In other, less morally compelling areas of domestic life, such as tax reform, social welfare programs, and economic development, Kennedy was less inclined to mount the bully pulpit and more apt to live with the possible. Specifically, this translated into a legislative record that was never as bad as certain critics asserted or as good as administration spokesmen claimed. Legislative initiatives were achieved in manpower training, welfare reform, area redevelopment, and urban renewal and housing. Kennedy also broke some new ground by establishing certain pilot programs through executive authority. Some initiatives were either dramatically watered down by Congress or, in the case of federal aid to education and medical insurance for the aged, blocked by it. With Congress frustrating him, Kennedy looked forward to the 1964 election, when, he hoped, he would receive a stronger popular and legislative mandate. In the off-year elections of 1962, the Democrats had gained four Senate seats and lost two House seats, which was a better record than usual for an incumbent president but not good enough to make much difference legislatively.
In the area of fiscal policy, Kennedy presided over a significant change. At the start of his administration, there was an internal dispute over the budget. Treasury Secretary Dillon and certain other advisers resisted deficits because they were worried about inflation and the weakness of the dollar. On the other side were leading academic economists, such as Paul Samuelson of the Massachusetts Institute of Technology, and the Council of Economic Advisers, chaired by Walter Heller, all of whom had been influenced by John Maynard Keynes, the great English economist. They focused on achieving economic growth through the use of fiscal stimulants and were unafraid of deficits. In 1961, Kennedy came down on the side of the budget balancers, for he accepted conventional thinking, recognized the power of fiscal conservatives in Congress, and could not reconcile tax cuts, proposed by the economists, with his public theme of sacrifice.
In his first year as president, a cyclical recovery from recession encouraged Kennedy in the hope that he could adhere to fiscal orthodoxy and enjoy economic expansion too. But there were some worrisome limitations to the recovery. Business confidence in the administration was shaken in the spring of 1962 when Kennedy became embroiled in a bitter controversy with the head of the United States Steel Corporation. The company had unexpectedly and in-cautiously increased prices just after the administration's success in getting the steel-workers to restrain their wage demands. By the summer of 1962, the Council of Economic Advisers had convinced both Dillon and Kennedy that a tax cut was needed to bolster the economy. After the fall elections, Kennedy gave a speech to a business group in New York in which he called for making the kind of tax cuts that would stimulate private investments and "reduce the burden on private incomes and the deterrents to private initiative which are imposed by our present tax system." John Kenneth Galbraith, a liberal Kennedy adviser who dissented from the advice his fellow economists usually offered Kennedy, called it the "most Republican speech since McKinley."
Kennedy's shift on taxes reflected the growing influence of the professional economists who manned the Council of Economic Advisers. It also reflected Kennedy's pragmatism, political interests, and dedication to economic growth. All of these factors were again at play in the spring and summer of 1963 when Kennedy abandoned most of his proposed tax reforms and settled for a program of $11.1 billion in tax cuts for both individuals and corporations. Although certain influential business interests, not surprisingly, got behind the cuts, the projected federal deficit of nearly $12 billion still encountered resistance in Congress, though not enough to prevent enactment early in 1964, an election year.
The tax cut's evident success in bolstering the economic expansion that had begun under Kennedy redounded to the credit of professional economists and neo-Keynesian economics in the United States. The rest of the 1960s saw the economics profession at a high watermark of its influence. Even so, economists proved less persuasive when they recommended tax hikes during the early Vietnam buildup under Johnson than they had when they had proposed tax cuts, which suggests that it was not just the intellectual merits of their case that was compelling but the politics of it. Retrospectively, the Kennedy-initiated tax cuts have been viewed variously as triumphs of modern economic analysis and rational, technically based public policy or as the beginning of the end of fiscal responsibility and the start of an inflationary spiral.