Heller, Walter Wolfgang

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HELLER, Walter Wolfgang

(b. 27 August 1915 in Buffalo, New York; d. 15 June 1987 near Seattle, Washington), economist who, as adviser to President John F. Kennedy, served as the architect of the 1964 federal tax cut that stimulated economic growth and national prosperity.

Heller, the son of German immigrants Ernst Heller, a civil engineer, and Gertrude Warmburg, graduated from Oberlin College with a B.A. in 1935. He received his M.A. in 1938 and Ph.D. in 1941 from the University of Wisconsin–Madison, where he served as an instructor from 1941 to 1942. He married Emily Karen Johnson on 16 September 1938; they had three children.

During and after World War II, Heller served as a fiscal economist at the U.S. Department of the Treasury in Washington, D.C., from 1942 to 1946. In 1947 he was chief of finance for the U.S. military government in Germany, a role that gave him a particularly unique opportunity to study the building of national economies. In order to take that position, he obtained a leave of absence from the University of Minnesota, where he had gone to work as an associate professor in 1946. Heller remained at the university for the rest of his career, becoming a full professor in 1950 and regent's professor of economics in 1967. He held the latter position until 1986, a year before his death. He also chaired the economics department from 1957 to 1960. From 1955 to 1960 he served as an economic adviser to Minnesota governor Orville Freeman, and in 1960 he provided tax advice to King Hussein and the Royal Commission of Jordan.

In the course of his education and practical experience as an economist, Heller had embraced the theories of British economist John Maynard Keynes, who advocated interventionist government policies. With the December 1960 announcement by President-elect John F. Kennedy that Heller had been chosen to chair the Council of Economic Advisers in the new administration, the opportunity arose for putting his ideas into action on a national scale. Events would show that Heller, although remaining a staunch Keynesian throughout the 1960s, favored a policy of low taxation not commonly associated with Keynesian economics.

The first test of these principles occurred in 1961, when the new administration was only a few months old. During the electoral campaign, Kennedy had promised to raise military spending above $40 billion a year, that ceiling having been placed on the defense budget by his predecessor Dwight D. Eisenhower. Following a tempestuous Vienna summit with Soviet premier Nikita Khrushchev in June, Kennedy vowed to make good on his promise. By August tensions were rising, as the Soviets and East Germans launched the construction of the Berlin Wall, at which point Kennedy announced to his economic council that he intended to raise taxes by $3 billion.

Judging such a move a disaster at a time when the unemployment rate was nearly 7 percent, Heller implored Kennedy not to go through with his plan. In an effort to sway the president's opinion, he brought Paul A. Samuelson, a prominent economist and council member, to the Kennedy home at Hyannis Port on Cape Cod in Massachusetts. Between them, they helped change Kennedy's mind.

Early in his administration, Kennedy sent his Council of Economic Advisers to Paris to study the secrets behind the rapid post–World War II growth of western European economies. From observing the economic strengths of Europe, Heller developed the idea of measuring economic performance against the point an economy would reach if it were functioning at full potential, rather than comparing present figures with those of the past. He therefore produced a study to determine the size of the federal budget under conditions of 4 percent unemployment, which he defined as virtual full employment. This "high employment budget," as Heller dubbed it, would contain a substantial budget surplus, indicating a "fiscal drag"—taxes were too high, thus producing a government budget out of phase with the economy. As a result, he called for tax cuts as a stimulus for investment and consumption, and he convinced an initially wary Kennedy that planning for a balanced budget was not a necessity under conditions of a weak economy.

With the adoption in 1962 of an investment tax credit to encourage private investment, Kennedy put in place another building block of Heller's economic plan for lowered taxes and a growing economy. The president also introduced plans for a 10 percent cut in personal income taxes for all brackets, but Congress blocked this plan, passing it only after Kennedy's assassination in 1963.

In the meantime, Heller, concerned that rising wages might spur inflation by raising the costs of goods and services, convinced Kennedy to enact wage and price guidelines in early 1962. The guidelines, a classic piece of Keynesian economic theory in action, made wage increases contingent on gains in productivity. Although they were voluntary, as demonstrated when the steel industry increased its prices in an open act of defiance, such guidelines emphasized the policy-making power of a centralized government. Wage and price guidelines, implemented with even greater vigor under the administration of Richard M. Nixon, would ultimately prove unpopular across a wide ideological spectrum. Conservatives opposed the expansion of government influence they embodied; labor unions, although they traditionally supported the Democratic Party, tended to bristle at measures that they perceived as taking a greater toll on wages than on other types of income.

