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George J. Kelly, Director
12 East 36 St., New York 16, N. Y.

President of The American Bankers Association,
before a Joint Dinner Meeting of the
Robert Morris Associates and the Augusta
Chapter of Certified Public Accountants,
Augusta Country Club, Augusta, Georgia,
Tuesday Evening, November 27 , 1962,
Mr. Kimbrel is president of the First
National Bank, Thomson, Georgia,
It is a privilege to be asked to make a few remarks to this group.


contribution of accountants to the development of sound and efficient business
operations is indeed great, and perhaps nowhere is it better illustrated than in
the field of commercial banking.

As managers of the general public*s money, bankers

have a special interest in maintaining the strictest and highest standards of
accounting practice.

As lenders to firms in all size groups and in every phase of

business activity, we also have a vital interest in assuring that our customers
maintain high standards.

This is important not only in the sound management of

their own firms, but also in allowing us to appraise their operations accurately
and to be of maximum help in accommodating their credit needs•
You have contributed greatly to the improvement of accounting practices
among our customers, and for this we are grateful.

For our own part, we are making

a number of attempts, through The American Bankers Association, to promote improved
accounting procedures for commercial banks.

Along these lines,our current efforts

include the preparation of a study concerning standards for bank general ledger

In the process of conducting this study, we have drawn generously from

the members of your profession.

We also are grateful for this assistance.

Tonight I would like to offer a few observations concerning a subject
which seems to be troubling a number of economists, businessmen, and public
officials— the rate of our nation*s economic growth and the need for improvement
in that rate.




Economic growth is a complex subject, and I think there is fairly general
agreement that growth reflects a wide variety of factors, some of which are
responsive to government influence and control, and some of which are not.
Nevertheless, attention in recent months has centered on the question of a broad
tax cut as a stimulant to long-range growth.

The President has promised that he

will submit a tax-reduction proposal when the new Congress convenes.


officials recently have confirmed that a major tax-reduction proposal will be
submitted in January despite the substantial budget deficit estimated for this
fiscal year and despite the fact that government spending programs are expected to
show further increases during the next fiscal year.
In considering the President’s proposal, the first question to be resolved
is whether tax reduction is the right medicine for the signs of sluggishness
evidenced by our economy in recent years.

If we can agree--and I think there i s

general agreement on this point--that the economy stands in need of at least
moderate stimulus, the issue narrows down to what stimulus should be applied.
Specifically, the question is whether tax reduction should be preferred over
heavier federal spending or easier credit policies.

In my judgment, the answer

to this question should be ’yes."
There are several reasons behind this answer, but the basic one is that
neither easier credit policy nor heavier federal spending would be successful, in
the long run, in improving our current rate of economic growth.

The combination

of increased spending and easier money could contribute to a short-term acceleration
in economic output and fuller utilization of our economic resources.
is little doubt.
of our economy?

Of this there

But would such policies add to the longer-range growth potential
I think not.

In fact, such policies could be seriously damaging to our long-term
growth prospects.

There is mounting evidence that the persistent advance in federal

expenditures has served as a major deterrent to economic growth in this country.




Therefore, the suggestion that a sluggish growth rate should be corrected by still
further increases in federal spending strikes me as being particularly inappropriate.
Such a solution, it seems to me, would not be unlike the injection of a drug into
a patient already suffering from previous excessive doses.
If we are to shape federal financial policies in the months ahead with
the deliberate objective of enhancing our potential for long-term expansion in
employment, output, and over-all growth, then our policy actions must have distinct
long-range implications.

What is needed is not just a policy to promote expansion

on a temporary basis, but rather policies which will foster an environment in which
the growth-inducing qualities inherent in a free-enterprise economy permanently
may be unleashed.
Wow, as always, the process of economic growth requires the existence of
incentives--incentives for investment, for innovation, for risk-taking, and for

The strength of these incentives is of fundamental importance in

influencing the rate of economic growth.

If these incentives are weakened unduly

by the existence of excessive tax rates, the process of economic growth inevitably

In my judgment, it is so suffering now.
Taxation is only one of the factors affecting the strength of private

incentive for investment and enterprise.

Yet it is a major factor, and it is a

factor which is subject to our direct and immediate control.

A properly structured

reduction in tax rates at this time would contribute significantly to the
strengthening of private incentive, on which the rate of economic growth is so
heavily dependent, and would represent a major step toward improving the climate
for economic growth.
The question inevitably is raised as to whether we can afford a major tax
cut at this time— particularly in the light of prospects for a $7.8-billion budget
deficit in the


fiscal year.

