John F. Kennedy
Q & A Following Address at the Economic Club of New York
delivered 14 December 1962, Waldorf Astoria Hotel, New York
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Question: There has been much talk in Washington and elsewhere of reductions in personal income tax rates to 15 percent for the lowest brackets, and 65 for the highest brackets, in personal income taxes, and for a reduction in corporate rates to 47 percent. What many of these questioners would like to know is, are those figures generally in the ball park?
President Kennedy: This legislation is going to have very difficult traveling at best, and I would suggest giving it at least the most favorable start we can, as I said in my speech, by permitting Mr. Dillon to present this before the Ways and Means Committee in January. So that I would suggest that the details of the tax reduction should wait upon presentation to the Ways and Means Committee. There might be something for everybody, though.
Question: Mr. President, my first question is: One of the great achievements of your legislative program this year was the passage of the Trade Expansion Act -- would you care to comment on your program in that area of the economy?
President Kennedy: We have, as you know, appointed former Secretary of State Herter to be our chief negotiator. He is assisted by Mr. Gossett, who was Vice President of the Ford Company. They will begin the discussions with the Common Market early in 1963. There are fourteen or fifteen hundred items. It will probably take well into 1963 -- I would say towards the end of '63 -- before both sides have prepared their positions. We are going to have an extremely difficult negotiation, particularly in agriculture. The United States has had a favorable market for its agricultural surpluses to Europe -- or its agricultural products; it has been our best dollar earner, it has really meant that our balance of payments has not been in more difficult position than it has been. Now, with the Common Market, with the prospect of Britain's joining, with the tremendous revolution in agricultural production which is about to hit Europe-France in particular -- the levies and the rates and the penalties which are placed on the introduction of agricultural commodities into Europe in the coming 3 or 4 months may be of decisive importance to us in our battle on the balance of payments, and also in our struggle to bring some sense out of the problems we face in American agriculture.
So I would say that Secretary Herter has really a responsibility comparable to what he had as Secretary of State, and one which ties into our security, because quite obviously unless we're able to meet our balance of payments in time, then we are going to have to find other means of solving it. As you know, it costs us about $3 billion a year because of national security expenditures. So that this goes to the heart of our ability to keep more than one million Americans in uniform who now are serving the United States outside the borders of the United States.
So that I think this is a very vital issue, and that is why I was particularly pleased that Mr. Herter accepted it. I'm glad to see in this New York Port Authority, the trade center that they are building, the effort that businesses are making to sell abroad. We still sell abroad much too little. As a percentage of our gross national product the United States sells abroad less than really almost any major industrialized country. We have never had before us the prospect of "export or die," and I think that if all those who are in positions of responsibility will think not only of the markets which may be abroad for investment, but also going up and down the streets and selling American products, they can make a decisive contribution to the maintenance of our balance of payments, and also serve the country and the free economy system.
So the next few months I think will be very decisive and the burdens of Mr. Herter will be very great.
Question: Mr. President, in view of the prospect for a deficit in any event, and a fairly large one if taxes are reduced, is it part of the Administration's plan to finance a major part of that deficit outside the banking system in order to reduce the threat of monetary inflation?
President Kennedy: That will be a judgment which is primarily that of Mr. Martin and the Federal Reserve. He has commented on that to a degree before the Joint Committee this year. He is concerned about the prospect of inflation, because of course it affects us adversely, and also because it affects the balance of payments. I would hope, however, and I'm sure that he will agree, that he will -- any deficit which has to be financed will be financed in a way which will be the maximum degree possible to stimulate the economy without increasing the prospect of another inflationary or speculative spiral. So it is a fine adjustment which Mr. Martin will make, but I'm sure that he will be as concerned as all of us are to get the benefit such as it may be out of the deficit, and also at the same time keep and use our monetary tools wisely enough to keep matters in control. His judgment will be, because of the Federal Reserve law, of course final.
Question: Mr. President, the strong attitude you took towards Khrushchev during the Cuban crisis has not only been applauded, but has improved the standing of our country throughout the free world. Don't you feel we would gain more respect and further improve our status by really implementing the Hickenlooper Amendment on American properties which are seized largely without compensation overseas, rather than just giving lip service?
