When I'm at my cottage in Canada, as I am now, I do a lot of reading. I just finished Robert Caro's new book, The Years of Lyndon Johnson: The Passage of Power. It's good, but for those with limited time (that's pretty much all of us, right?), I still recommend Caro's first two books in the series, The Path to Power (1982) and Means of Ascent (1990.) One of the stories in the book is about old Harry Byrd, a Democratic senator from Virginia and chairman of the Senate Finance Committee. He held up the 1963/64 Kennedy/Johnson tax cut bill until LBJ assured him that he would keep the federal budget for fiscal year 1965 (which went from July 1, 1964 to June 30, 1965) below $100 billion. LBJ got it lower than the 1964 budget in nominal terms, the first drop in many years. In those days, by the way, this number did not include trust fund spending, the biggest of which, of course, was Social Security.
Here's a little thumbnail Caro gives on Byrd's thinking on macroeconomic policy:
He "would have no truck with Keynesian theories," recalls Douglas Dillon, who as secretary of the Treasury dealt with the senator more frequently than any other member of the Kennedy Administration. Franklin Roosevelt had been all right for a while, Byrd was to say; the two governors [Byrd had been governor of Virginia in the 1920s and FDR, of course, had been governor of New York] had become personal friends; he had been an early supporter, the finance chairman, in fact, for FDR's first presidential campaign; "then this fellow Keynes got ahold of him." He liked to boast that "I am the only man left in the Senate who voted against the Wagner Act [which gave unions monopoly power] and the TVA [the Tennessee Valley Authority, the government agency that used eminent domain to take people off their land so that it could flood the valley and produce electric power.] When President Kennedy, arguing that tax cuts would stimulate the economy and that the concept of a balanced budget was an outdated and "misleading . . . mythology," called, in one of his typically eloquent speeches, for "new words, new phrases" in economic theory, Byrd had been moved to make a speech of his own--in the old words and phrases. The "illusions," he said, were the ideas that budgets did not have to be balanced, that debt was not evil. No one who witnessed his frustration and genuine indignation at government's indifference to the old verities could doubt their depth. Jabbing his finger at a sheet of statistics on his desk, one day in 1962, he said, "The civilian employment in government went up 35,000 in just the last month." The red face turned redder with anger. Again and again the finger jabbed the paper. "Just think of that--35,000 in the last month."
The tax cut bill, by the way, was the one that cut all marginal tax rates on personal income and cut the top rate from 91 percent to 70 percent. Although it was pitched by Walter Heller, Kennedy's and Johnson's chairman of the Council of Economic Advisers, as a Keynesian demand-side policy, it clearly had a huge supply-side, incentive-based component. I've never been persuaded that Heller saw the 1963/64 tax cut as totally demand-side. He was a strong Keynesian, to be sure, but if you look at what he said about the cut in marginal tax rates in Germany after Hitler (see my "German Economic Miracle" in The Concise Encyclopedia of Economics), you wonder.
In the summer of 1980, I had a nice phone conversation with Heller when I tracked him down to his island home in Washington state. I wish I had known about his 1949 National Tax Journal article referenced here before I had that conversation.