Results of the Tax Cut

STATE OF BUSINESS

Two hours before the tax cut was signed into law, American Telephone & Telegraph Chairman Frederick R. Kappel received a long-distance call from one of his best customers: Lyndon Johnson. How, asked the President, would the measure affect A.T. & T.'s plans? As a direct result of the cut, said Kappel, A.T. & T. would add another $100 million onto its record 1964 budget for capital spending, originally set at $3.25 billion.

Bigger capital investments by many U.S. companies will indeed be one of the major consequences of the tax bill (see following story). But there will be countless other reverberations in the U.S. economy--and some of them are already being felt. An early and dramatic response took place on Wall Street, where the Dow-Jones industrial average climbed 3.10 points last week, nudging through the magic 800 mark to close at an alltime high of 800.14. For millions of U.S. workers, the first effects of the tax cut will be noticeable this week, when their paychecks will be an average $4.50 higher because of lower tax deductions.

The Administration predicts that the tax bill, which reduces individual income taxes by $9.1 billion, will help lift total personal income from $463 billion last year to $492 billion in 1964. Confident that the U.S. consumer will put all that extra money to work, the Government also anticipates that his total spending will rise by $24 billion--$10 billion of it because of the tax cut--to $397 billion. Industrial production is expected to increase by at least 4.7%, and the gross national product will grow from $585 billion to $621 billion, creating some 3,000,000 more jobs--for a third of which the tax cut will be able to take credit.

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