Thirty years ago tomorrow on August 13, 1981 Ronald Regan signed a set of massive tax cuts in an attempt to resuscitate Jimmy Carter’s failed economic mess. The Economic Recovery Tax Act (ERTA) of 1981 centered on a sweeping 25% reduction in personal marginal tax rates across the board. At the time political pundits were largely in agreement on two points. First, that ERTA would do nothing more than line the pockets of the rich as it was widely believed at the time that the tax rate on top American wage earners would go down while the rest of the nation footed the bill. The second misconception critics agreed on was that ERTA would bring about the total collapse of the nation’s economy. The predictions of doom and gloom were pretty safe claims due to America’s economy teetering precariously close to the edge of collapse at that time. Who could forget the days of the gas lines and the unemployment rate which under Carter peaked at over 10%? All signs were pointing to continued increasingly dark days ahead for the United States. It would have been a safe bet to assume that any radical action, regardless the intent would be enough to send the US over the economic edge. As to the claims that the ERTA was nothing more than a payoff to those nasty rich people, in this particular case for many it was more than just partisan rhetoric. Washington critics at the time with the help of the Congressional Budget Office had cooked up some dismal estimates on the economic effects of the ERTA and the word was out. Unfortunately, the Democrat controlled CBO used a static model of human behavior in their estimates which did not take into account things like increased consumer confidence and encouragement to the wealthy to generate increased taxable income resulting in decreased overall unemployment; All the effects that supporters of cutting taxes have cited as reasons to do so throughout history.
Regan ignored warnings from American “Big Money” and Wall Street tycoons that the cuts were good but excessive. He paid no attention to the masses that called for and predicted his ousting after a single term. Reagan signed the ERTA thirty years ago tomorrow and the effects were dramatic.
In contrast to the CBO and other critics’ claims at the time, the Economic Recovery Tax Act of ’81, additional tax cuts in ’86 and eight consecutive years of reduced federal regulation on American businesses were nothing if not stimulating to the economy.
Under Reagan the private sector created 15 to 20 million new jobs between 1981 and 1988 depending on whose stats you reference. This is a net increase that doesn’t account for the additional five million jobs that were lost through 1982 before the effects of Reagan’s policies could be felt. So technically, the eight year effects of reduced taxes and federal regulation under Reagan actually saw the creation of 20 to 25 million new jobs with some estimate as high as 35 million. The DOW tripled under Reagan moving from an ’82 low of 884 to a ’89 high of 2,509. Unemployment dropped from an ’82 high of over 9% to 5.5% by 1989. Inflation which was around 11% when Reagan took office dropped to an ’86 low of 2% and had leveled off at about 5% by the time Reagan left office.
Reagan took what many at the time considered drastic steps so as to focus immediate attention to the economic crisis of his time. However, Reagan, being an economics major was well aware of the effects the same types of cuts had produced in the 1920s and in the 1960s. In Reagan’s mind the cuts were not a risk but a no-brainer. The most conservative estimates show federal tax revenue under Reagan increasing by 80% despite the massive tax cuts. Other estimates claim federal revenue as much as tripled under Reagan. Despite critics’ claims that Reagan was simply cutting taxes on the rich, taxes on the top 10% of US wage earners increased due to their generating and spending increased taxable income while taxes on everyone else in the country went down with the poorest Americans seeing a nearly 300% decrease in personal taxes. All this was the result of decreasing federal regulation and taxes across the board resulting in increased consumer confidence and a more business friendly atmosphere that stimulated the economy to the longest period of peacetime economic growth the nation has ever seen. Reagan accomplished this while still investing heavily in defense which resulted in the US spending the USSR into defeat in the Cold War which then made it possible for the defense cuts that led to the Clinton era surplus.
As we start what promises to be another beautiful summer weekend in the greatest nation on Earth, I would encourage the country to consider the “risky” but incredibly effective actions of past American leaders such as Coolidge in the 20s, Kennedy in the 60s and most importantly Ronald Reagan in the 80s. Consider the economic state of the nation and the partisan rhetoric and disinformation at the time and compare all of these facts with the current state of our nation.
It’s time for America to stop playing politics and start learning from the past. It’s time for an American leader more vested in the success of the nation than in securing lifelong friends with payoffs and political favors. The nation misses you President Reagan, and we deeply appreciate not only your service but the fact that you served the nation above yourself while in office. Oh, and I would thank you personally for being an adult and not spending all your time making excuses and blaming your predecessor. I’d likely have no time for politics at this point in my life had I grown up watching a man-child in the Whitehouse making excuses as opposed to a strong leader making beneficial differences.