“On this day in 1981, Congress passed President Reagan’s plan to cut tax rates by 25 percent over three years. The proposal had been a central pillar of Reagan’s presidential campaign a year earlier, and six months into his first term – in the face of a recession unequalled until today – he was determined to get it done.” John Heubusch, ‘Remembering Morning in America’, The Washington Times, July 29, 2010
On July 29, 1981, a Republican-controlled Senate approved Reagan’s proposed tax cuts by a vote of 89-11. With Americans completely jamming the Capitol switchboard with calls voicing their support for this initiative, a Democrat-controlled House of Representatives decisively overruled Speaker Tip O’Neill in approving the president’s proposal by a vote of 238-195, with 48 Democrats crossing the aisle to vote in favor of the bill. This truly was the monumental rocket thrust that propelled the Reagan two-term presidency into the economic stratosphere nothwithstanding the fact that Paul Volcker’s Federal Reserve had imposed a monetary refrigerator on the United States economy.
It behoves us in these dramatically different political circumstances, to review the economic impact of that glorious tax-cut. Over the eight years of the Reagan presidency, 20 million new jobs were created in the United States, inflation declined from 13.5 percent to 4.1 percent, unemployment fell from 7.6 percent to 5.5 percent, and the net worth of middle- income families grew annually by 27 percent. The economy itself grew in real terms by a staggering 40 percent.
No one could know for sure that such would be the case on July 29, 1981, when those brave souls in the Senate and in the House followed the tax-cutting leadership of a determined President. In the mid-term 1982 elections, the President’s approval rating would hover below 40 percent and the Republicans would lose 26 seats. By 1984, however, with economic recovery assured, Reagan’s approval would rise to a high of 70 percent and his re-election would be a landslide.
“Our struggle for nationhood, our unrelenting fight for freedom, our very existence; these have all rested on the assurance that you must be free to shape your life as you are best able to, that no one can stop you from reaching higher, or take from you the creativity that has made America the envy of mankind.” Ronald Reagan, ‘Primetime Address to the Nation‘, July 27, 1981
As John Heubusch correctly notes, in 1984 Reagan’s re-election theme: Morning in America, was more than just a slogan – it was how Americans truly felt.
Tags: 16 years of the great moderation, inflation declines, Morning in America, Reagan tax-cuts propel economic recovery, stagflation ends, unemployment declines
July 30, 2010 at 6:45 pm |
This would be more interesting if you could fold into the discussion the impact of Reagan’s deficit spending (mostly in peacetime defense) on longer term macro-economics. I think the trickle down didn’t trickle down as far as he thought it did or would. The deficit spending in Bush II’s second term and Obama’s first term is what will do more damage no?