The Reagan Administration

Ronald Wilson Reagan was the 40th President of the United States, serving from 1981 to 1989.

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Learning Objectives

Compare and contrast the policies of President Reagan and those of President Carter.


Key Takeaways

Key PointsReagan made the transition from an acting career to a career as a politician in the 1950s, following a job as the spokesperson for General Electric.Reagan came to national political prominence with an influential speech on behalf of Republican presidential candidate Barry Goldwater in 1964, winning election as Governor of California in 1966 and 1970.After failing to win the nomination as Republican presidential candidate in 1968 and 1976, Reagan was elected President of the United States in 1980 and 1984.As president, Reagan’s domestic policy involved lowering taxes to stimulate growth, anti-inflationary monetary policy, deregulation of the economy, and reducing government spending.Reagan’s foreign policy took a hard anti-communist line, aiding anti-communist movements around the world, describing the Soviet Union as the “evil empire,” and engaging in an arms race.Reagan’s presidency is credited with generating an ideological renaissance among American conservatives, although some of his policies also receive strong criticism.Key Termsdétente: A term often used in reference to the general easing of the geo-political tensions between the Soviet Union and the United States, beginning in 1969 as a foreign policy of U.S. Presidents Richard Nixon and Gerald Ford.Reaganomics: The economic ideas and policies of American President Ronald Reagan and his two administrations (1981-1989).Mikhail Gorbachev: A former Soviet statesman, having served as General Secretary of the Communist Party of the Soviet Union from 1985 until 1991.deregulation: The process of removing constraints, especially government-imposed economic constraints.

Overview

Ronald Wilson Reagan (February 6, 1911-June 5, 2004) was the 40th President of the United States, serving from 1981 to 1989. Prior to that, he was the 33rd Governor of California from 1967 to 1975, and a radio, film, and television actor.

Background

Born in Tampico, Illinois, and raised in Dixon, Reagan was educated at Eureka College, earning a Bachelor of Arts degree in economics and sociology. After his graduation, Reagan moved first to Iowa to work as a radio broadcaster, and then to Los Angeles in 1937, where he began a career as an actor— first in films and later in television. Some of his most notable films include Knute Rockne, All American, Kings Row, and Bedtime for Bonzo. Reagan served as president of the Screen Actors Guild and later as a spokesman for General Electric (GE); his start in politics occurred during his work for GE. Originally a member of the Democratic Party, his positions began shifting rightward in the late 1950s, and he switched to the Republican party in 1962. After delivering a rousing speech in support of Barry Goldwater’s presidential candidacy in 1964, he was persuaded to seek the California governorship, winning two years later and again in 1970. He was defeated in his run for the Republican presidential nomination in 1968 as well as 1976, but won both the nomination and general election in 1980, defeating incumbent President Jimmy Carter.

Presidential Legacy

As president, Reagan implemented sweeping new political and economic initiatives. His supply-side economic policies, dubbed “Reaganomics,” advocated reducing tax rates to spur economic growth, controlling the money supply to reduce inflation, deregulating the economy, and reducing government spending. In his first term in office, Reagan survived an assassination attempt, took a hard line against labor unions, and ordered an invasion of Grenada. He was reelected in a landslide in 1984, proclaiming that it was “Morning in America.”

Reagan’s second term was primarily marked by foreign matters, such as the ending of the Cold War, the 1986 bombing of Libya, and the revelation of the Iran-Contra affair. Publicly describing the Soviet Union as an “evil empire,” he supported anti-communist movements worldwide and spent his first term forgoing the strategy of détente by ordering a massive military buildup in an arms race with the Soviet Union. Reagan later negotiated with Soviet General Secretary Mikhail Gorbachev, culminating in the Intermediate-Range Nuclear Forces (INF) Treaty and the decrease of both countries’ nuclear arsenals. Gorbachev’s attempts at reform, as well as summit conferences with U.S. President Ronald Reagan and his reorientation of Soviet strategic aims, contributed to the end of the Cold War and the dissolution of the Soviet Union.

Reagan left office in 1989. In 1994, the former president disclosed that he had been diagnosed with Alzheimer’s disease earlier in the year; he died ten years later at the age of 93. His presidency is credited for generating an ideological renaissance on the American political right.


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Reagan’s stance on Socialism: In 1961, when Congress began to explore nationwide health insurance for the elderly under Social Security, Reagan made a recording for the American Medical Association in which he denounced the idea (which was later adopted as Medicare) as “socialized medicine.” Such a program, Reagan warned his listeners, was the first step to the nation’s demise as a free society.


