For it is increasingly clear—­to those in Government, business, and labor who are responsible for our economy’s success—­that our obsolete tax system exerts too heavy a drag on private purchasing power, profits, and employment.  Designed to check inflation in earlier years, it now checks growth instead.  It discourages extra effort and risk.  It distorts the use of resources.  It invites recurrent recessions, depresses our Federal revenues, and causes chronic budget deficits.

Now, when the inflationary pressures of the war and the post-war years no longer threaten, and the dollar commands new respect—­now, when no military crisis strains our resources—­now is the time to act.  We cannot afford to be timid or slow.  For this is the most urgent task confronting the Congress in 1963.

In an early message, I shall propose a permanent reduction in tax rates which will lower liabilities by $13.5 billion.  Of this, $11 billion results from reducing individual tax rates, which now range between 20 and 91 percent, to a more sensible range of 14 to 65 percent, with a split in the present first bracket.  Two and one-half billion dollars results from reducing corporate tax rates, from 52 percent—­which gives the Government today a majority interest in profits—­to the permanent pre-Korean level of 47 percent.  This is in addition to the more than $2 billion cut in corporate tax liabilities resulting from last year’s investment credit and depreciation reform.

To achieve this reduction within the limits of a manageable budgetary deficit, I urge:  first, that these cuts be phased over 3 calendar years, beginning in 1963 with a cut of some $6 billion at annual rates; second, that these reductions be coupled with selected structural changes, beginning in 1964, which will broaden the tax base, end unfair or unnecessary preferences, remove or lighten certain hardships, and in the net offset some $3.5 billion of the revenue loss; and third, that budgetary receipts at the outset be increased by $1.5 billion a year, without any change in tax liabilities, by gradually shifting the tax payments of large corporations to a more current time schedule.  This combined program, by increasing the amount of our national income, will in time result in still higher Federal revenues.  It is a fiscally responsible program—­the surest and the soundest way of achieving in time a balanced budget in a balanced full employment economy.

This net reduction in tax liabilities of $10 billion will increase the purchasing power of American families and business enterprises in every tax bracket, with greatest increase going to our low-income consumers.  It will, in addition, encourage the initiative and risk-taking on which our free system depends—­induce more investment, production, and capacity use—­help provide the 2 million new jobs we need every year—­and reinforce the American principle of additional reward for additional effort.

I do not say that a measure for tax reduction and reform is the only way to achieve these goals.