Domestic policy of the Reagan administration

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President Ronald Reagan

The Domestic policy of the Reagan administration was the domestic policy in the United States from 1981 to 1989 under President Ronald Reagan. It retained conservative values economically, beginning with the president's implementation of his supply-side economic policies, dubbed "Reaganomics" by both supporters and detractors. His policies included the largest tax cut in American history, as well as increased defense spending. After firing nearly 12,000 striking Air Traffic Control workers, Reagan appointed the first woman, Sandra Day O'Connor, to the Supreme Court bench in 1981. He believed in federalism, and encouraged the development of "private sector initiatives" while accelerating the nation's War on Drugs.^[1]

Reagan left office 1989 with a 64% approval rating.^[2]

[edit] "Reaganomics" and the economy

Main article: Reaganomics

[edit] Policies

Based on supply-side economics, Reagan implemented his economic policies in 1981. The four pillars of the policies were to:^[3]

1. reduce the growth of government spending;
2. reduce marginal tax rates on income from labor and capital;
3. reduce regulation;
4. control the money supply to reduce inflation.

Reagan's approach was a departure from his immediate predecessors by attempting to reduce or eliminate decades-long social programs and significantly increase defense spending, while at the same time lowering taxes.^[3]

When Reagan entered office, the economy faced the highest rate of inflation since 1947 (11.83% in January of 1981), as well as double-digit unemployment. Those, along with high interest rates, were considered the nation's principal economic problems, al coined under the term "stagflation." Reagan sought to stimulate the economy with large, across-the-board tax cuts^[4][5][3] The expansionary fiscal policies soon became known as "Reaganomics",^[4] and were considered by some to be the most serious attempt to change the course of U.S. economic policy of any administration since the New Deal.^[3]

[edit] Economic record

President Reagan's tenure marked a time of economic prosperity for many Americans. After negotiations with the Republican-controlled Senate and the Democratic-controlled House, in August 1981, President Reagan signed the bipartisan largest tax cuts in American history into effect at his California ranch. The lowered income taxes significantly, with the top personal tax bracket dropping from 70% to 28% during the course of seven years.^[6] Due to a recession in 1982, unemployment rose to over 10%, only to drop during the rest of Reagan's terms,^[5][7] while the gross domestic product (GDP) growth recovered and grew at a rate of 3.4% annually.^[8][9] Inflation significantly decreased, falling from 13.6% in 1980 (President Carter's final year in office) to 4.1% by 1988.^[9] Sixteen million new jobs were created as well.^[10] The net effect of all Reagan-era tax bills resulted in a 1% decrease of government revenues, with the revenue-shrinking effects of the 1981 tax cut (-3% of GDP) and the revenue-gaining effects of the 1982 tax hike (~+1% of GDP), while subsequent bills were more revenue-neutral.^[11]

Along with these, Reagan reappointed Paul Volcker as Chairman of the Federal Reserve, as well as the monetarist Alan Greenspan to succeed him in 1987. He preserved the core New Deal safeguards, such as the United States Securities and Exchange Commission (SEC), Federal Deposit Insurance Corporation (FDIC), the GI Bill and Social Security, while rolling back what he viewed as the excesses of 1960s and 1970s liberal policies.

Reagan gives a televised address from the Oval Office, outlining his plan for Tax Reduction Legislation in July of 1981.

The policies were labeled by some as "Trickle-down economics,"^[12] due to the facts that the combination of significant tax cuts and a massive increase in Cold War related defense spending caused large budget deficits,^[13] the U.S. trade deficit expansion,^[13] and contributed to the Savings and Loan crisis,^[14] as well as the stock market crash of 1987. In order to cover new federal budget deficits, the United States borrowed heavily both domestically and abroad, raising the national debt from $700 billion to $3 trillion,^[15] and the United States moved from being the world's largest international creditor to the world's largest debtor nation.^[16] Reagan described the new debt as the "greatest disappointment" of his presidency.^[15]

Reagan's support for an increased defense budget at the height of the Cold War was supported by Congressional Democrats and Republicans. However, Congress was reluctant to follow Reagan's proposed cuts in domestic programs. Tax breaks and increased military spending resulted in an increase of the national budget deficit and led Reagan and Congress to approve two tax increases, aiming to preserve funding for Social Security, though not as high as the 1981 tax cuts.^[17]

