America has enjoyed 22 months of uninterrupted economic recovery. But
recovery is not enough. If we are to prevail in the long run, we must
expand the long-run strength of our economy. We must move along the path to
a higher rate of growth and full employment.
For this would mean tens of billions of dollars more each year in
production, profits, wages, and public revenues. It would mean an end to
the persistent slack which has kept our unemployment at or above 5 percent
for 61 out of the past 62 months--and an end to the growing pressures for
such restrictive measures as the 35-hour week, which alone could increase
hourly labor costs by as much as 14 percent, start a new wage-price spiral
of inflation, and undercut our efforts to compete with other nations.
To achieve these greater gains, one step, above all, is essential--the
enactment this year of a substantial reduction and revision in Federal
income taxes.
For it is increasingly clear--to those in Government, business, and labor
who are responsible for our economy's success--that our obsolete tax system
exerts too heavy a drag on private purchasing power, profits, and
employment. Designed to check inflation in earlier years, it now checks
growth instead. It discourages extra effort and risk. It distorts the use
of resources. It invites recurrent recessions, depresses our Federal
revenues, and causes chronic budget deficits.
Now, when the inflationary pressures of the war and the post-war years no
longer threaten, and the dollar commands new respect--now, when no military
crisis strains our resources--now is the time to act. We cannot afford to
be timid or slow. For this is the most urgent task confronting the Congress
in 1963.
In an early message, I shall propose a permanent reduction in tax rates
which will lower liabilities by $13.5 billion. Of this, $11 billion results
from reducing individual tax rates, which now range between 20 and 91
percent, to a more sensible range of 14 to 65 percent, with a split in the
present first bracket. Two and one-half billion dollars results from
reducing corporate tax rates, from 52 percent--which gives the Government
today a majority interest in profits--to the permanent pre-Korean level of
47 percent. This is in addition to the more than $2 billion cut in
corporate tax liabilities resulting from last year's investment credit and
depreciation reform.
To achieve this reduction within the limits of a manageable budgetary
deficit, I urge: first, that these cuts be phased over 3 calendar years,
beginning in 1963 with a cut of some $6 billion at annual rates; second,
that these reductions be coupled with selected structural changes,
beginning in 1964, which will broaden the tax base, end unfair or
unnecessary preferences, remove or lighten certain hardships, and in the
net offset some $3.5 billion of the revenue loss; and third, that budgetary
receipts at the outset be increased by $1.5 billion a year, without any
change in tax liabilities, by gradually shifting the tax payments of large
corporations to a more current time schedule. This combined program, by
increasing the amount of our national income, will in time result in still
higher Federal revenues. It is a fiscally responsible program--the surest
and the soundest way of achieving in time a balanced budget in a balanced
full employment economy.
This net reduction in tax liabilities of $10 billion will increase the
purchasing power of American families and business enterprises in every tax
bracket, with greatest increase going to our low-income consumers. It will,
in addition, encourage the initiative and risk-taking on which our free
system depends--induce more investment, production, and capacity use--help
provide the 2 million new jobs we need every year--and reinforce the
American principle of additional reward for additional effort.
I do not say that a measure for tax reduction and reform is the only way to
achieve these goals.
No doubt a massive increase in Federal spending could also create jobs
and growth, but in today's setting, private consumers, employers, and
investors should be given a full opportunity first.
No doubt a temporary tax cut could provide a spur to our economy--but a
long-run problem compels a long-run solution.
No doubt a reduction in either individual or corporation taxes alone
would be of great help--but corporations need customers and job seekers
need jobs.
No doubt tax reduction without reform would sound simpler and more
attractive to many--but our growth is also hampered by a host of tax
inequities and special preferences which have distorted the flow of
investment.
And finally, there are no doubt some who would prefer to put off a tax
cut in the hope that ultimately an end to the cold war would make possible
an equivalent cut in expenditures--but that end is not in view and to wait
for it would be costly and self-defeating.
In submitting a tax program which will, of course, temporarily increase the
deficit but can ultimately end it--and in recognition of the need to
control expenditures--I will shortly submit a fiscal 1964 administrative
budget which, while allowing for needed rises in defense, space, and fixed
interest charges, holds total expenditures for all other purposes below
this year's level.
This requires the reduction or postponement of many desirable programs, the
absorption of a large part of last year's Federal pay raise through
personnel and other economies, the termination of certain installations and
projects, and the substitution in several programs of private for public
credit. But I am convinced that the enactment this year of tax reduction
and tax reform overshadows all other domestic problems in this Congress.
For we cannot for long lead the cause of peace and freedom, if we ever
cease to set the pace here at home.