Letter to the Chairman, House Ways and Means Committee, on Tax Reduction.

Dear Wilbur:

I want to express my appreciation to you and all other members of the House Ways and Means Committee for your long and constructive labors in formulating a new tax bill. The two-step tax reduction and revision program voted by your Committee will provide much needed jobs for our economy, increase our rate of economic growth, promote balance in our international payments and benefit the individual and corporate taxpayer. It is most important now that the bill be enacted this year as rapidly as possible, so that businessmen whose investment and expansion plans are keyed to this program can be certain that both steps will become fully effective by January 1, 1965.

I also want to take this opportunity to restate my intentions concerning the relationship of the tax program to the Federal Budget.

First, our long-range goal remains a balanced budget in a balanced full-employment economy. It is clear that this goal cannot be achieved without a substantial tax reduction and the greater national income it will produce.

Second, tax reduction must also, therefore, be accompanied by the exercise of an even tighter rein on Federal expenditures, limiting outlays to only those expenditures which meet strict criteria of national need.

Third, consistent with these policies, as the tax cut becomes fully effective and the economy climbs toward full employment, a substantial part of the increased tax revenues will be applied toward a reduction in the transitional deficits which accompany the initial cut in tax rates.

Fourth, assuming enactment of the tax program incorporated in your Committee's bill with a consequent loss of revenue of $5 billion more in fiscal 1965 than in fiscal 1964, I nevertheless expect--in strict accordance with the above policies, and in the absence of any unforeseen slowdown in the economy or any serious international contingency in the next five months--to be able to submit next January a budget for fiscal 1965 involving an estimated deficit of less than the $9.2 billion forecast for fiscal 1964 by the Secretary of the Treasury in your Executive Sessions last week; and

Fifth, and finally, any increase in the Federal debt resulting from these transitional budget deficits will be kept proportionately lower than the increase in our gross national product, and thus the real burden of the Federal debt will be steadily reduced.

Meanwhile, we are continuing our increased efforts to improve governmental efficiency, promote economy and prune expenditures. Civilian employment increases are being held below the increases in workload and numbers served, and compare favorably with the employment increases of state and local government. Civilian expenditures for fiscal 1963 were reduced nearly $2 billion below the estimates made in January of this year. Civilian agency requests for new obligational authority in the fiscal 1964 budget were reduced by some $6 billions in the executive budgetary process; and I have recommended further cuts in that budget since its submission to the Congress. The notable progress made by the Department of Defense in reducing costs and eliminating waste is typical of the government-wide effort to improve the efficiency and effectiveness of our operations.

Let me stress once again that the surest way to alter the pattern of deficits which has characterized seven of the last ten years is to enact at this session an effective tax reduction program. That program can both increase our national income and tax revenues and at the same time create a climate for the more prudent control of expenditures in the Government as a whole.

In the light of these stated policies and considerations, I see no reason for placing any conditions or contingencies on the effectiveness of the second phase of the tax reduction program. On the other hand, any delay or contingent feature would substantially reduce the effectiveness of the legislation in stimulating the economy, reducing unemployment and increasing incentives. This in turn could lead to decreases in revenues below expectations and greater deficits than those now projected.

I hope that you will find as strong bipartisan support for this tax reduction program on the House floor as you did in the Ways and Means Committee. Its enactment is urgently needed this year.

Sincerely,

JOHN F. KENNEDY

[Honorable Wilbur D. Mills, Chairman, Ways and Means Committee, House of Representatives, Washington, D.C.]