Answer To Tax Cut President Quiz

Although the description may sound like a Republican President, it wasn’t in this case. Taxes remained high after World War II but the first substantial tax cut came from John F. Kennedy.

Kennedy recognized that the best way to grow the economy was to do what the Republicans did in the 1920’s – cut taxes. Interestingly enough, the Republicans opposed his tax cut. (How times have changed.)

Kennedy recognized that when you cut taxes as significantly as he did (30%), people have more money to spend. The extra money would be spent on a variety of goods creating demand. Demand pushes producers of goods to increase supply. To increase supply, a producer will expand his/her operation and hire more people. The higher employment rate means more spending, more demand, more expansion, higher profits, etc.  Higher business profits, more personal income and growth in the private business sector means more taxes collected by the federal government.

Higher taxes really tightens the money supply. Taxes take money out of the pockets of consumers. Consumers will react by spending less or go deeply in debt. This means certain producers may suffer a decline in demand for their products. To make ends meet if demand falls, a producer will cut employees. They will also cut back on materials ordered because they don’t need as much. The cycle continues to the point that the loss of profits, higher unemployment rate, reduced orders, etc. will result in less revenue for the government. Instead, the government now has to pay unemployment benefits, welfare checks, etc. In short, their expenditures go up and their revenue comes down.

This is a simplification but history demonstrates that higher taxes are not the solution to recessions or depressions. The stimulus for a troubled economy is not government spending but lowering taxes.

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About camden41

Retired public school administrator Retired history professor: Taught Western Civilization, American Civil War, United States History, Economic History, Ancient & Medieval Foundations, American History Since 1945
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