Theme 5 – The impact of the Reagan presidency, 1981-96
Introduction
Reagan’s presidential goals
• Reagan won 1980 presidential election with 489 electoral college votes vs Jimmy Carter’s 49
• Promised change + to lead, not crisis manage (believed Gerald Ford + Carter had done)
• Wanted shift away from ‘Great Society’ policies of liberalism (‘weakening USA’) that encouraged reliance welfare rather than
work
• Vowed his domestic policies fix economy, lower taxes + reduce ‘big government’
Reagan wished return US to prior greatness
• Used public dissatisfaction to his advantage during presidential campaign; confidence that buoyed people 1950s gone
• Loss confidence result no. factors:
➢ Lost Vietnam War, presidency tarnished Watergate Scandal, economy decline + many crises badly dealt with by
administrations that followed Nixon (1970 oil crises)
• Many supported Reagan’s view return values individualism underpinning American Dream
Did Reagan live up to his sweeping promises and his impact up to 1996 (end Clinton’s first term)?
• Different interpretations can be advanced to answer these questions:
➢ Depends on promises under consideration, what they’re weighed against + even political point view/stance person
making assessment
➢ Time assessment made crucial: analysis impact Reagan’s presidency made after left power 1989 different from one made
now, with more knowledge longer-term effects presidency
Reaganism and Reaganomics – a new departure or reflection of the past?
• Presented himself as face of change + stark difference administrations 1960s/70s
• Many ways in which Republican gov 1980s strikingly similar Republican government of 1920s:
1) Reduction of ‘big government’: reduction interventions made by successive liberal governments since FDR, return laissez-
faire
2) Both hard line anti-union: under both administrations, union membership fell + government + many businesses portrayed
union membership ‘un-American’
➢ Aug 1981: 13,000 air traffic controllers went on strike; Reagan said strike illegal (unions people employed by fed gov
not supposed strike)
➢ Threatened fire strikers if didn’t go back work within 48hours (they didn’t) → sacked them all despite protests of
their experience
3) Both allowed creation big business corporations/monopolisation areas industry
4) Both believed significant tax reductions; both reduced top-level personal tax rates 70% → 25% + business tax
concessions → creating economies with wealth concentrated at top
5) Both gov’s new industries flourished; farming + mining suffered
6) Both encouraged financial speculation + caused stock market crashes/depression (1929 Wall Street Crash; 1987 crash +
wobble 1989)
7) Both believed ‘Rugged individualism’: creating economy where such people able flourish (Henry Ford + Bill Gates
respectively
8) Both divided poor into ‘worthy poor’ and ‘feckless’: offering help former + discouragement later
• Backlash against liberalism 1960s/70s helped Reagan to power; public feeling widespread federal expenditure social projects +
high level federal involvement state + local level ineffective + ‘un-American’
➢ Carter (liberal Democrat) seen making situation worse, economy out of control
➢ People wanted change direction, just as had 1932, when Republican policies seemed not be working
The political scene when Reagan came to power
• 1979, President Carter referred USA as having ‘malaise’, an indefinable discontent + showed in many ways
➢ 1979: public opinion poll showed, for first time, majority Americans thought children’s lives be worse than own
➢ Even during Watergate scandal, 30% people had thought that
➢ Showed people not only doubted government, they had severe doubts about future
• Carter saw this, but his answer discusses problems, appeal for austerity + collectively fix problems
➢ His outlook + speeches pessimistic. Reagan, on other hand, stressed what USA had achieved prior/what could achieve
again
➢ Reagan promised fix things: Carter’s: let’s work together to fix it’ vs Reagan’s ‘I can fix it’.
