JFK and the Economy
Meeting with Advisory Committe on Labor
President Kennedy campaigned on a platform of economic growth. At heart he was a fiscal conservative. Thus, he initially resisted efforts by his advisors to impose a tax cut to stimulate the economy, for fear of the effect on a balanced budget. He finally agreed to a tax cut to help stimulate economic growth. His most famous economic action, however, was his use of the power of presidential persuasion to convince the steel manufacturers to roll back a steel price rise.
When President Kennedy took office, his highest domestic priority was to address the economy. Unfortunately, Kennedy's ability to take effective action to stimulate the economy was severely constrained. He felt the time was not right for a tax cut. He could not call for greater sacrifices from the people on one hand, and allow a tax cut on the other. Kennedy was unable to garner support for greater deficit spending, nor was he able to convince the head of the Federal Reserve to decrease interest rates. All of the traditional Keynesian methods of economic stimuli were not available to the President. Instead of major measures that would require Congressional approval, Kennedy acted by executive order to improve the economy. He ordered federal payments, and refunds expedited. Kennedy asked that federal contracts be directed to areas with the highest unemployment. All of these actions, plus the additional optimism his young presidency brought with it, were enough for the economy to show signs of an upturn by April of 1961. In May, Kennedy proposed a modest tax reform package to stimulate the economy. That package, which was opposed by business, was blocked by Congress. However, Congress did approve an increase in Social Security, as well as an increase in the minimum wage, both of which helped the economy. Kennedy was concerned about the American balance of payment deficit, but other than worrying about it, at this point there was little of substance he could do.
Kennedy was very concerned about inflation. He made special effort to ensure that steel prices did not go up, since steel was a key raw material used in many products. Kennedy convinced labor negotiators to make modest demands for wage improvements. The labor negotiators settled for small enhancements in pension contributions by the companies and did not push for further wage increases. Kennedy expected the steel industry would then forgo a steel price increase. He was shocked when on April 10, 1962, the steel companies announced a 3.5 percent across-the-board increase in steel prices. Kennedy felt betrayed and he was furious. Kennedy cursed the steel executives. The White House leaked a somewhat cleansed version of Kennedy's comments. He was quoted as calling the steel executives " sons of bitches" . Kennedy then went public at a press conference stating, " The American people, like I do, will find it hard to accept" . Despite the fact that support for the President was overwhelming, Kennedy was not willing to leave to the court of public opinion, the outcome of his confrontation with steel companies. He ordered the Justice Department to investigate the steel companies on the suspicion of collusion. He even asked the IRS to investigate the actions of the steel executives. Ultimately, the pressure was too great for the steel executives to endure. On April 13, a mere three days after announcing their desired price increase, the steel executives were forced to recant and declare a price rollback.
Kennedy tried to ease the tension with the business community by speaking out positively about business in general. Business leaders, however, were incensed. Some sported bumper stickers that said: " Help Kennedy Stamp Out Free Enterprise" . The Dow Jones Industrial Average plummeted. But despite the lingering anger of the business community Kennedy's actions were a great success. The President's popularity soared to an all-time high. He had shown himself to be a strong leader who got results. Kennedy's domestic successes also strengthened his standing on the world stage.
But by the summer of 1962, it was becoming clear that the mild economic recovery of 1961 was sputtering to a halt. Kennedy was committed to a tax cut that would truly invigorate the economy. The top marginal rate in the US was 92% at the time, giving limited incentives for economic risk-taking by entrepreneurs and business leaders. However, Kennedy did not believe he could pass a large tax cut at a time when most of Congress was committed to balanced budgets. Kennedy began to lobby both the Congressional leadership and business leaders on the need for the tax cuts.
By the end of 1962, Kennedy had decided to make economic growth his highest priority. In December he gave a major address on the economy and tax cuts, stating: " it is a paradoxical truth that tax rates are too high today, and tax revenues are too low, and the soundest way to raise the revenues in the long run is to cut rates now. "
Kennedy was the first supply-sider. In January 1963, in his State of the Union address, Kennedy called for a tax cut. Congressional leaders, led by Ways and Means Committee Chairman, Wilbur Mills, were skeptical. Mills felt that since there was no recession at the time, there was no need to take action. Albert Gore, Sr. opposed the decrease. Gore believed the decrease would unfairly favor the rich, by increasing their net income drastically, while doing nothing for the poor. But the President kept pushing and in August, the House Way and Means Committee finally approved a Tax Reduction Bill. The Bill brought down the highest marginal tax rates to 62%. In September, the full House of Representatives voted in favor of the tax cuts. The Senate was scheduled to begin debating the legislation after Thanksgiving. The bill was finally passed after the death of the President.