Saturday, August 17, 2013

Post World War II Economic Growth Didn't Take Off Until the JFK Tax Cuts of 1960's

Larry Kudlow, via the New York Sun, quotes economic historian Brian Domitrovic on the anemic U.S. economy after WWII until the Kennedy tax cuts of the 1960's raised an under 2.5% annual growth rate from 1944 to 1960 to more than double that average in the 1960's. It wasn't Europe's need for rebuilding or U.S. hunger for civilian goods after the severe rationing of war years that powered a roaring U.S. economy. It was President John F. Kennedy's tax cut policy.
However, speaking in Galesburg, Ill., this summer, Mr. Obama served up a convenient historical fairy tale: “In the period after world War II,” he said, “a growing middle class was the engine of our prosperity.” Presumably he was thinking of a time when high taxes on the rich and industrial-union rule had the middle class soaring. The trouble is, Mr. Obama’s history is wrong.

From 1944 to 1960, with a top tax rate of 90%, the U.S. economy expanded at an anemic 2.1% annual pace, according to economic historian Brian Domitrovic. And during the Eisenhower years, the economy grew at a subpar 2.4% yearly rate, including three recessions, which Mr. Domitrovic says made for “the worst growth of any post-war president until George W. Bush and Barack Obama came along.”

So much for post-war prosperity.

But then came the 1960s, the decade liberals love to hate. Why? Because the path-breaking supply-side tax cuts of John F. Kennedy generated one of the greatest booms in economic history.

Actually, according to Domitrovic, it was two big tax cuts that delivered that prosperity. The first was a business tax cut put in place in 1962, and the second was an across-the-board personal tax cut that began in early 1964.

The result? Domitrovic reminds us that the eight-year expansion from 1961 to 1969 saw growth of 48% — a third more in an eight-year period than in the 16 years ending in 1960. So the post-war prosperity of 1944 to 1969 did exist at roughly 3% per year. But only because the 1960s lifted everything up. Tax rates were reduced by Kennedy for top-to-bottom income earners.

Conveniently, John Kennedy’s powerful tax-cut slashing on business, individuals, and investors doesn’t exist in the Left’s post-war, economic narrative. It’s been rubbed out of history, replaced by a liberal vision of powerful unions and high tax rates on the rich, which is supposed to create growth. And expectedly, Obama and the Left never make the connection between the Kennedy tax cuts and the Reagan tax cuts 20 years later, which essentially copied the JFK model.

Not only did Reagan copy JFK’s across-the-board rate reduction, he even dusted off his rhetoric. Reagan frequently talked about a rising tide lifting all boats, after-tax incentives to keep more of what you earn, and how lower tax rates produce higher tax revenues. In fact, Reagan credited Kennedy when the 1980’s tax cuts got the economy moving again.
H/T Steve Brawley for the photo


MAX Redline said...

Excellent stuff, here, TD. Too many are completely unaware of the Kennedy/Reagan tax model (Reagan, naturally, was derided by the left).

It’s been rubbed out of history, replaced by a liberal vision of powerful unions and high tax rates on the rich, which is supposed to create growth.

Powerful public employee unions, primarily.

T. D. said...

I thought it important information too, Max. I had thought the US had a big economic growth after WWII. I had no idea that Kennedy and his tax cuts were the big economic growth factor.

It also explains how Johnson's Great Society was funded.

Yes, interesting that the only unions that have a stake in bigger and bigger government are public employee unions.