Mr. Ford, Secretary Dillon, Mr. Fowler, Mr. Saunders, Mr. Wilde, Mr. Baker, my old Chaplain, ladies and gentlemen:
I want to welcome you to Washington, and express my appreciation to you for making this journey for this particular purpose. I admire your concern for the Nation's business as well as for your own. The bill you are here to support is the most important domestic economic measure to come before the Congress in the past 15 years, and I believe that its passage is essential to the health and growth of our economy in this decade. Its benefits are not limited to any one segment of our society. If it is defeated, diluted, or unduly delayed, the adverse consequences would be felt by every American family and business in this country. It is not a partisan measure, and this is not a partisan gathering. It is a bill which, if it is to be fully effective, must be passed this year without restrictive amendments, and I believe with your help that this can be done.
There is no need before this audience to describe in detail the tax reduction features that you well know. The essential figures to bear in mind are these:
The bill provides for a total net tax reduction of $11 billion dollars a year, of which $8.7 billion would go to individuals, and $2.3 billion to corporations. This is in addition to the $2 1/4 billion reduction in corporate tax liabilities brought about last year through depreciation reform and the investment tax credit. These proposed reductions would be effective in two stages. Two-thirds of the individual reduction or $5.6 billion and more than one-half of the corporate reduction or $1.4 billion, or a total of $7 billion, would go into effect on January 1, 1964, less than 4 months from today. The balance would be effective a year later.
There is also no need to convince this group of the importance of this bill to our economy. Your presence here, the leadership provided by the Business Committee for Tax Reduction, and the Statement of Principles adopted by its members, bear witness to your conviction that our present high tax rate hobbles the economy, and that a prompt, substantial, and broadly based cut in individual and corporate tax rates is necessary to give the private sector of our economy the extra strength that our present tax structure now drains away.
Even after 21/2 years of steady advance, manufacturing in this country today is still operating at only 87 percent of capacity, business fixed investment is still below 10 percent of our total output, and unemployment for the 70th straight month is still above 5 percent. You know as well as I what this has done to your market for goods and services. You know as well as I that this Nation must create new jobs by one means or another, jobs for workers replaced by automation, jobs for those displaced from the farms, jobs for young people leaving our schools, jobs to ease the problem of race relations and youth delinquency, and labor unrest, and even those who drive now for the 35-hour week. And this bill reflects a conscious decision to give a major responsibility and opportunity to American business to meet those needs through private means.
This bill is only a part, but an essential part, of an overall economic program. We are simultaneously taking steps designed ultimately to balance our international payments and our budget, and, above all, to balance our economy at levels of full employment and production.
Tax reduction is essential to the achievement of all of these goals. By increasing our productivity and our competitive ability, and by increasing the attractiveness of investing at home instead of abroad, it will help us improve our balance of payments. By expanding consumption and investment it will help us create more jobs. By removing a restrictive brake on national growth and income, it will work against the recurrent forces of recession. And by reducing the costly drain of unemployment and recession, while expanding our national income and tax revenues, it will, combined with an ever stricter control of expenditures, reduce and eventually end the pattern of chronic budgetary deficits.
Despite all of these advantages, despite the fact that our economy today is advancing partly in anticipation of a substantial tax cut, there are those who, for reasons of their own, oppose this bill, and their opposition warrants our attention. If they are unable to defeat the bill openly, or to find enough Members of the Congress willing to oppose it directly, their strategy apparently will be twofold: first, to delay the bill's passage until sometime next year; and, second, to amend it in such a way as to prevent it from becoming fully effective in the absence of some other fiscal event, such as a reduction in next June's estimated net debt. Either one of these moves would seriously undermine the gains already made, as well as those we hope to make. Either one of these moves would dilute if not imperil the benefits this bill offers the Nation.
The disadvantages of delay are apparent. I have said since last December that this was the year for tax reduction. Inflationary pressures are in check. No major military crisis strains our resources. Our most pressing economic problems are under-investment, unemployment, and our balance of payments deficit. The sooner this bill is enacted, the sooner it will begin stimulating investment, enlarging employment, and improving our balance of payments.
