FOUR AND A HALF years ago--just a few months after becoming President--I signed the biggest tax cut in the Nation's history. Then, the economy was dragging. Five and a half percent of the labor force was out of work. We were underachievers--falling almost $30 billion short of our productive capacity.
We had to put our foot on the accelerator then. The income tax reduction and the later excise tax cuts brought new vigor and health to America's economy. They helped us to roll up an unparalleled and impressive record: 88 months of sustained prosperity.
This has meant higher paychecks to the worker and higher profits to the businessman. The unemployment rate has dropped all the way down to 3-5 percent, the lowest in 15 years. Never before have so many of our citizens shared in so much of the Nation's prosperity.
The same principles of good fiscal management summon us here today for a tax increase. The special costs of supporting our fighting men in Vietnam and the costs of launching and supporting comprehensive education, health, city, job, and conservation programs in our society have added many billions to our budget. The Nation's economy is moving too fast because of an unacceptable budgetary deficit. We must now apply the fiscal brakes.
With the measure I sign today, we will cut $20 billion from the deficit in fiscal year 1969. This marks the largest shift of the budget toward restraint in the past two decades.
Now we can attack decisively--at the roots--the threats to our prosperity: accelerating inflation, soaring interest rates, deteriorating world trade performance.
Now we can mobilize the defense of our dollar at home and abroad and fulfill our obligations to world monetary stability.
Now we are assured that we can continue to rely on free markets, unfettered by damaging Government controls.
This temporary surcharge will return to the Treasury about half the tax cuts I signed into law in 1964 and 1965. For the average taxpayer it will mean an additional penny on the dollar of income in the coming year. It honors the democratic principle that taxes should be based on ability to pay.
Here is how the surcharge will affect the American family:
--For a family of 4 with a yearly income of up to $5,000 it will not increase taxes at all.
--For a $10,000 income family, it will amount to slightly over $2 a week. This leaves them nearly $3 a week ahead of the tax rates prevailing when I became President.
--For an affluent family with $30,000 a year, it will amount to 2 cents on the dollar.
For every American family--rich or poor--the tax bill is the very best insurance policy we can buy to protect our prosperity.
A modest and equitable temporary income tax is far better than the cruel and haphazard tax of rising prices and spiraling interest rates, which would continue to squeeze millions of Americans--salaried workers, homebuyers, the elderly couple living on a pension, and all the others who are defenseless against inflation--just as it has unnecessarily squeezed them over the past a years.
The tax bill gives us--not a guarantee-but an opportunity for further economic progress. We must fully grasp that opportunity. This will take a concerted effort on many fronts:
--by the Government in continuing to meet its obligations for sound fiscal and monetary management and improvement in our balance of payments,
--by business and labor in exercising the utmost restraint in price and wage decisions,
--by American industry in working energetically to strengthen our world trade position.
This bill deals with expenditures as well as taxes. It requires the President to reduce Federal expenditures by $6 billion from the January budget for the fiscal 1969.
The January budget was lean and tight. It blended fiscal responsibility with our very urgent national purposes--to pursue the work we must do for the cities, for the farmers, for the poor, and for the common defense. But the Congress--as a condition of its approval for the tax bill--has imposed a deep reduction in that budget.
I have accepted this decision of the Congress because the tax bill is so imperative to the economic health of the Nation.
It is my belief that in the course of the normal appropriations process Congress will reduce the budget by considerably less than $6 billion. In that event, under the law I sign today, Congress will shift to the President the responsibility for making reductions in programs which the Congress itself is unwilling to do.
This departure from the traditional appropriations process is most unwise. I believe the Congress also acted unwisely in the requirement that Federal employment be rolled back to the level of 2 years ago. This conflicts with the needs of a growing Nation for increased and efficient public services.
In carrying out these congressional mandates, I will do my best to fulfill our most urgent priorities and to continue the essential operations of Government. We must not falter in our efforts to root out injustice and unrest from the land.
With the enactment of the tax bill, our democracy passed a critical test. Raising taxes is never a pleasant task, least of all in a national election year. But in finally acting Congress has fulfilled an important responsibility.
I believe that the decision should have come sooner and should never have been in doubt. This is. not the last time that we will have to act in applying flexible and rational fiscal policies to keep our economy flourishing. We must study the lessons of the past 2 years and ask these questions:
--How can we avoid in the future the costly inaction and the threat of fiscal stalemate we have just experienced?
--How can we develop procedures to assure the timely adjustment of fiscal policy and the closest cooperation between the executive and legislative branches in this area?
But as we review that experience let us also remember that action did come and that the processes of American Government rose to meet the challenge of fiscal responsibility.