The answer to this question, it seems to me, is

also yes.— provided the tax cut is properly timed and accompanied by strict control
over federal spending.




Some observers have refused to endorse the proposal for a tax cut unless
it is accompanied by an equivalent reduction in federal spending.

I sympathize

with the sentiments underlying this view, but I cannot fail to point out that it
falls somewhat short of a realistic approach to a vital question of public policy.
Moreover, this view also seems to be based on the assumption that the relationship
between federal revenues and tax rates is far more rigid than actually is the case.
Even with fixed tax rates, federal revenues tend to show substantial gains as the
economy follows its upward growth trend.
Over the past decade, these gains have averaged more than $3-billion a

Consequently, a major reduction in federal taxes, scheduled to take effect

gradually over a period of from three to five years, need occasion no significant
reduction in federal revenues at all.

In other words, losses of revenue from tax

reductions would be roughly offset by the gains which normally accrue as a result
of expanding production and incomes.

If federal spending can be held constant,

therefore, there need be no substantial change in the governments fiscal position
as a result of a tax cut.

This suggests clearly that we can afford a major tax cut

if we can succeed in holding the line against increased federal outlays.
There is an element of wishful thinking in the notion that, by resisting
a tax cut not accompanied by reductions in federal spending, we are acting in the
interest of fiscal soundness.

Under current and prospective economic conditions,

it is difficult to believe that gradual increases in federal revenues would be
allowed to result in an improved budget position.

With expansive economic policies

being emphasized, the odds are clearly that federal spending would rise by at least
as much as, and probably more than, the increased revenues accompanying economic

If this is true, it is reasonable to conclude that the budget impact of

providing an expansive economic influence through tax reduction while holding
spending constant is likely to be as small as— and probably would be smaller than--a




policy of increased federal spending with tax rates held unchanged.

Even if the

budget impact of the alternative policies were roughly the same, the course of tax
reduction offers clear-cut long-term advantages which would not flow from increased
federal spending.
I conclude, therefore, that tax reduction is not only a desirable
objective of public policy at this time, but also that major reductions in rates
can be implemented within the bounds of fiscal prudence.

This will require that

rate reductions be ’phased in” over a number of years, and that federal spending
be held constant over a protracted period.
Although Secretary of the Treasury Dillon recently has pointed to the
need for a "phasing in" of tax reduction, I regret that in some quarters the
necessity for this approach has been minimized.

While it is true that rate

reductions totaling up to $10- to $12-billion appear to be in order, it is
distressing to note the frequent implication that we must accomplish this reduction
in a single major cut.

The fiscal consequences of such a cut could be a major

strain on foreign confidence in our financial integrity and could generate concern
over the future of the dollar.

Moreover, the very large budget deficit which would

occur if tax reduction is concentrated in one step could prove seriously damaging
to domestic business confidence and perhaps nullify the expansive influences which
actually are sought by rate revision.
I would stress that the major aim of tax revision should be to secure a
more favorable environment for long-term economic expansion.

Therefore, there is

no good reason why the transition to lower rates should not be gradual, orderly,
and free of a sense of urgency for short-range stimulus.
Second, I regret that the emphasis--at least in some circles— has been
on tax revision as a stimulus to private consumer expenditures.

While a tax

reduction can and should be designed to reflect equity considerations, the basic




need is for promoting a high rate of investment in business and industry, on which
productivity and the rate of economic growth are so heavily dependent.

The argument

that investment spending will not rise until consumer demand is strengthened
not, in my judgment, a valid one.


And I would hope that the structure of the tax

cut to be proposed by the President will not be based on this premise.
Finally, I am convinced that a tax cut must, if it is to be implemented
within the bounds of fiscal prudence, be accompanied by strict controls which
prevent further increases in federal spending over the next several years.
Consequently, general indications that such restraint is looked upon as "unrealistic1
or "impossible" by the Administration are a source of considerable concern to me.
I believe firmly that a tax cut could prove of major and lasting benefit
to our economy,

It is foolish to believe, however, that these benefits are to be

had just for the asking.

A tax cut designed specifically and predominantly to

promote higher consumption, or a major tax cut the budget effects of which are
concentrated in a single calendar year, or a tax cut accompanied by still further
increases in federal spending— any of these would, in my judgment, be more injurious
than beneficial to our national economy.

In each case they might brighten

temporarily the foliage-~but they would sap the deeper roots— of our economic