This bill, moreover, is insurance, recession insurance, and the prudent man does not tempt fate unnecessarily by delaying his acquisition of insurance. Excluding war years, this Nation has had a recession on the average every 42 months since the Second World War, or every 44 months since the end of World War I. By January it will have been 44 months since the last recession began. I do not say that a recession next year is either inevitable, without a tax cut, or impossible with one. But I do know that the prompt enactment of this bill, making certain both immediate and prospective tax reduction, will improve business conditions, increase consumer and investment incentives, and make the most of the antirecession thrust that this tax cut can provide.
To wait until next year, even though the effective date of January 1st could be retained on a retroactive basis, would be to court uncertainty, inadequacy, and perhaps total failure, for at the beginning of each year, even in a second session, the mills of the Congress grind slowly. And I do point out again that a conservative British Government, facing a more serious domestic deficit than we now face, facing a more serious international balance of payments problem than we now face, came forward with a larger tax cut based on their national wealth and their per capita or population than we are now proposing, and passed it in the month of April, a few weeks after it was first put forward. And we have been talking about this matter now for more than 9 months. Next year there may be new pressures, to hold off until some new crisis has passed, or some new economic trend is made clear, or some other political event is behind us.
For those who are opposed to this bill, the time will never be right. "Delay," said the ancient Romans, "is always fatal to those who are prepared." And this Nation is prepared now for a substantial cut in taxes. The time to enact this bill is now, for the opportunity may not come again.
The second strategy of those opposed to this bill is to make it dependent by law on other fiscal developments. For example, in the form offered in the committee earlier, and now put in a more intensive form this morning, it is to deny both individual and corporate taxpayers the $4 billion worth of second-stage tax cuts unless the net public debt on next June 30th is $304 billion or less. To some this may sound harmless inasmuch as this figure is only slightly less than that resulting from Treasury Secretary Dillon's own rough estimate of the current budget deficits. And I emphasize that there have been new proposals put forward which would lower this figure. This amendment was rejected the other day in the House Ways and Means Committee, and should be rejected if offered again on the House floor for four fundamental reasons:
(1) The tax bill is needed on its own merits and should not be conditioned by other events;
(2) Should lagging Federal revenues next summer make fulfillment of this condition impossible, that would be a clear sign to proceed with and not prevent the second stage of tax reduction. If our revenues are up, of course, it will be possible to reach, unless there is some international crisis, Secretary Dillon's goal. But if our revenues should be down, because of an economic downturn, that would be the factor that would prevent the tax cut at the very time we might most seriously need it;
(3) Revenue, deficit, and debt estimates for the end of this fiscal year are necessarily uncertain at this time, depending as they do upon dozens of unpredictable contingencies to which this bill should not be tied;
(4) This amendment would be self-defeating, for taxpayers uncertain of receiving the full benefits of the bill would hold back on their investment and expansion outlays, thus retarding revenues and enlarging the debt.
If tax reduction is essential, the kind of tax reduction we are now talking about, that figure, if this is essential to the progress of our economy, and I think it is, then it is essential, whether Secretary Dillon's estimate turns out to be accurate to the dollar or not. The need for more private demand, for more funds in the hands of consumers and investors will exist in 1964 and '65 regardless of whether the net public debt on next January 30th is $304 billion or $306 billion or $302 billion. History teaches us that the public debt unexpectedly rises when public revenues fall unexpectedly short. And they have been consistently falling short, precisely because our tax rates which were originally designed to meet wartime and post-wartime conditions are now imposing a restrictive brake on national growth and income. Thus this amendment could deny the Nation a tax cut at the very time it needs it most, when revenues are falling short of expectations, because of a slowdown in the business economy.
Secretary Dillon's rough estimate moreover is exactly that, a rough estimate, made at a time when the Congress has not completed action on legislation and appropriations for the current year. To require, as this amendment requires, that 11 months later his estimate must prove wholly correct is wholly unrealistic. Actually, the Secretary forecast a deficit for this fiscal year of $9.2 billion, which would, on the basis of the existing public debt, mean a net debt on next January 30th of $304,200 million. This is an estimate, both of what the Congress will do and what the economy will do. If it were exactly correct, this Nation would lose a $4 billion economic boost because of a $200 million difference.