Key Takeaways

Key PointsAlthough incumbent President Jimmy Carter led Reagan in the polls in late October, Reagan ultimately won 50.7% of the popular vote to Carter’s 41%.The election of 1980 followed a period of economic problems, including low economic growth, high inflation and interest rates, and energy shortages.Reagan nominated his chief rival in the Republican primaries, George H.W. Bush, as his running mate, despite initial interest in former President Gerald Ford as a running mate.In the 1980 campaign, Reagan articulated his supply-side economics vision and his goal of inciting an economic revival by cutting taxes and government spending.Reagan was strongly supported by a growing group of white, conservative, and very wealthy Americans, who emerged in the wake of the social reforms and cultural changes of the 1960s and 1970s.Key TermsGeorge H. W. Bush: An American politician who served as the 41st President of the United States (1989-1993); he had previously served as the 43rd Vice President of the United States (1981-1989), a congressman, an ambassador, and a Director of Central Intelligence.

Overview

The 1980 presidential campaigns of both Republican Ronald Reagan, and incumbent Democratic President Jimmy Carter, were conducted during times of great domestic concern—times that also included the ongoing Iranian hostage crisis. Reagan’s campaign emphasized many of his fundamental principles: lowering taxes to stimulate the economy, reducing government interference in people’s lives, strengthening states’ rights, building up the national defense, and restoring the U.S. Dollar to a gold standard.

Reagan’s Campaign

After receiving the Republican nomination, Reagan selected George H.W. Bush, one of his primary opponents, to be his running mate. During the presidential campaign, reporters posed questions to Reagan about his stance on the Briggs Initiative (also known as Proposition 6), a ballot initiative in Reagan’s home state of California that proposed the banning of gays, lesbians, and supporters of LGBT rights from working in California’s public schools. As the former governor of California, Reagan’s opposition to the initiative was instrumental in its landslide defeat by Californian voters. Reagan published an editorial in which he stated that “homosexuality is not a contagious disease like the measles…” and that prevailing scientific opinion suggests that a child’s sexual orientation cannot be influenced by someone else.

Throughout the 1970’s, the United States underwent a wrenching period of low economic growth, high inflation and interest rates, and intermittent energy crises. Reagan was a proponent of supply-side economics, which argues that economic growth can be created most effectively by offering incentives for people to produce (supply) goods and services. Such incentives included adjusting income tax and capital gains tax rates. Accordingly, Reagan promised an economic revival that would affect the entire population. Reagan theorized that cutting tax rates would actually increase tax revenues because the lower rates would encourage people to work harder in order to be able to keep more of their money.

Reagan called for a drastic cut in “big government” programs, and pledged to deliver a balanced budget for the first time since 1969. In the Republican primaries, Bush famously called Reagan’s economic policy “voodoo economics” because it promised to lower taxes and increase revenues at the same time.

Election Results

Reagan’s showing in the October televised debate boosted his campaign. Weeks before the election, Reagan had trailed Carter in most polls. Following his sole debate with President Carter on October 29, however, Reagan overcame the poll deficit, and within one week, the Associated Press reported that the race was “too close to call.”

Reagan ended up winning the election in a landslide, carrying 44 states with 489 electoral votes to Carter’s six states (as well as Washington, D.C.) and 49 electoral votes. Additionally, Reagan received 50.7% of the popular vote while Carter took only 41% (Independent John B. Anderson, a liberal Republican, received 6.7%). Republicans captured the Senate for the first time since 1952, and gained 34 House seats, but the Democrats retained a majority.

Reagan’s victory was the result of a combination of dissatisfaction with the presidential leadership of Gerald Ford and Jimmy Carter in the 1970s, and the growth of the New Right. This group of conservative Americans included many very wealthy financial supporters, and emerged in the wake of the social reforms and cultural changes of the 1960s and 1970s. Many were evangelical Christians, like those who joined Jerry Falwell’s Moral Majority, and opposed the legalization of abortion, the feminist movement, and sex education in public schools. Reagan also attracted people, often dubbed neoconservatives, who would not previously have voted for the same candidate as conservative Protestants did. Many were middle- and working-class people who resented the growth of federal and state governments, especially benefit programs, and the subsequent increase in taxes during the late 1960s and 1970s. They favored the tax revolts that swept the nation in the late 1970s under the leadership of predominantly older, white, middle-class Americans, which had succeeded in imposing radical reductions in local property and state income taxes.

Voter turnout reflected this new conservative swing, which not only swept Reagan into the White House, but created a Republican majority in the Senate. Only 52%of eligible voters went to the polls in 1980, the lowest turnout for a presidential election since 1948. Those who did cast a ballot were older, whiter, and wealthier than those who did not vote. Strong support among white voters, those over 45 years of age, and those with incomes over $50,000, proved crucial for Reagan’s victory.


Reagan 1980 Campaign: Reagan campaigns with wife Nancy and Senator Strom Thurmond (right) in South Carolina, 1980.


