President Kennedy was convinced that US policy toward the USSR, and toward the world, must be based on a robust US economy. On the basis of its lackluster performance in the late 1950s, he campaigned in 1960 that he would "get the economy moving again." To that end, he proposed significant trade liberalization. To stimulate growth and domestic demand, he proposed an investment tax credit, and eventually a significant reduction in income taxes, which was finally legislated in 1964. As expected, economic growth improved, and indeed became too robust after the sharp buildup in military expenditures associated with Vietnam, such that President Johnson (belatedly) proposed a tax increase in 1967, enacted in 1968. As the economy grew, so did government revenues.
A government’s spending priorities can be found in its budget. Defense expenditures in the United States declined from a Korean War high of $49 billion (13 percent of GDP) in 1953 to $38 billion in 1955, and then rose gradually to $45 billion (8.8 percent of GDP) in 1960 and to $49 billion in 1965 (7.1 percent of a significantly larger GDP). The Vietnam War built them up to $77 billion in 1968 (8.8 percent of GDP), whereupon they rose to $86 billion (representing a sharp decline in real terms, because of inflation), 5.0 percent of GDP in 1976, and fell below 5 percent in the years 1977-79.
During this period, the United States also expanded its expenditures on "international affairs," mainly foreign assistance, but also including the Peace Corps and the US Information Agency (USIA). In addition, Federal government expenditures on higher education increased under the National Defense Education Act, as did the space program, both launched in 1958. Kennedy promised in 1961, following the manned earth orbit by Russian Yuri Gagarin, to land a man on the moon “before the decade is out" - an achievement accomplished in July 1969. Kennedy wanted to reestablish the United States as being on the frontiers of technology in the eyes of Americans and of those around the world - not least in the Soviet Union. The expenditures of the National Aeronautics and Space Administration (NASA) rose from nothing in 1958 to a peak of $5.1 billion in 1965 before receding to below $3 billion in 1974-75.47 These government expenditures did not impose severe strains on the US economy except during the years of the rapid military buildup in Vietnam in the late 1960s.