President Kennedy: Well, I'm not sure I'd accept the premise of the question. The Hickenlooper Amendment is very clearly and sharply drawn. We are appointing a distinguished businessmen's committee to advise us on implementing the Hickenlooper Amendment. It's not altogether an easy job. We've got one controversy now in Turkey, which involves a default by a previous government which was overthrown, a number of the ministers executed, which was regarded as highly corrupt. The present government is reluctant to accept its obligations. We have the problem in Brazil where you have the seizure of some American property by local governors -- a local governor -- and we have looked to the National Government for relief.1 The Hickenlooper Amendment does not go wholly into effect for some months under its terms, but I can inform you that its provisions are being read to the finance minister of every state.
Question: Mr. President, this question cropped up in many forms. Here's one form of it: Are current tax plans giving any consideration to increased emphasis on consumption taxes by way of a broad base Federal excise tax in order to relieve some of the tax pressure on income from investment sources?
President Kennedy: Once again I'll pass.
Question: I should have chosen one of the other versions.
President Kennedy: When I was a Congressman I never realized how important Congress was, but now I do.
Question: I think I can paraphrase it by saying are you thinking about the possibility later on, perhaps, of using consumption or sales taxes in the tax packages that you're considering?
President Kennedy: No, I suppose I -- I assume what they mean is whether we are thinking of going the route which has been followed in France and some other countries of putting manufacturers' tax, and lessening the burden on income. I think on these details of the tax program that in your interest as well as mine we should wait.
Question: Mr. President, what progress has been made by our Latin American neighbors to effect tax reforms and economic reforms, so that they begin to carry their own weight under the Alliance for Progress?
President Kennedy: Well, we have made some progress in some countries. I made a reference the other day at the press conference that some efforts have been made certainly to meet the principles of the Alliance for Progress in Colombia. The President of Chile, who has been visiting us this week, is putting in a new tax program, some of which is causing some concern to American companies which have investments there, but I would say that we have made some progress in some countries. But tax reform is very difficult. It's a very appealing title. But as we know from the struggle which we had in the Congress this year, in our efforts to pass the 7-percent investment credit, and at the same time to collect taxes more effectively through withholding on dividends and interest, a tax which has been on the books for 20 years, tax reform, when we become more specific, does not carry with it the same popular support. They have the same difficulty.
I think that the situation in Latin America is very critical. I would say it represents the greatest challenge which the United States now faces, except for the direct matter of our dealings with the Soviet Union. And in some of the countries the situation is far less satisfactory -- the problems are staggering. And Brazil, which is a matter of great concern to us, is the largest country in Latin America, has a population 40 percent of which is under 20, substantially illiterate in some portions, particularly the northeast, living on an average income of $100 a year, some radicals in control in some areas, so I would say we face extremely serious problems in implementing the principles of the Alliance for Progress.
We do it with a good deal less resources than we did with the Marshall Plan. And in many ways the Marshall Plan was easier. We really only had to rebuild the plants in Europe. The manpower was there, the tradition was there, the resources were there. Latin America does not have the resources. It is dependent on two or three or four commodities for export, the prices of which have been dropping the last 3 years. It doesn't have the trained manpower or skills. It's trying to accomplish a social revolution under freedom under the greatest obstacles. So I think that we should continue our effort there and not lose heart, but I would say that we face -- and Latin Americans face-staggering problems in trying to solve it. We had the guest from Honduras whose population is 60 percent illiterate. We go through country after country in Central America, the same high illiteracy, high unemployment, bad health conditions. I would say that we are facing the job of doing this revolution under freedom, and it's probably the most difficult assignment the United States has ever taken on.
In addition, because of the atmosphere in some of the countries of Latin America, there has been a flight of capital out of there. The amount of assistance which we put in under the Alliance for Progress amounts to about $550 million a year. We have been losing capital out of Latin America either to Europe or because some of our companies don't feel like reinvesting because of the social conditions -- we have been losing capital at a faster rate than that out of Latin America, and with a drop in commodity prices in many ways their balance of payments is worse than it was 2 years ago. This is not the fault of the Alliance for Progress. It's the fault of the very desperate situation which these countries face: 180 million people with a chance that their population will be 600 million by the year 2000, with no particular expectation that their raw materials will dramatically increase. So I think that this deserves the attention and hard work and sympathy of us all, and not walk away because the problems are unsolved.
