While we generally remember the 1950s as a time of economic good health — as indeed it was, compared to what we have become used to since 1971 — it was actually rather mediocre compared to the astonishing performance of the German or Japanese economies of the time, or the U.S. expansion of the late 1960s. Faced with four debilitating recessions in eleven years, Kennedy focused on creating 5% real GDP growth in his 1960 election campaign.
But how? Following the advice of Paul Samuelson, he assembled the leading lights of academia, who told him that he needed easy money and spending projects to take care of the unemployment (the solution John Maynard Keynes had recommended in 1936) and high taxes to prevent inflation. His Treasury Secretary Douglas Dillon, however, was a wealthy Wall Street businessman wise to the workings of the real economy, and also a Republican. Dillon supported the extensive research of the little-known Stanley Surrey, a member of the faculty of the Harvard Law School — not, it should be noted, an “economist,” although he was later called “the greatest tax scholar of his generation,” with twenty books to his credit.
Surrey argued that the 91% top income tax rate of the time was a “phantom rate” that nobody paid: as inevitably happens wherever high nominal rates are found, lobbyists had been hired to punch extensive loopholes in the tax code. Lower rates, he argued, would change incentives and produce more growth. Kennedy actually experimented with the advice of his academics, before disregarding them for the path shown by Dillon and Surrey. The result was a tax reform that lowered the top rate to 70% and all other rates proportionally; and the best economic boom of the 1950s and 1960s.
The first Reagan tax reform of 1982 was basically an exact copy of Kennedy’s 1964 tax cut. This was deliberate, to help raise the needed support in the Democrat-controlled Congress.