Rewriting The Reagan Years
September 1 1994 by Edwin Feulner
The Clinton administration’s central propaganda victory-the one that helped it enact the biggest tax hike in U.S. history and raise government spending to record levels-has been to plant in American minds the idea that the unprecedented economic prosperity of the Reagan years was the result of fiscal irresponsibility and “greed.”
I refer to the attempt to recast the most prosperous decade in American history-the 1980s-as a time when the rich made out like bandits while the poor and middle class had the economic rug pulled out from under them.
To hear liberals tell it, Ronald Reagan presided over the country with a devil-may-care attitude that took deficits and debt as much for granted as the new White House china.
With the help of the major news media, this collective act of willful amnesia has become pervasive. It reminds me of the world created by novelist George Orwell in his anti-utopi-an classic “1984,” in which past history was altered on a daily basis to serve the interests of “The Party.” “He who controls the past controls the present,” the inner-party operative O’Brien explains to the main character, Winston Smith. “And he who controls the present controls the future.” Indeed,
This makes it even more important for supporters of a market economy to insist on the truth about the past. Unlike Winston Smith, however, we have more than one tiny news clipping, clutched tightly in our fists, to prove those in power are wrong.
For starters, let’s remember what things were like when Reagan took over. In 1980, inflation was running at 13.5 percent, the prime lending rate stood at 21.5 percent, unemployment and poverty were rising, real income and productivity were falling, and real economic growth had ceased.
Enter Reagan, who implemented deep, across-the-board tax cuts, curbed
How did Reagan accomplish it? Was it because his policies allowed people and businesses to keep more of their own money, thereby shifting power away from government and toward the people? Or did the Reagan administration deplete the federal treasury through tax cuts and then borrow its way to a sham prosperity, leaving the bill for future generations, as liberals contend?
The former, of course. “Issues ’94: The Candidate’s Briefing Book,” prepared by my colleagues at The Heritage Foundation for the upcoming elections, reveals that in 1984, at the end of Reagan’s first term, his tax-rate cuts stimulated economic activity enough to boost federal revenues by nearly $150 billion (in current dollars) more than their level in 1980 when he took office. At the end of his second term in 1988, revenues reached nearly half a trillion over the 1980 level. Throughout the 1980s, federal revenues exceeded all the projections of the naysayers.
So where did those incredible deficits come from? Overspending.
Although Reagan’s economic strategy coupled tax and spending cuts, Congress fought the spending restraints every step of the way. As a result, federal spending far outpaced revenues during the 1980s, more than doubling from $590.9 billion in 1980 to more than $1.25 trillion (current dollars) in 1990. Congress only allowed Reagan to implement half of his program-the tax cuts-and then went on a spending spree that outpaced even the higher revenues his policies produced.
By fiscal 1986, the deficit reached its highest level under Reagan: $221.2 billion. And what happened after that is something you’ll never read in The Washington Post: The Reagan economic program started wiping out the deficit. When we look at the deficit as a percentage of gross domestic product-the best measure, since it shows the deficit’s real size in relation to the size of the economy (which was expanding rapidly under Reagan)-we see an amazing thing. Under Reagan, the deficit reached a peak of 6.3 percent of GDP not in 1986, but in 1983, when the “stagflation” of the Carter era finally broke. Six years later, in 1989, Reagan had cut the deficit by more than half, to 2.9 percent of GDP. This was enough to show up even in the straight dollar figures: From 1986′s $221.2 billion high, the deficit fell to $152.5 billion by Reagan’s final year in office, even as the economy grew at a brisk average rate of 3.5 percent. Had Reagan’s policies been left in place after he left office, my colleagues at The Heritage Foundation have calculated that the deficit would have been wiped out by the mid-1990s.
But it was not to be. In 1990, Reagan’s successor made a “budget deal” with Congress that sent the deficit soaring to a record $290.4 billion.
It is worthwhile to note that one of the prime features of George Bush’s 1990 budget deal with Congress-besides doing away with the effective Gramm-Rudman spending limits-was a record tax hike, similar to Bill Clinton’s. This didn’t reduce the deficit. Rather, by shrinking the tax base, it raised the deficit.
Until this point, Reagan’s policies of lower taxes, spending restraint, and curbs on regulation fueled a sustained economic boom lasting 92 months, from November 1982 to July 1990. The Reagan boom created 18.6 million net new jobs, and unemployment fell from 7.1 percent in 1980 to 5.3 percent in 1989. Some 82 percent of new jobs were in higher-paying, higher-skilled (technical, precision, production, managerial, and professional) occupations, and 48.7 percent were in the best-paid managerial and professional category, according to the Bureau of Labor Statistics.
And to dispel another myth: Reagan didn’t cut taxes “on the backs of the poor.” On the contrary: Between 1980 and 1992, the average income-tax rate for the bottom fifth of all wage earners fell by a whopping 263 percent. The proportion of total income taxes paid by the top 1 percent of all earners, mean while, rose sharply under Reagan, from 18 percent in 1981 to 28 percent in 1988. In 1991, the last year for which figures are available, the bottom 50 percent on the pay scale paid only 5 percent of all income taxes, while the top 5 percent paid 43 percent of all taxes.
What’s more, while the debt incurred within the
Edwin Feulner, Ph.D., is president of The Heritage Foundation, a Washington, DC-based public policy research institution. He also serves on the boards of several other foundations and research institutes. Dr. Feulner is the author of “Conservatives Stalk the House.”