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




Remarks of Mo Monroe Kimbrel, President of The American
Bankers Association, at a Dinner Honoring Him,
Piedmont Driving Clio, Atlanta, Georgia, Tuesday
Evening, November 13? 1962. Mr„ Kimbrel is chairman
of the board, First National Bank, Thomson, Georgia.
Dinner host was Charles E* Thwaite, Jr*, chairman of
the board, The Trust Company of Georgia, Atlanta.

Within less than two months the


Congress of the United States will be

That Congress will face the task of grappling with some of the most

difficult economic challenges which the country has faced in the postwar period.
In my judgment, the manner In which these are met by the Congress, and by the
Administration, will have far-reaching consequences for the economic security of our

For this reason, it is encumbent on each of us to examine the issues as

thoroughly as we know how, and to express our views as clearly and explicitly
as we can manage.
One of the most complex economic questions, and perhaps the most
significant one, with which the new Congress must come to grips is that of adopting
financial policies which are consistent with the need for maintaining an adequate
rate of expansion in our domestic economy.

Regardless of their political persuasion

or the nature of their economic biases, virtually all observers are agreed that the
United States, if it is to provide sufficient job opportunities for its growing
labor force, must act to improve on the economic performance which we have
registered in recent years.
Undoubtedly, there are several areas in which the Federal Government
may take action to foster a more favorable rate of long-term economic expansion.
Nevertheless, attention in recent months has centered on the question of a broad
tax cut, and the President has premised that he will submit a tax-reduction proposal





when the new Congress convenes.

This promise was made before the onset of the

recent Cuban crisis, but spokesmen for the Administration indicate that Cold War
developments have not changed the Presidents intention of including tax-rate
reduction in the legislative program to be submitted in January.
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 is

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.


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 on 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 this there

But would such policies add to the longer-range growth potential

of our economy?

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

Therefore, the suggestion that a sluggish growth rate should be corrected

by still further increases in federal spending strikes me as being particularly

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.
Now, 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 sizable
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 government’s 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 growth.

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.

Consequently, I am hopeful that the President’s

proposal will make clear a determination to prevent further increases in federal
spending, and that the details of his recommended tax reductions will be designed
to strengthen growth-producing incentives.
Needless to say, final comments must be reserved until the details of the
tax proposal are made public and the Administration’s budget recommendations are

For clearly, the ability of a tax reduction to contribute to sustained

economic expansion depends upon the character and scope of the reductions; and the
advisability of enacting tax reductions must be related to the prospects for effective
and resolute expenditure control.
A second major economic question confronting the nation--and a question
which has profound implications for federal financial policies--is the continuing
problem of deficits in our balance of international payments.

Much progress already

has been made toward reducing the size of these deficits, but more will be required
before the nation can rest comfortably.

Efforts to secure additional progress must

be made on a number of fronts.
Surely, one of the most important ways of bolstering our international
financial position is by increasing our competitiveness in international markets.
This requires, among other things, a

strengthening of incentives for cost-cutting

investment in new plant and equipment and the adoption of more efficient production

This year’s tax legislation providing for an investment credit

represented a significant step in the right direction, but that legislation does not
obviate the need for a thorough and broader strengthening of over-all economic
The competition which we face in international markets has become
progressively more intense over the past decade, and there is no reason to expect



any respite.



The gradual elimination of tariff walls between the Common Market

countries has had a significant impact on the ability of American producers to
compete in these markets, and the progressive economic integration of the European
economy suggests that we have not seen the end of these difficulties, either.
As a device for alleviating the competitive handicaps to which we have been
exposed in the European market by the progress of European economic integration,
the Trade Expansion Act of 1962 was both necessary and desirable.


we should not deceive ourselves by thinking that, by itself, it assures us of
markets which we previously have served.
In the final analysis, developments in our international competitive
position will depend upon the strength, vigor, and soundness of our domestic

It is for this reason that, when we consider the urgency of policies

for promoting a healthy rate of economic growth, we must think in terms of dual

domestic responsibilities for ensuring the existence of adequate

job opportunities to accommodate an expanding labor force; and international
responsibilities for the preservation of an internationally competitive economy
which will warrant confidence in the dollar and assure the continued success
of the international payments mechanism which it supports.

In my comments this

evening on the question of a tax cut, I have been mindful of these