Yet $200 million is not even 1/10 of 1 percent of our national debt. It is not even one-half of the amount we are likely to collect on June 30th alone--and while I always expect great things of Mr. Dillon, I do not expect the impossible. In the last 11 years, revenue estimates made at this time of year have only three times, in fiscal 1960, '62, and '63, come within a billion dollars of the final actual figure. But at least on three of these occasions, '60, '62, and '63, it did. To allow the fate of a vitally needed tax reduction to be decided by the accuracy or the inaccuracy of a necessarily inexact prediction comes very dose to resting the national economic welfare on a game of chance.
Under these circumstances, how can any businessman or investor feel certain that there will be the second stage of the tax cut next June? How can he make even a reasonable guess as to how close this estimate will be, how much Federal revenue will be earned, how much the Congress will spend, whether the weather will bring in a bigger farm surplus, whether buyers will be found for Federal mortgages, or other assets, at reasonable prices, or whether some technological breakthrough or raw material price increase, or international crisis, will suddenly augment our outlays for national defense? The cost of last year's Cuban crisis alone, for example, was nearly $200 million.
A businessman attempting to formulate his spending plans in advance will regard that kind of second-stage tax cut promise as no promise at all. It will become a highly speculative matter, and concrete plans cannot be based on speculation. If we are going to do this job, we should do it and not attempt to hold back at this crucial moment. The businessman being less certain of his market and profits, therefore, will not undertake as much expansion now, and this will not only short-change the national economy, but increase the national debt. As former Treasury Secretaries Humphrey and Anderson pointed out during the last administration, the debt limit does not and cannot control expenditures, for they depend upon the appropriations voted by the Congress and not on any arbitrary ceiling.
This is not, let me make it clear, any argument over the desirability of expenditure control. This administration has pledged a tighter rein over expenditures, and we are fulfilling that pledge. Last January I submitted a budget for fiscal 1964 which, except for defense, space, and interest charges, which are unavoidable, on the national debt, was lower in expenditures than the prior year despite a steady growth in the Nation's economy and population. Such a reduction had been attempted only three times in the 12 preceding years, and to help achieve it we pared $6 billion from civilian agency budget requests. I have since recommended still further cuts to the Congress, and we now expect to conclude the fiscal year with a total well below that submitted last January.
This administration is not opposed to expenditure control. On the contrary, we take pride in the fact that our budget expenditures for civilian agencies in the fiscal year just ended were $1.7 billion below the January estimates. We take pride in the fact--and I think this is important--we take pride in the fact that our debt in terms of both dollars and percentage rose last year at a considerably slower pace than the indebtedness of our Nation's consumers, private business, and State and local governments. We take pride in the fact that we have reduced the ratio of our Federal civilian expenditures to national output and to the expenditures of State and local governments. We take pride in the fact that we have reduced the postal deficit. We have reduced the cost of surplus food grain storage. We have reduced waste, duplication, and obsolescence in the Pentagon. And we have achieved economies in every Government agency. And finally, we take pride in the fact that in each of the budgets I have submitted, expenditures other than those required for defense, space, and interest increased less than they did in the last three budgets of my predecessor.
In addition to our efforts to restrict expenditures to those most urgently needed, we have pursued an intensive campaign to identify those existing programs which could be effectively carried out in the private economy--for example, substituting private for public credit whenever feasible. In the last fiscal year, over $1 billion of financial assets in Federal portfolios were transferred to private holders. We have also sought to initiate or increase user charges to cover a more equitable share of the cost of services provided by the Federal Government, and to control Federal civilian employment as well as expenditures.
Last year, if Federal civilian employment had increased at the same rate as population growth, it would have increased by 42,000. It actually increased by only 5600 persons in the last 12 months, 1/8 the rate of the population growth. So that we ended the year with far fewer Federal employees per thousand population than we began. To illustrate the significance of this accomplishment, let me point out that during the same period, State and local government employment grew by 300,000. Moreover, this administration's pledges on expenditure and debt control, unlike the amendment under discussion, have not been limited merely to the past and present fiscal years.
In a recent letter to Chairman Mills of the House Ways and Means Committee, I repeated my pledge to achieve a balanced Federal budget in a balanced, full-employment economy, to exercise an even tighter rein on Federal expenditures, limiting outlays to those that meet strict criteria of national need--and consistent with these policies, as the tax cut becomes more fully effective, as the economy climbs towards full employment, to apply a substantial part of the increased tax revenues towards a reduction in our budgetary deficits.