Question: Mr. President, many of the questions submitted dealt with monetary policies, and the central theme seemed to be whether it will be possible and desirable to use a little easy money stimulation as well as tax reduction. And to quote from one of the shorter questions, "Why not ease up on money?"
President Kennedy: Well, I think there is a good supply of credit. I think the Federal Reserve Board has attempted to keep credit as free as it could, and the supply of money has been increased with the growth of the economy. I think it would be very difficult to keep it easier than it now is, without having the short term funds pour out at a higher rate than they are. After all, we have seen when Canada put its interest rates up, I think as high as 7 percent, though it has dropped them now, it affected the flow of capital here. In October, we had several cases of major investments using our markets because of our interest rates. The fact of the matter is that I'm not sure that we would get much stimulation out of the economy, but I don't see how we could possibly afford easier money than we now have, and still not have a hemorrhage at our balance of payments.
I think we have a major problem to balance off the use of monetary policy here at home and affecting our balance of payments abroad, and also that is one of the good arguments, and as a matter of fact I think that we can make the case which I think has almost unanimously been made in Europe, that the United States monetary policy in some ways is too loose, while our fiscal policy is too tight.2 And it is for that reason that the International Banks in Europe and others have suggested that the reverse would be more appropriate. I think we should attempt to keep monetary policy about where it is, try to liberalize fiscal policy, for the reasons that I've given tonight, but I don't see how we could possibly go any further in the direction of easier credit, while we have a balance of payments which is against us by over two and a half billion dollars a year.
Question: Mr. President, there are a number of questions about Cuba. This is a brief one. Is there a firm policy on getting the Russian manpower out of Cuba?
President Kennedy: Mr. Khrushchev in his agreement only committed himself to the withdrawal of the missiles and the bombers, and the manpower which was connected with the maintenance of those forces. That would amount to several thousand. In addition, he stated that he would, though he did not put a time limit on this, he would be withdrawing other elements. But that guarantee is not as precise and that commitment has not been implemented, nor was it as hard as his others, which he has kept. So this must be a matter of continuing concern, and is the reason why we are maintaining observation and verification by our own means daily, and why we will continue to do so. And while the matter of Cuba, therefore, still remains unsettled, as long as it's a Soviet military base, it of course represents a threat to peace in the Caribbean. On the other hand, it does not represent an offensive threat under present conditions, nor will it be, of course, permitted to do so.
Question: Mr. President, we received many questions which reflected some fear that if your tax message were to call for many of the tax reforms discussed from time to time by some of your advisers, the effect might offset the favorable impact of a tax reduction itself. The specific question that we decided to select here was this: "Why not have a moratorium on reform until we get back to full employment?"
President Kennedy: Well, the purpose of reform really is directed to the encouraging of growth and employment. I quite agree that to launch into a full scale battle on general reform for academic reasons would be unwise. The central purpose behind the reform must therefore be to encourage those changes in our tax laws which will encourage economic growth for that purpose, and not merely because it might have some longer range interest or significance. The primary job will be to encourage the flow of capital into those areas which stimulate the national growth and not diminish it. But it is going to be a tough fight, because once you spell out, as I said before, reform, it's bound to affect adversely the interests of some, while favoring the interests of others. Therefore reform may be a longer task, and we are anxious that in the effort to get reform, that we do not lose the very important matter of tax reduction for the sake of the economy.
