Jack Kemp had an idea that launched a fiscal policy era in the U.S., supply side economics. Cut taxes and the economy will grow. Cut taxes more and the economy will grow more. I can't say I agreed with him, but I had to admire Kemp as an inspirational and effective leader. When Kemp became HUD Secretary, I was even more impressed by the rejuvenation he provided low income housing programs -- not exactly what you would expect from a conservative Republican.
I only had one meeting with Jack Kemp. He was getting ready to testify before the Senate Finance Committee on his tax cut proposal in 1977. I brought the computer printouts over to his office, and I was ushered in to meet with Mr. Kemp and several of his staff arranged around me. I started off explaining the overall cost of the proposal and that it was a proportional cut for all taxpayers. Mr. Kemp exclaimed, "You know this is just like what Jack Kennedy did in 1961. You, motioning to one of his aides, go call Walter Heller and see what he thinks of this." The aide rocketed off the couch to find a telephone. I restarted the briefing only to have several more similar interruptions as it dawned on me that the purpose of this meeting was not to convey facts to Mr. Kemp. It was a pep rally. It was to get psyched for the game. After about 40 minutes, I quietly got up and departed. On the way out, I handed the printouts to Mr. Kemp's AA and said, "If you have any questions, just give me a call, even during the hearing. There's a phone is the back room. I'll be waiting in case you need me." They didn't need to call. Mr. Kemp was very well received by the Senate Finance Committee.
A few weeks before my meeting with Mr. Kemp, at 7:30 p.m. on a Tuesday night in February if my memory serves me correctly, Bruce Thompson, Senator Bill Roth's tax counsel had called me to ask me to run the Treasury Tax Model, which I brought to the Joint Tax Committee in the middle of Watergate in 1974. "I want to lower the top rate to 50%," Bruce said. The top rate then was 70%, although the top rate on earned income was 50%. I replied, "That's easy I've already run it. It costs $5 b." Bruce replied, "No, I want to do it for everybody." Puzzled, I said, "Bruce that is for everybody." "No, No I want if for everybody." Stunned, I suddenly realized he meant, lower the who marginal tax rate schedule by the same ration as 70% to 50%, so the bottom bracket dropped from $16% to 12%, and so on. I blurted out, "My God Bruce, do you know how much that is?" "No." "Well this will be the fastest Joint Tax Committee revenue estimate in history. It's a simple scalar times taxable income. I just punched it out on my calculator. It will cost $100 b. dollars, one-third of the entire individual income tax revenue!" There was silence at the other end of the phone, and Bruce finally said, "I guess we'll have to phase it in." We correctly concluded that spreading that tax cut over three years would cost less per year and over two years, and the Roth-Kemp tax cut had been born. Bruce insisted I send him the computer printout. It turned out his secretary was sick, so he needed to cut the rate schedules out of the printout to paste them into bill form for Senator Roth and Congressman Kemp to introduce. As I hung up the phone, I thought to myself, "This will be the last time I hear of this proposal." Four years later, I was standing on the floor of the Senate in disblief as I helped pass that tax cut as part of the Reagan Revolution. It taught me a very important lesson: Don't ever count out any idea.