Key Takeaways

Key PointsThe four pillars of Reagan’s economic policy were to reduce the growth of government spending, reduce income tax and capital gains tax, reduce government regulation of the economy, and control money supply to reduce inflation.Reagan implemented policies based on supply-side economics, and advocated a classical liberal and laissez-faire philosophy, seeking to stimulate the economy with large, across-the-board tax cuts that especially benefited the wealthiest Americans.As a corollary to supply-side economics, Reagan affirmed “trickled-down economics,” a theory which held that tax cuts on the investor class would stimulate investment; more investment would lead to lower unemployment and high wages, benefiting the poorest Americans.During the Reagan administration, the number of Americans living in poverty increased and many key services to low-income groups were cut.Income inequality increased under the Reagan administration, with rises in the percentage of wealth accounted for by the highest income brackets, and declines in the percentage of wealth accounted for by the lowest income bracket.Key TermsReaganomics: The economic ideas and policies of American President Ronald Reagan and his two administrations (1981-1989).“Trickle-Down Economics”: A term in United States politics that refers to the idea that tax breaks or other economic benefits provided by government to businesses and the wealthy will benefit poorer members of society by improving the economy as a whole.Arthur Laffer: An American economist who first gained prominence during the Reagan administration as a member of Reagan’s Economic Policy Advisory Board (1981-1989); best known for his illustration of the theory that there exists some tax rate between 0% and 100% that will result in maximum tax revenue for governments.

Economics of the Reagan Administration

Reagan’s primary goal upon taking office was to stimulate the sagging economy while simultaneously cutting both government programs and taxes. His economic policies, called ” Reaganomics ” by the press, were based on a theory called supply-side economics, about which many economists were skeptical. The four pillars of Reagan’s economic policy were to reduce the growth of government spending, reduce income tax and capital gains tax, reduce government regulation of economy, and control money supply to reduce inflation.

Theoretical Justification

Influenced by economist Arthur Laffer of the University of Southern California, Reagan cut income taxes for those at the top of the economic ladder (the wealthiest of Americans), which was supposed to motivate the rich to invest in businesses, factories, and the stock market in anticipation of high returns. According to Laffer’s argument, this would eventually translate into more jobs further down the socioeconomic ladder. Economic growth would also increase the total tax revenue—even at a lower tax rate. In other words, proponents of “trickle-down economics” promised to cut taxes and balance the budget at the same time. Reaganomics also included the deregulation of industry and higher interest rates to control inflation; however, these initiatives preceded Reagan and were conceived in the Carter administration.

Reagan’s Campaign and Skepticism

Many politicians, including Republicans, were wary of Reagan’s economic program; even his eventual vice president, George H. W. Bush, had referred to it as “voodoo economics” when competing with him for the Republican presidential nomination. When Reagan proposed a 30% cut in taxes to be phased in over his first term in office, Congress balked. Opponents argued that the tax cuts would benefit the rich and not the poor, who needed help the most. In response, Reagan presented his plan directly to the people.

Reagan was an articulate spokesman for his political perspectives and was able to garner support for his policies. Often called “The Great Communicator,” he was noted for his ability, honed through years as an actor and spokesperson, to convey a mixture of empathy and concern, while taking humorous digs at his opponents. In his 1980 campaign speeches, Reagan presented his economic proposals as merely a return to the free-enterprise principles that had been in favor before the Great Depression. Americans found this rhetorical style extremely compelling. Public support for the plan, combined with a surge in the president’s popularity after he survived an assassination attempt in March 1981, swayed Congress, including many Democrats. On July 29, 1981, Congress passed the Economic Recovery Tax Act, which phased in a 25% overall reduction in taxes over a period of three years.

Implementing the Policies

Tax Decreases and Increases

During Reagan’s presidency, federal income tax rates were lowered significantly with the signing of the bipartisan Economic Recovery Tax Act of 1981, which lowered the top marginal tax bracket (for the wealthiest Americans) from 70% to 50%, and the lowest bracket (for the poorest Americans) from 14% to 11%. The Job Training Partnership Act of 1982 initiated one of the nation’s first public/private partnerships and a major part of the president’s job creation program. The Tax Reform Act of 1986, another bipartisan effort championed by Reagan, further reduced the top rate to 28%, raised the bottom bracket from 11% to 15% (meaning the poorest Americans would pay more), and cut the number of tax brackets to four.

Conversely, Reagan signed into law tax increases of some nature in every year from 1981 to 1987 in order to continue funding such government programs as the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Social Security, and the Deficit Reduction Act of 1984 (DEFRA). Despite the fact that TEFRA was the “largest peacetime tax increase in American history,” Reagan is better known for his tax cuts and lower-taxes philosophy.