I know that I am not satisfying you, and I know this is going to be the major matter before the Congress, this matter of affording a tax cut at a time when we have a deficit. But I do point out that the largest peacetime deficit, which was the '58 deficit of $12.5 billion, came at a time when President Eisenhower believed that he had presented a balanced budget, and the reason of course was the recession of '58. The biggest deficit comes historically -- and it has been proved, in 1958, 1960 -- because of a recession. That is what would really knock our budget out of shape. So that as I tried to say in my speech, we are not faced with the question of balancing our budget, or having a tax reduction. I believe we are faced with the fact that we are going to have a deficit mostly because of the sharp rise in the recent years in space and defense, and to increase our taxes sufficient to bring that budget into balance would be defeating, because of course it would provide a heavy deflationary effect on our economy, and move us into a recession at an accelerated rate. So I hope that you gentlemen will realize that we are not talking about irresponsibly increasing the deficit. We have a deficit which is already on the books. What I am concerned about is the kind of deficit we would have if we had a recession, and while the prospects for a recession are not certainly imminent before us, we do have to look at our historical record and realize that any society such as ours, particularly with the tax structure such as ours, must face that prospect at some time. So that we have to decide which kind of a deficit do we want, and for what reason, and which in the longer run offers us the better prospect of bringing our books into balance.
In addition, we are hopeful, as the Minuteman begins to come into our defenses, that we will be able to bring our defense expenditures to a level, unless we have a severe international emergency, which in a period of the not-to-distant future will cap off our defense expenditures. The Minuteman will be coming in great quantities. A large portion of our increases in defense in the next budget are due, one, to the pay increase for the military, and they have not had one since 1958, and they are far behind civilian and the other civilian employees of the Government, and for new weapons, of equipping the new divisions which we've built up, the conventional forces, and bringing into our arsenal the Minuteman. And when we have the Minuteman in quantity, Secretary McNamara believes it will be possible to peak off, and not have this steadily rising expenditure in defense.
I want to point out that we have increased in conventional forces in the last 2 years the number of our divisions from 11 to 16, and we are also providing equipment for 22 divisions in case it were necessary to mobilize our Guard. We have six divisions in Europe, and we have the equipment for two more. Now, I think the Cuban incident indicated the importance of a strong conventional force. The greatest factor on our side was the fact that we had superior conventional strength on the scene, and it would have been necessary to equalize that strength for the Soviets to initiate the use of nuclear weapons, which of course they were quite reluctant to do.
Now, in other areas we do not have a satisfactory conventional position. General Clay is more familiar with this than any man, and this is true in Western Europe. The United States is doing its part, but other countries of NATO have not met their quotas. Up until 2 or 3 years ago, the United States had its six divisions in Western Europe, its two divisions in South Korea, and its three divisions in the airborne Reserve here in the United States, and that's all. Now we have increased by five divisions, and therefore with the obligations that we bear all the way from South Korea through South Viet-Nam to Berlin, as well as our obligations in this hemisphere, I think it was only prudent to increase our conventional as well as our nuclear force. That and our commitment to space have been the big burdens in our budget. Space will continue to rise, but not excessively. Defense we hope to cap off, and that's why I believe that we are not getting in a position where we will be out of control, providing we can maintain a steady rise in our economic growth.
Question: Mr. President, why shouldn't the United States emphasize foreign aid by means of technical and material assistance from the United States private firms, backed by United States credit guarantees, rather than the prevalent government-to-government gifts which rarely help American exports? For instance, a large part of the industrial equipment being installed in India and in South America is coming from Europe on long-term credit, rather than from U.S. plants, in spite of our aid to these countries.
President Kennedy: It is a fact that the United States has given economic assistance, particularly to India, at low rates of interest and with years of grace, while the other members of the consortium have given their assistance on rather short terms and high rates of interest. The fact of the matter is that the United States has carried an excessive burden in foreign assistance, in relation to Western Europe, but not in relation to need. Now, we spend about $1 .7 billion to $1.8 billion in foreign assistance which goes of course to the Pentagon to buy surplus equipment, so therefore it's an addition to our own available funds. Then we have another $2 billion which we give in the form of loans, some of which are reasonably hard, and some of which are soft, but we are emphasizing loans. Now, for that $2 billion, we sustain South Korea, which has 40 percent unemployed; it's been the country which has been the major beneficiary. There is not any doubt that it would go under immediately if the United States ceased its economic assistance. Fifty thousand Americans were killed to protect South Korea. We carry the load, not so much, but still some, on Nationalist China, and we carry a very heavy load in Viet-Nam. Viet-Nam would collapse instantaneously if it were not for United States assistance. We carry a heavy load in Thailand, India, Pakistan, Iran, Turkey, and Greece. We also carry some burden in Africa, about $250 million. I had the President of Somalia to visit me 2 weeks ago -- the average income for Somalia per capita is $45 a year.