➢ Highlighted importance optimistic president for success positive public opinion’
• G. Hodgson: ‘broad + growing assumption since 1970s decline liberalism’
➢ ‘New consensus free market used describe complex phenomena + invoked propose solutions often unproved’
, ➢ ‘By 1970, huge shifts in voters’ attitudes began to attack the fundamental assumption of a welfare state’
Reagan’s beliefs
• Both Reagan + Carter committed Christians: significant amount conservative coalition support helping him to power came from
religious right
• Christians believing strongly traditional family values/compulsory prayer schools – opposed homosexuality + abortion/birth
control
➢ Reagan agreed with their beliefs + made clear of them
➢ Gave jobs within White House to religious right + attempted pass law severely restricting access abortion
➢ Combination opposition in Congress + concerns acceptability of laws meant gov not as conservative as many of religious
right would have hopes
• Many historians and political analysts have likened Reagan’s election 1980 to FDR’s election 1932, yet deeper differences
clearly at large
What effect did Reagan’s economic policies have?
Immediate action
• Policies clear: wanted to control government spending, reduce government involvement, cut taxes
➢ Influenced by ‘supply-side’ economic theories: postulates economic growth most effectively fostered by lowering taxes,
decreasing regulation, and allowing free trade to increase production/saving/investments
➢ Benefits ‘trickling down’ to all society
• Within 3 days inauguration, sacked many White House staff members + put Fed gov hiring freeze in place
➢ Told all departments freeze on office expenditure + cut travel expenses 15%
➢ Series executive orders set up new advisory groups, reporting directly to him, how cut down ‘big government’
➢ His active stance minimal financial savings + advisory groups don’t make changes/ignore advice if wished to.
• Supply side argument for cutting taxes: high tax rates arguably reason productivity fell 1970s
The plan for reform
• Reagan unconventionally wished present his entire budget policy through to 1948 as single bill to Congress 18th Feb 1981
• His Council of Economic Advisers unable follow procedures for budget planning
• Congress had to vote on whole package of spending cuts + administration approval of measures up to 1984
• Reagan’s Program for Economic Recovery (his economic strategy) presented to Congress on time + stressed importance passing
legislation quickly
Reaganomics
1) Cutting the federal deficit: accompanied by budget bill + proposal for cuts on domestic spending
➢ Aimed reduce federal deficit 22% GNP 1981 → 19% 1986
➢ Significant no. errors due to haste made, included ‘unidentified’ cuts of $78bn to be ‘decided later’
2) Personal + business tax reductions: accompanied by Economic Recovery Tax Act (ERTA) 1981
3) Deregulation: removing Fed control industry, state + local government
4) Planned control of money supply: keep inflation down while expanding economy
• Suggested cuts domestic spending almost entirely from federal grants specific projects under Johnson’s ‘Great Society’ reforms
• Included grants state + local level government bodies for slum clearance + highway repair
• Also, local initiatives education, housing + provision various services such as Aid to Families with Dependent Children (AFDC)
programme scrapped
Getting Reagan’s Program for Economic Recovery passed
• First time decades Republican majority in Senate + almost a Republican majority in House Representatives
➢ White House only had win support 26 Democrats in House pass its legislation
• Budget became law August 1981: The Omnibus Reconciliation Act (ORA) (aims eliminate $35-45bn of federal spending)
• Senate passed tax reduction with 1 change: cut reduction personal tax 30% → 25%
➢ Democrats felt manipulated over budget + saw tax bill as fight over control of House
➢ They made significant changes to bill; White House offered tax concessions to some Democrats to swing vote
➢ Democrats counter-offered incentives areas they controlled + process became undignified scramble over concessions
• Reshaped bill eventually passed in Aug 1981 Economic Recovery Tax Act (ERTA)
1) Cut marginal income tax by 23% over 3 years + linked tax bands to inflation
➢ Applied to all tax bands, those paying higher tax benefitted most
➢ Federal individual income tax receipts 7.94% → 10% of the GDP by 1985 (never falling below 8.05% GDP)
2) Highest income tax band 70% → 50%, lowest fell 14% →11%
3) Allowed all working taxpayers to set up untaxed IRA’s (Independent Retirement Accounts)
4) Business rates cut + businesses revise depreciation costs (calculated years advance so suffered from inflation)
➢ Capital gains tax 28% →20%: Revenue increased >50% $12.5bn (1980) → >$18bn (1983).
