"Tax revision designed to promote full employment" - that was Kennedy's way of distinguishing between reductions in tax rates that increased the incentive to work, save and invest, and tax credits, rebates and deductions that may actually decrease the incentive for productive behavior and cost the government revenue. All tax cuts are not created equal.
A recent study by Dan Mitchell of the Heritage Foundation makes this point vividly. The economy clearly performed better and tax revenues grew faster after the 2003 tax-rate reductions than after the 2001 tax legislation, which included a tax rebate, a new refundable child tax credit, a minuscule 1-percentage-point income tax-rate reduction and a small, gimmicky reduction in the death tax.
The reason, as Mitchell pointed out, is that the 2001 tax cuts were based on the Keynesian demand-side notion of putting money in people's pockets in the form of rebates and credits, which simply does not work to change economic incentives.
"Supply-side tax cuts, by contrast," Mitchell observed, "do improve economic performance because they reduce tax rates on work, saving and investment."
The contrast between the effects of the demand-side 2001 tax cuts and 2003 supply-side tax rate reductions proves the point. In Mitchell's words: "Economic growth since the 2003 tax cut has averaged nearly 4.4 percent on a yearly basis, compared to just 1.9 percent in the period following the 2001 tax cut. Net job creation since the 2003 tax cut has averaged more than 150,000 per month, compared to declining job numbers in the period after the 2001 tax cut. Tax revenues have grown by an average of more than 6 percent annually since the 2003 tax cut, compared to falling tax collections after the 2001 tax cut."
Bush's tax rate reductions, like JFK's supply-side tax cuts, have successfully reduced the deficit, despite Congress's continuing lack of spending discipline.
While outlays have jumped by $110 billion so far this year, revenues have far outpaced them, rising by $183 billion and thus closing the budget deficit by $73 billion.
That's serious money. In fact, it's almost enough by itself to pay for stopping the raid on Social Security and saving the surpluses ($85 billion next year) in personal retirement accounts, the only true lockbox that will prevent government from getting its hands on the money.
While most members of Congress have been wringing their hands over how to pay the so-called "transition costs" for personal retirement accounts, they have completely overlooked the fact that Bush's 2003 tax-rate reductions created a prosperity dividend that can be used to make a down payment on permanent solvency.
If Congress would take the next step and reform the federal tax code - by reducing tax rates even further and simplifying the code, completing the job it began of defining taxable income properly so as to completely eliminate double, triple and quadruple taxation of income - the prosperity dividend would increase and solve the problem of financing personal retirement accounts.
It's not rocket science, voodoo or magic. It's incentive-oriented economics. Cut tax rates, generate more economic growth, slow the growth of federal spending, capture higher revenues to make a down payment on personal retirement accounts.
Stop the raid; start the accounts. I believe on these points, JFK and RWR would have agreed.