Speaking of Reagan himself, Donald Regan, the President's former Secretary of the Treasury, and later Chief of Staff, criticized him for his supposed lack of understanding of economics: "In the four years that I served as Secretary of the Treasury, I never saw President Reagan alone and never discussed economic philosophy or fiscal and monetary policy with him one—on—one.... The President never told me what he believed or what he wanted to accomplish in the field of economics.”^[18] However, Reagan's chief economic advisor Martin Feldstein, argues the opposite: "I briefed him on Third World debt; he didn't take notes, he asked very few questions.... The subject came up in a cabinet meeting and he summarized what he had heard perfectly. He had a remarkably good memory for oral presentation and could fit information into his own philosophy and make decisions on it.^[19]

[edit] Legacy

Some economists argue that Reagan's tax policies invigorated America's economy, such as Nobel Prize winner Milton Friedman, who wrote that the Reagan tax cuts were "one of the most important factors in the boom of the 1990s." Similarly, fellow Nobel Prize winning economist Robert A. Mundell wrote that the tax cuts "made the U.S. economy the motor for the world economy in the 1990s, on which the great revolution in information technology was able to feed."^[20] Other economists argue that the deficits slowed economic growth during the following administration^[21] and was the reason that Reagan's successor, George H.W. Bush, reneged on a campaign promise and raised taxes. Nobel prize winning economist Robert Solow stated, "As for Reagan being responsible [for the 1990s boom], that's far-fetched. What we got in the Reagan years was a deep recession and then half a dozen years of fine growth as we climbed out of the recession, but nothing beyond that."^[20]

[edit] Military

Reagan salutes a military cadet

Following the Vietnam War, and coupled with Carter administration policies, the United States Military was underfunded and plagued by low morale during the late 1970s.^[22] Reagan initiated a reversal from those policies, and built up the military during the height of the Cold War.^[23] This built up, a 40% real increase in defense spending,^[24] included the revival of the B-1 bomber program, which had been cancelled by the Carter administration;^[22] the deployment of Pershing II missiles in West Germany; the increased enlistment and thousands of troops; and a more advanced intelligence system.^[22]

[edit] SDI

In 1983, Reagan introduced the Strategic Defense Initiative, a defense project. The intended goal was to make the US invulnerable to a Soviet missile attack by placing missiles in space and vaporizing those of the Soviets, upon a nuclear attack.^[22] This would be done by a laser guidance system, which grew into a series of systems that turned into a layered ballistic missile defense.^[22] Dubbed "Star Wars" by the news media, many wondered if the technological objective was attainable. Following air defense laser testing in 1973, work continued throughout the 1980s, and the first above earth test laser intercept was completed.^[22]

[edit] Footnotes

[edit] References

• Appleby, Joyce; Alan Brinkley, James M. McPherson (2003). The American Journey. Woodland Hills, California: Glencoe/McGraw-Hill. 0078241294. 
• Boskin, Michael J. (1987). Reagan and the US Economy: The Successes, Failures, and Unfinished Agenda. ICEG. 
• Cannon, Lou; Michael Beschloss (2001). Ronald Reagan: The Presidential Portfolio: A History Illustrated from the Collection of the Ronald Reagan Library and Museum. PublicAffairs. ISBN 1891620843. 
• Niskanen, William A. (1988). Reaganomics: An Insider's Account of the Policies and the People. Oxford, England: Oxford University Press. 
• Wojciech,Bienkowski; Brada Josef, Radlo Mariusz-Jan, eds. (2006). Reaganomics Goes Global: What Can the EU, Russia and Transition Countries Learn from the USA?. Palgrave Macmillan. 

[edit] External links

• The Historical Lessons of Lower Tax Rates by Heritage Foundation
• Supply Tax Cuts and the Truth About the Reagan Economic Record by Cato Institute
• Supply Side Economics: Do Tax Rate Cuts Increase Growth and Revenues and Reduce Budget Deficits ? Or Is It Voodoo Economics All Over Again? by economist Nouriel Roubini
• Ronald Reagan's Legacy, a criticism of Reaganomics by economist John Miller
• Reaganomics: Why Ronald Reagan's 1981 Tax Cut Did Not Cause the 1983 Recovery or Boost Tax Revenues by Bernard Sherman. (Article argues against claims that the supply-side effects of the 1981 tax cut caused the 1983 expansion or were self-funding; praises 1986 tax reform.)
• The History of Government Economic Policy in Britain, USA & the World, including Maynard Keynes and Friedrich von Hayek ideas.
• Reaganomics

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