Letter to the President of the Senate and to the Speaker of the House Concerning Standby Authority To Reduce Income Taxes.

Dear Mr.____________:

I transmit herewith, for the consideration of the Congress, a draft and a technical explanation of a bill which would give to the President, subject to Congressional disapproval, stand-by discretionary authority to reduce personal income tax rates when economic circumstances require such action. This bill implements one of the three proposals advanced in my Economic Report for bolstering the Government's ability to pursue effectively the objectives of the Employment Act of 1946. I have previously sent to the Congress draft legislation to carry out the other two recommended economic stabilizers: a strengthened and permanent unemployment compensation program and a stand-by capital improvements program designed to become effective in the early stages of economic recession.

Under the Employment Act of 1946, the Congress declared that "... it is the continuing policy and responsibility of the federal Government to use all practicable means consistent with its needs and obligations and other essential considerations of national policy . . . to promote maximum employment, production, and purchasing power." Since 1946 the stability of our economy has been substantially greater than in the decade preceding the war, but the record has not been good enough. Recessions which began in 1948, 1953, 1957, and 1960 have resulted in the loss of tens of billions of dollars of potential output and frustration, privation, and degradation for millions of workers who, through recessions, have been unemployed. These recurrent recessions have thrown the postwar American economy off its stride at a time when the economies of other major industrial nations have moved steadily ahead, thus contributing substantially to the failure of the American economy to grow at a pace equal to that of our principal competitors. I ask for stand-by authority for prompt, temporary income tax reductions as one means of improving our future performance in meeting the goals of the Employment Act.

As I said in my Economic Report, "Our fiscal system and budget policy already contribute to economic stability, to a much greater degree than before the war. But the time is ripe, and the need apparent to equip the Government to act more promptly, more flexibly, and more forcefully to stabilize the economy--to carry out more effectively its charge under the Employment Act." Authority to introduce promptly a temporary reduction of individual tax rates across the board would constitute a powerful addition to the equipment available to the Government for this purpose. At present income levels, the proposal would grant authority to reduce individual income tax collections at an annual rate of $2 billion per percentage point, or a maximum of $10 billion if the full 5 percentage point reduction permitted by the bill is put into effect. The proposed partial temporary tax suspension would be reflected immediately in lower withholding deductions and higher take-home pay for millions of Americans. Markets for consumer goods and services would promptly feel this stimulating influence of the tax suspension. Thus, strong support would be offered to the economy for a timely interval.

The revenue-raising powers of our tax system and the traditional procedures of the Congress for revision and reform of the system would be entirely preserved under this legislation. My proposal, as contained in the draft bill does not ask the Congress to delegate its power to levy taxes. It asks only for authorization for a temporary and emergency reduction of income tax rates by the President, subject to Congressional disapproval, in situations where prompt action, whether or not the Congress is in session, is essential. The form of the income tax reduction would be provided for in advance by Congress; it would not be determined by the President. By the term of the draft legislation the fixed statutory rates may be reduced by not more than 5 percentage points and the period of tax reduction would be limited to six months, unless extended by a new plan within the procedures prescribed in the bill. In no event can the period of uninterrupted tax reduction exceed one year without specific affirmative Congressional action. The draft bill authorizes the President to terminate the period of tax reduction on a date earlier than that specified if he finds that a reduction in tax rates is no longer needed.

The draft proposal thus offers a practical plan for cooperative governmental action. Enactment of the proposed legislation would provide the basic legislative determination to use a temporary reduction in the individual income tax rates when economic circumstances require such action, while arming the President with a practical means of implementing the Congressional will. The responsibility to act promptly would be the President's, but Congress would have the opportunity to disapprove the proposed reduction. A plan of tax reduction would, in general, take effect 31 days after submission by the President, but only if in the course of this period Congress does not disapprove the plan by concurrent resolution. Since the proposed legislation calls for prompt action to achieve its objectives, however, the provisions of the bill permit submission of plans of tax reduction when Congress is adjourned sine die. If such a plan is submitted when Congress is adjourned sine die, it would take effect in accordance with its terms, but the period during which the tax rate reduction is in effect would terminate not later than the 31st calendar day following the date on which Congress convenes, unless it were continued under the terms of a new plan submitted by the President on that date. The President would be authorized to request one extension of a period of tax reduction; only specific action by Congress could continue uninterrupted temporary tax reduction beyond a maximum of one year. Thus the proposed legislation combines assurance of Congressional control with provision for the flexibility of action needed to achieve the objectives of maximum employment and output, economic stability, and growth.

Sincerely,

JOHN F. KENNEDY