Tax-cutting fever is in the air again and many of Washington’s talking heads are citing the tax policy of Ronald Reagan but with many of them getting the Gipper wrong. Typical. For Reagan, it just wasn’t about the economy or jobs but about the more deeply important expression of the assignment of power. At one point in 1981, Reagan told a group of conservatives his belief that cutting taxes was really about reordering man’s relationship to the state. Reagan, the libertarian, Reagan, who embraced Federalism, saw Washington as an illicit power grabber and wanted to re-address the imbalance. He wanted to take power away from the corrupt government and give it back to the citizenry.
“The Era of Reagan” or “The Age of Reagan” sounds sweeping, epic, and generational. And it was. And it is. It sounds like a time similar to the Pax Augusta of Ancient Rome, spanning centuries of peace and prosperity. The Era of Reagan did not last three hundred years, but still it was impressive, world altering and many believe we are still living in the shadow of the 40th president. After all, who is more cited? Obama is gone and forgotten, as are the Bushes. Reagan never compared himself to other presidents but all succeeding presidents have compared themselves to him.
Less than a decade in power, but these years have its own name akin the greatest leaders of history. From international to domestic affairs, the Reagan presidency not only redefined the conservative movement, but also realigned the United States to a long-term era of prosperity. Post-World War II, the American economy went through eight boom and bust cycles. In the 37 years since Reagan’s election only a minor recession occurred during the Bush 41 and Clinton presidencies, in part because they both raised taxes. The 2008 recession resulted from the bursting of various valuation bubbles, and resulted from massive government spending, including bloated transportation and farm bills and Bush’s sop to seniors, as well as the Prescription Drug Benefit, a new addition to the New Deal and the Great Society social programs, costing billions.
One of this plethora of ways America prospered under the Gipper was through massive tax cuts and the economy. Reagan was not a late comer to tax cuts, having returned to California’s taxpayers the largest rebate in years, $500 million, in 1970. But the GOP was pretty much the green eyeshade party in those days. Even more ironic, during Nixon’s first term, Senators Walter Mondale and Ted Kennedy proposed huge cuts in personal taxes as a means of jumpstarting the economy, but the Nixon Administration objected, advocating instead massive federal spending as a means restarting the languishing economy.
In 1980, Reagan poignantly noted that “government doesn't tax to get the money it needs, government always needs the money it gets.”
But supply-side economics was something else, and it was Dr. Arthur Laffer, Jude Wanniski of the Wall Street Journal, and conservative activist Jeff Bell who first introduced the radical (and hugely successful) economic theory to Governor Reagan (though they later flirted with the possible 1980 candidacy of Jack Kemp), who first talked it up in September of 1976 in a radio address.
Later, during one primary debate with Republican presidential candidate George H. W. Bush in 1980, Reagan poignantly noted that “government doesn't tax to get the money it needs, government always needs the money it gets.” Government, unchecked, was always going to absorb more power from the citizenry. Of course the economy was a huge issue in the primaries, and, later, the general election. In the late 1970s, under President Jimmy Carter, the country went through a enormous crisis. The country’s GDP by the last year of Carter’s presidency was negative 0.3. Inflation was at a whopping 13.5 percent, and unemployment was 7.5 percent by January 1981, making the late ’70s the worst economy since the Great Depression.
Reagan defeated Carter in November of 1980 in one of the biggest landslides in presidential history. His philosophy of individualism, smaller federal government, and American optimism reverberated with a Carter “malaise” pessimistic public. Famed journalist Hedrick Smith of the New York Times said only four months after Reagan took office that he “has managed to tap and nurture a budding mood of national self-confidence even before his major policies have had enough time to achieve real practical impact or to be properly tested.”
He wanted to re-shift the relationship between state and federal government, and man’s relationship to the government. “All of us need to be reminded that the Federal Government did not create the States; the States created the Federal Government,” he said during his first inauguration. Through this belief, he was critic of the government both penalizing those successful and overreaching to get as much money---power--- as possible from the common man. Again, during his inauguration, he said, “Idle industries have cast workers into unemployment and personal indignity. Those who do work are denied a fair return for their labor by a tax system which penalizes successful achievement and keeps us from maintaining full productivity.” Years later, he quipped, “Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.” He wanted that changed.
Both his ’81 and ’86 Tax Acts made it fairer for the American worker, closing loopholes and simplifying the tax bracket. The Economic Recovery and Tax Act of 1981, called Kemp-Roth, reduced income tax rates by 25 percent, and the Tax Reform Act of 1986 significantly lowered tax rates. On the economy, the effects in only eight years were significant from the recession during Carter’s run. By 1988, the GDP went from a negative growth to an astonishing 4.1 percent. Annually, the average GDP during the Reagan years was 3.5 percent. Inflation dropped by nearly 10 percent. “It was the equivalent of adding the West German economy to the U.S. one,” wrote Kyle Smith in Forbes in 2014. Burton Yale Pines at the Heritage Foundation, in the spring of 1988, had a much more poignant and contemporary opinion, writing that “we have had the longest period of economic growth in peacetime in American history-probably world history. A record number of new American businesses have been created; a record number of new jobs have been created (and, in fact, experts now worry about a labor shortage in America); we are producing more new products and new ideas and are doing so more efficiently than at any time in our history.”
Unemployment, yet another mark of the health of an economy, shrunk by half from the recession in 1982 from 10.8 to 5.4 percent. Black unemployment was similarly cut in half, from 21.2 percent in early 1983 to only 11.8 percent by the end of the Reagan presidency. Overall, there was more general and black employment at the end of the Reagan Era than the beginning, and that was with the tail end of the Carter Recession. Youth unemployment also plummeted.
The economy spiked so much, that there was a net increase of about 21 million more jobs in eight years. Labor participation went from 63.9 percent in January 1981 to a whopping 66.5 percent in January 1989. The median income of a family grew by $4,000, from $37,868 in 1981 to $42,049 in 1989. By comparison, it did not grow at all during Carter’s administration, and income actually shrunk during Bush 41’s years.
The context of these decisions can only be made through the lens of the 1980s and the late 1970s but the lessons are eternal. Would President Trump do well to look at Reagan’s decisions? Or JFK’s previous tax cuts? As is often the case, past is prologue. The success of the Reagan Era cannot be dismissed purely because the liberal elites at the Washington Post and NBC didn’t like him.
The empirical data is clear. Reagan was right. The corrupt liberal elites were wrong. In the end, the Reagan Era worked in favor for the American people, launching an era of optimism with the defeat of the Kremlin and the rise of the American economy. “A troubled and afflicted mankind looks to us, pleading for us to keep our rendezvous with destiny; that we will uphold the principles of self-reliance, self-discipline, morality, and, above all, responsible liberty for every individual that we will become,” Reagan once said.
The economic optimism of America flourished, restoring American morale and can-do spirit, and resulted in part in the destruction of the Soviet Union, but without a Reagan economy, the United States might have slipped into the ether of history, never seeing or celebrating a Third American Century.