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Letter to the Chairman, House Committee on Ways and Means, Urging Prompt Action on Pending Tax Proposals.

January 19, 1966

Dear Mr. Chairman:

In my State of the Union Message, I recommended a number of tax changes to help pay for the increased costs associated with the war in Vietnam. I deeply appreciate your swift action in beginning hearings on those measures just one week later.

When I began preparing my budget several weeks ago, Departments and Agencies of this Government initially requested more than $130 billion for fiscal year 1967. I established three principles in my review of those requests:

--Hold all expenditures to a minimum consistent with our defense commitments and other essential programs.

--Eliminate all unnecessary and obsolete activities.

--Conduct essential activities at the lowest possible cost.

As a result, apart from the special cost of Vietnam, I reduced budget expenditures to a level only $600 million above fiscal year 1966.

My proposed expenditures for fiscal year 1967 are $112.8 billion. More than half-$58.3 billion--will be for defense purposes.

Our present estimates for Vietnam will add $10.5 billion to the amount originally estimated for this purpose last January-- $4.7 billion to fiscal year 1966 and $5.8 billion to fiscal year 1967.

These expenditures come at a time of unparalleled prosperity.

We have virtually reached our long sought initial goal of 4 percent unemployment. And unemployment will be reduced below 4 percent during the coming year.

In the past five years, consumer income after taxes is up $129 billion; corporate profits have risen an unprecedented 67 percent.

Your Administration's fiscal policy has been the main stimulus for this 59 months of unparalleled prosperity. A further stimulus to keep the economy on its rising path is no longer necessary. The basic economic policy that justified tax cuts in recent years must be set aside until the uncertain but increasingly high demands of hostilities in Vietnam are no longer with us.

The monies that will flow into the Federal Treasury under present tax laws will not be sufficient to maintain the right fiscal balance during the coming year. Without any changes in the tax laws, budget receipts will rise sharply in response to the sustained economic expansion. But they still would be too low to maintain our economic growth and prosperity without running the risk of inflation.

Under these circumstances, I was faced with three choices:

--A deficit in excess of $6.5 billion, which would require the Government to borrow the additional money.

--An increase in corporate and personal income tax rates, or other new taxes.

--Temporary restoration of certain excise taxes, and adoption of graduated withholding of individual income taxes and current payment of corporate income taxes--to put the American people on a pay-as-you-go basis without increasing the total tax bill due.

Over the past several weeks I discussed these alternatives and countless variations of them with my advisers. I made two decisions.

First, we could raise revenue or borrow it. I chose to raise the money.

Second, I chose to raise that money without any increases in personal and corporate income tax liabilities, but through changes that affect only the timing of tax payments and the temporary restoration of certain excise taxes on telephones and automobiles.

I realize that two of these measures--the graduated withholding proposal and accelerated corporate income tax payments--are measures that will provide increased revenues for the Government on a one-time basis only. But this is precisely why I recommended them.

I believe these measures are preferable to increasing personal or corporate income tax rates or other tax measures, which are not clearly required at this time. For my advisers and I cannot predict how long the Vietnam conflict will last and what the financial needs of your Government will be for Vietnam beyond the next year.

If our needs in Vietnam require additional revenues, I will not hesitate to request them. On the other hand, if our efforts for a peaceful resolution of the Vietnam situation are successful--and those efforts will continue day and night--then your Government's need for revenues will be sharply reduced, thus permitting downward tax revisions as we had following Korea.

These tax changes will:

--Balance the cash budget.

--Reduce the deficit in the Administrative budget to the lowest level in seven years.

--Help to maintain economic growth without the risks of inflation.

I believe that the changes are moderate, equitable, responsible and essential. I hope that your Committee and the Congress will act promptly, if at all possible, so they can reach my desk for signature before March 15 in order that all our taxpayers will have adequate notice and we can thus secure full compliance.



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

Note: Legislation to carry out the President's tax proposals was enacted by the Tax Adjustment Act of 1966, approved March 15, 1966 (see Item 132),

Lyndon B. Johnson, Letter to the Chairman, House Committee on Ways and Means, Urging Prompt Action on Pending Tax Proposals. Online by Gerhard Peters and John T. Woolley, The American Presidency Project

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