Assuming enactment of the pending tax bill, I expect, in the absence of any unforeseen slowdown in the economy, or any serious international contingency, to be able to submit next January a budget for fiscal '65 envisioning an estimated deficit below that most recently forecast for fiscal '64. And 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, so that the real burden of the Federal debt will be steadily reduced.
We talk so much about the debt that we do not realize what has happened to the wealth of this country. You gentlemen are familiar with the statistic that the national debt was about 120 percent of our gross national product 15 years ago, and now it has dropped to 55 percent, so great has our wealth increased, and every year is dropping in proportion to the rise of our gross national product. Now, why this is so difficult for this country to understand when every country in Western Europe has understood it so clearly, and when the British Government, as I say, under a conservative administration, was subject to criticism only because it may not have done enough in April in the way of a tax reduction--I find it difficult to see why we should fight this battle out when we have 4 million people out of work, and when we realize that by one means or another we are going to have to put them back to work. And it is not merely a question of taking care of that supply of unemployed people, but all of the hundreds of thousands who are pouring out every day and week into the labor market who must also find work. They are going to find jobs of one kind or another. We are offering a means of doing it.
If this program isn't successful, then other means must be suggested. And it seems to me that those who are interested in the development of the private economy, those who are interested in a responsible growth of our economy, those who are interested in containing our balance of payments problem, those who are interested in preventing another recession should favor this bill this year.
The fact of the matter is, and you are also familiar with this, in 1958 it was expected when the budget was sent up that there would be a half billion dollars surplus, and yet we ended up that year, as you remember, with a $12.5 billion deficit. The reason was the '58 recession. Now, do we have to have another recession to prove this lesson to us and to learn it the hard way? This idea of attempting to prevent the passage of this bill, to stretch it out, to put an artificial debt limit, which, of course, restricts programs, particularly in the national sphere of security, as nearly every other program is tied in to legislation which will require the Federal Government to withhold, not pay its bills, and all the rest--the kind of thing that was done in the fall of 1957 because of an artificially low debt limit, which helped intensify the recession of '58--it would seem to me that we should learn our economic lessons well enough from the past to realize that what we are now talking about is most important if we are going to provide for a steadily increasing growth. A recession which would provide a deficit, which would provide high unemployment, which would demand more radical solutions, which would intensify our balance of payments problem, offers no solution to anyone. And so I think we ought to get this bill this year.
I can say, it seems to me, with a good deal of certainty, that without a quick and assured tax cut this country can look forward to more unemployment, to more lags in income, to larger budget deficits, and to more waste and weakness in economy, and that, in my opinion, is real fiscal irresponsibility. Without a tax cut, there is at present no prospect for reaching a balance, because every billion you cut Federal expenditures would depress the economy by that extent. If you realize that the 1958 recession only resulted in a drop of $20 billion, and the 1960 recession of only $5 billion, it shows how a relatively slight drop in our gross national product can produce substantial increases in unemployment, and a substantial increase in the budget deficit.
That is why I think the kind of tax cut we are talking about can have a real significance in the state of our economy over the next 2 or 3 years.
For all these reasons, the efforts of this organization and conference on behalf of the pending bill, I believe, are vital to the Nation's future. I do not assume that every businessman here agrees with every provision of the bill. But after 7 months of intensive committee study, a fundamentally sound and strong program has been produced. It must be voted up or down on the floor of the House this month. Every month it is delayed costs this Nation dearly in lost output, jobs, profits, and the increased danger of a downturn. I do not promise that passage of this bill will produce full employment on the following day or even the following year. But I do know that we will never get there unless we now start, and the time to start in the House of Representatives is this month.
I thank you for coming to Washington. I recognize that this is a matter on which there is a good deal of strong feeling, but I don't think that there is any matter which is more important to us domestically, which has a greater interrelationship with all of the other domestic issues which so disturb our times, as this bill. And, therefore, I hope that in the coming days it will be possible for us to mobilize increased support so that we can pass in its entirety the measure reported out by the House Ways and Means Committee.