Heller remained in office for almost exactly a year after Kennedy's death, during which time Congress passed the 1964 tax cuts. He resigned from his position in the administration of President Lyndon B. Johnson on 16 November 1964, not because of ideological differences, but rather for economic considerations of his own. With three children in college, he needed to raise his own earnings, which he did by providing economic consulting services to government agencies, businesses, and other institutions. At various times in his career, Heller served as adviser to the United Nations, several agencies of the Minnesota state government, the Brookings Institution, and the U.S. Census Bureau.

With the economy strengthened by the mid-1960s and with the costs of the Vietnam War mounting, Heller had advised Johnson to raise taxes as a means of paying for the war and hedging against inflation. His successor as council chair, Gardner Ackley, took up the same position, and on 1 July 1968 Johnson approved the tax increase. By then, however, inflation had begun to climb. At the same time, wage and price guidelines had begun to unravel, thanks in large part to the opposition of organized labor. Yet the Nixon administration took up the idea again, along with a concept Heller had advocated since his days with the Treasury Department in the 1940s, the federal sharing of revenue with the states.

A prolific writer, Heller authored or coauthored numerous books, including New Dimensions of Political Economy (1966), Perspectives on Economic Growth (1968), Revenue-Sharingand the City (with Harvey S. Perloff, 1968), Monetary vs. Fiscal Policy: A Dialogue (with Milton Friedman, 1969), and The Economy: Old Myths and New Realities (1976). During the 1970s, in addition to his work as a teacher and consultant, he gained wide exposure as an economic pundit, both on television talk shows and in the Wall Street Journal.

In addition to his other work, Heller served as visiting professor at the University of Washington–Seattle and at Harvard University. He sat on the boards of numerous corporations, among them International Multifoods, Inc., and Northwestern National Life Insurance Company. Additionally, he presided over the American Economic Association in 1974 and chaired the National Bureau of Economic Research from 1971 to 1974. He was affiliated with a number of other professional organizations, including the American Finance Association and the National Tax Association.

Heller initially criticized the supply-side economics advocated by Friedman and others, a philosophy that gained political muscle with the inauguration of President Ronald W. Reagan in 1981. Yet Heller himself had advocated an early version of supply-side theory, which is based on a correlation between economic growth and low taxes. Recognizing his own affinity for views embodied in the new administration, he eventually became involved in economic decision making alongside Friedman and key Reagan adviser Martin Anderson.

A case of rheumatic fever in the 1950s had given Heller lasting health problems, and these contributed to heart problems. He died of a heart attack at his vacation home near Seattle.

Along with Samuelson, James Tobin, Arthur Okun, and Otto Eckstein, Heller is widely regarded as a seminal figure in the formation of the New Economics, which incorporated Keynesian theory into the realities of Kennedy's New Frontier and Johnson's Great Society. Given his predilection for interventionist government policies on the one hand, and for the use of tax reduction to stimulate the economy on the other, Heller is not easily placed into either the liberal or conservative economic camps. Indeed, he has had admirers on both sides. Among the outstanding economists who have cited Heller as an influence is Alan Greenspan, who called him "a major contributor if not the father of modern economic policymaking." Commenting on his abilities as an educator and public speaker, journalist George J. Church praised Heller's "genius for putting economic analysis into simple terms."

Heller's papers from his term as chair of the Council of Economic Advisers are at the John F. Kennedy Presidential Library in Boston. For more information on Heller's career in the Kennedy-Johnson years see J. Ronnie Davis, The New Economics and the Old Economists (1971). Joseph A. Pechman and Norman J. Simler, eds., Economics in the Public Service: Papers in Honor of Walter W. Heller (1989), is a tribute to Heller's thinking. A more critical approach can be found in Martin F. J. Prachowny, The Kennedy-Johnson Tax Cut: A Revisionist History (2000). Information on Heller's invitation to join the Reagan administration appears in Martin Anderson, Revolution (1988). An obituary is in the New York Times (17 June 1987).

Judson Knight