Budget Cuts

Reagan’s policies proposed that economic growth would occur when marginal tax rates were low enough to spur investment, which would then lead to increased economic growth, higher employment, and higher wages. Critics labeled this “trickle-down economics”—the belief that tax policies that benefit the wealthy will create a “trickle-down” effect to the poor. Questions arose about whether Reagan’s policies benefited the wealthy more than those living in poverty, and many poor and minority citizens viewed Reagan as indifferent to their struggles. These views were exacerbated by the fact that Reagan’s economic regimen included freezing the minimum wage at $3.35 an hour, slashing federal assistance to local governments by 60%, cutting the budget for public housing and Section 8 rent subsidies in half, and eliminating the antipoverty Community Development Block Grant program. The widening gap between the rich and poor had already begun during the 1970s before Reagan’s economic policies took effect. Along with Reagan’s 1981 cut in the top regular tax rate on unearned income, he reduced the maximum capital gains rate to only 20%—its lowest level since the Hoover administration.

Following his less-government intervention views, Reagan cut the budgets of non-military programs, including Medicaid, food stamps, federal education programs, and the Environmental Protection Agency. While he protected entitlement programs, such as Social Security and Medicare, his administration attempted to purge many people with disabilities from the Social Security disability rolls.

Deregulating the Economy

Reagan also focused on deregulating industry and weakening the power of labor unions. Banks and savings and loan associations were deregulated. Pollution control was enforced less strictly by the Environmental Protection Agency, and restrictions on logging and drilling for oil on public lands were relaxed. Believing the free market was self-regulating, the Reagan administration had little use for labor unions, and in 1981, the president fired 12,000 federal air traffic controllers who had gone on strike to secure better working conditions (which would also have improved the public’s safety). His action effectively destroyed the Professional Air Traffic Controllers Organization (PATCO), and ushered in a new era of labor relations in which, following his example, employers simply replaced striking workers. The weakening of unions contributed to the leveling off of real wages for the average American family during the 1980s.

Effects

Inflation and Unemployment Rates

President Ronald Reagan’s tenure marked a time of economic prosperity for some Americans and the opposite for many others. Reagan’s economic policymakers succeeded in breaking the cycle of stagflation that had been plaguing the nation, but at significant cost. In its effort to curb high inflation with dramatically increased interest rates, the Federal Reserve also triggered a deep recession. Inflation did drop during Reagan’s presidency, but borrowing became expensive and consumers spent less.

In Reagan’s first years in office, bankruptcies increased and unemployment reached about 10%, its highest level since the Great Depression. Homelessness became a significant problem in cities, a fact the president made light of by suggesting that the press exaggerated the problem and that many homeless people chose to live on the streets. Economic growth resumed in 1983, and gross domestic product (GDP) grew at an average of 4.5% during the rest of his presidency. By the end of Reagan’s second term in office, unemployment had dropped to about 5.3%, but the nation was nearly $3 trillion in debt. An increase in defense spending coupled with $3.6 billion in tax relief for the 162,000 American families with incomes of $200,000 or more made a balanced budget, one of the president’s campaign promises in 1980, impossible to achieve.

Low income groups were also affected by the reduction of social spending, and inequality throughout the nation increased. The share of total income received by the top 5% highest-earning households grew from 16.5% in 1980 to 18.3% in 1988, and the share of the second highest fifth of households increased from 44.1% to 46.3% during this. In contrast, the share of total income of the lowest fifth of households fell from 4.2% in 1980 to 3.8% in 1988, and the second poorest fifth fell from 10.2% to 9.6%.

The National Debt

In order to cover newly spawned federal budget deficits, the United States borrowed heavily both domestically and abroad, raising the national debt from $997 billion to $2.85 trillion. As a result, the United States went from being the world’s largest international creditor to becoming the world’s largest debtor. Reagan described the new debt as the “greatest disappointment” of his presidency.

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U.S. Culture: From Hippies to Yuppies

The Reagan years were a complicated era of social, economic, and political change, with many trends operating simultaneously and sometimes at cross-purposes. While many suffered, others prospered. The 1970s had been the era of the hippie, and Newsweek magazine declared 1984 to be the “year of the Yuppie.” Yuppies, whose name derived from “(y)oung, (u)rban (p)rofessionals,” were akin to hippies in being young people whose interests, values, and lifestyle influenced American culture, economy, and politics, just as the hippies’ credo had done in the late 1960s and 1970s. Unlike hippies, however, yuppies tended to be materialistic and focused on image, comfort, and economic prosperity. Although liberal on some social issues, they were economically conservative. Ironically, some yuppies were former hippies who gave up their crusade against “the establishment” to become businessmen.