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Economist Heller Dies; Aided Presidents : Adviser Pushed Tax Cut, Investment Tax Credit to Fuel 1960s Expansion

Times Staff Writer

Economist Walter W. Heller, adviser to Presidents John F. Kennedy and Lyndon B. Johnson and architect of the 1964 income tax cut that fueled one of the longest economic expansions in modern U.S. history, is dead at 71.

The former chairman of the President’s Council of Economic Advisers and former governor of the Federal Reserve Board died Monday night of a heart attack while visiting relatives in Seattle, his daughter, Kaaren Davis, reported Tuesday. Most recently, Heller was professor of economics emeritus at the University of Minnesota, his longtime refuge from public service.

Heller was one of the most influential economists in recent annals of government. In his heyday during Kennedy’s New Frontier and Johnson’s Great Society, he almost single-handedly installed the Keynesian “new economics” of sophisticated demand management and fine-tuning as the reigning orthodoxy.

Automation Panic

On his arrival in Washington at the outset of the Kennedy Administration, the conventional wisdom held that the nation faced growing unemployment caused by the inevitable displacement of production workers by technology--the great automation panic. Heller argued that the answer was to cut taxes, stimulate business investment with an investment tax credit and increase government spending.

Approved in 1962, the investment tax credit--in combination with the $13.6-billion 1964 tax cut--eventually drove unemployment to its lowest levels of the post-World-War II era. Heller pushed the tax cut over the objections of most White House advisers and, at first, of Kennedy himself.

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“The tax cut went against the grain of everyone, including, initially, the President,” said Charles L. Schultze, an assistant budget director in 1962-1965, when Heller’s Washington influence was at its peak. “What he sold was an ingenious package: the investment tax credit, the income tax cut and fiscal stimulus--and it worked.”

More than six feet tall, nearsighted and gangly, Heller had a perpetually professorial air. But this did not obscure his chief virtue, an uncanny ability to combine economic expertise with common sense and a sure instinct for what would work politically, Schultze said.

“He had an incredible flair for putting things orally and on paper in a way that an intelligent layman could understand,” said Schultze, who served as chief economic adviser in the Jimmy Carter Administration.

As an expanding war effort in Vietnam began to consume productive resources, Heller warned Johnson of impending inflation and, as early as 1965, urged a tax increase--which was eventually signed into law as the 10% tax surcharge of 1968.

By that time Heller, who resigned from the Council of Economic Advisers in late 1964, gave advice only informally. But he did so frequently, and his memos often found their way directly to the Oval Office.

Another Heller legacy of the 1960s was his proposal that the federal government restore a fraction of income tax revenues to the states in the form of grants, with no federal program requirements.

Heller first pushed the revenue-sharing plan in 1960 before joining the Kennedy Administration. He urged it again in 1964, when Johnson agreed to adopt the plan as part of his Great Society domestic program--only to drop it when word leaked prematurely to the press.

It was President Richard M. Nixon, whose economic policies Heller often criticized as a Capitol Hill witness and television talk show guest, who eventually enacted a revenue-sharing program. It stayed in effect until last year, when the Reagan Administration abandoned it in the name of deficit reduction.

President Reagan did invoke the memory of Heller’s most successful brainchild, the Kennedy tax cut, in selling his own massive tax cuts in 1981. But Heller steadfastly disclaimed paternity.

During one of his talk show appearances that year, Heller dismissed the Reagan forecasts of high growth, low inflation and declining budget deficits as “inconsistent, unbalanced and too optimistic.” He said such projections were “hooked on the supply-side fairy tale"--a school of economics Heller dismissed as “Laetrile for the cancer of inflation.”

Walter Wolfgang Heller was born in Buffalo, N.Y., on Aug. 27, 1915, of German immigrant parents. As a child he lived in Washington state and Milwaukee, Wis.

He was graduated from Oberlin College in Ohio in 1935 and, inspired by the New Deal, chose to enter economics. He received a Ph.D. in economics at the University of Wisconsin in 1941, which launched a career in government and academics that extended over the next 45 years.

He is survived by his daughter and two sons, Walter P. and Eric J. Heller.


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