When we see how difficult it is to get the Communists out once they get in, when we see the trouble that Cuba has caused, when we see that there is not one Communist regime yet in control in Africa, or indeed in Asia, other than those in North Viet-Nam, North Korea, and China, it seems to me that for this $a billion, that considering that we put $51 or $52 billion into our defense, we are going to put nearly $5 billion into space, $5.5 billion into veterans, 19.5 billion in interest in our debt, $7 billion into agriculture, about $4 billion into public assistance -- it seems to me that for that $2 billion,. which covers the Alliance for Progress, assistance to India, which has 40 percent of all the underdeveloped people of the world, I think that we should embark with some care on any effort to cut it out.
Now, what we are trying to do is cut the dollar loss, which is the real burden; and we are cutting it this year from $1.3 billion, which was the dollar loss in foreign aid, to $800 million. We have increased the support for the Export-Import Bank. We are trying to tie all of our assistance to American purchases, and we hope to have it 80 percent tied, even though it does cost us some more doing it. But if you are going to build a school or a hospital, some local assistance is needed, and most of these countries are bankrupt-Colombia and Brazil and the others. So I would like to cut out foreign aid. It's very unpopular. It is a hard fight each year. President Eisenhower had the same struggle, and so did President Truman.
General Clay, as you know, is heading a committee3 with Mr. Lovett, Eugene Black, Mr. McCollum, and others, to look into this program. But I must say I am reminded of Mr. Robert Frost's motto about not taking down a fence until you know why it is put up, and this is a method by which the United States maintains a position of influence and control around the world, and sustains a good many countries which would definitely collapse or pass into the Communist bloc. Now, India, as I said, has 500 million people. We have been digging our way out of the loss of China for the last 12 years, and my successor in office may have to deal with the problem of a China which is carrying out an expansionary policy with nuclear weapons and missiles. But for India to go, it would seem to me that the whole balance of power in the world would change. So I think that talking about $2 billion -- what really concerns me is that Western Europe does not do its part on aid, considering the great increase in its own balance of payments position. And I do believe also that the United States should tie as much as possible. But I certainly would be reluctant to see this program abandoned, because really I put it right up at the top of the essential programs in protecting the security of the United States, not for any reasons of long-range good it may do, though it does do that, but if somebody said -- and I know President Eisenhower feels the same way, because for 2 years he's played an important role in getting that program by -- if somebody said which programs of the United States Government really contribute to the maintenance of our position around the world, I would have to put this up near the top. But General Clay can make his judgment, and I think whatever judgment he makes can give this program a very important imprimatur.
Question: Mr. President, I simply ran out of questions. All I'd like to say to you is congratulations on your answers, and thank you, Mr. President.
President Kennedy: Thank you very much.
1 "On February 16 Governor Leonel Brizzola [sic] ordered the expropriation of the Companhia Telefonica Nacional, a subsidiary of the American firm International Telephone and Telegraph. The Brazilian Government compensated the company in the amount of $140,000. ITT valued CTN's assets at between $6 and $8 million." [Source: Memorandum of Conversation , 19 February 1962 at http://2001-2009.state.gov/r/pa/ho/frus/kennedyjf/xii/35154.htm] See detailed entry in Ruth Leacock's Requiem for Revolution
3 The Committee to Strengthen the Security of the Free World. The committee's effective dates of operation were February 1st to March 10th of 1963. Members included General Lucius Clay (Chair), Robert A. Lovett, George Meany, Edward S. Mason, Eugene Black, Robert B. Anderson, L. F. McCollum, Herman Phleger, and Clifford Harden.
Also in this database: John F. Kennedy Speech to the Economic Club of New York
Audio and Image Source: John F. Kennedy Presidential Library
Original Text Source: The American Presidency Project
U.S. Copyright Status: Text = Uncertain. Audio and Image = Public domain.