public, while Bush’s supply-side tax cuts were meant to help big business. Yoshitsu is of the opinion that if Bush continues his tax cuts, he should follow Kennedy’s example and cut government spending.