Ronald Reagans Presidency - Essay Example

Ronald Reagan was a former Democrat, former president of the Screen Actors Guild and once governor of California. Ronald Reagan's economic beliefs shaped his conversion from New Deal Democrat to conservative Republican. His attitude towards taxes played an especially important role in his political evolution. As an economics major at Eureka College in the 1920's (before the Depression and the New Deal), he was taught classical economic (Busch 2005, 277). Later in his life, as a movie actor, Reagan would live and earn at the top tax bracket. He learned then the disincentive created by higher taxes as his fellow actors would stop working at some part of the year in order to avoid such high taxes and the low return on their labor. Finally, he came to his economic belief system through his own study of the free market (278). Reagan's transition from Democrat to Republic and his later adoption as a symbol of conservative republicanism will be discussed in this essay through a critical analysis of his economic policy and position on Social Security reform. President Reagan's economic policy was broadly set in a speech he gave as a candidate on 9 September 1980. In it, he outlined a program based on a rejection of Keynesian economics. He supported cuts in the marginal tax rate and reductions in business taxes. He argued for the elimination of wasteful government spending and for a balanced budget (Hogan 1990a, 218). So when the economic package was revealed to public, its central themes should have surprised no one: tax cuts, reductions in the rate of growth of government spending, deregulation and the slow, stable growth of the money supply (Hogan 1990a, 222; Busch 2005, 29). The tax cuts, which were important to Reagan (due to his personal experiences with taxation) specified a 10% rate reduction for three consecutive years, cuts in business taxes, the elimination of bracket creep (the process by which inflation pushes income earners into higher tax brackets even though their income has not increased enough in "real" dollars to warrant such a raise), capital gains tax reductions, lower estate and gift taxes and the faster depreciation on business investments (Schaller 1992, 42). The Reagan tax cuts were favored by the public as most people would prefer to retain more of their income, and by many members who wanted to take some credit. It also presented the public with an image of induced economic growth that was painless in comparison to strict budget balancing and economic controls (Hogan 1990b, 147). Reagan's Fiscal Year (FY) 1982 budget projected federal spending at $659.5 billion with a deficit of $45 billion. It included non-defense reductions of around $41.4 billion and an additional $200 billion is cuts over the next three years. A balanced budget was forecast for 1984. Marginal tax rates would be cut from a range from 14% to 70% to one between 10% and 50%. Many social programs would be shifted to the states (Sloan 1999, 115-116; Schaller 1992, 42). His alterations were in the conservative tradition. Government's domestic spending would be cut coinciding with a cut in its major source of revenue. This would act as a constraint against further unchecked growth. A budget victory was also a necessary prerequisite for the upcoming tax cuts; since Reagan wanted lower taxes, he would first need to address the budget. The budget battle took place over two phases. The first phase involved a Democratic alternative to the Reagan plan that was similar to the president's but different in some major ways. It involved a single year tax cut and increases in spending reductions (Hogan 1990b, 147). Reagan was not willing to trade his three year tax cuts for increased spending cuts, so a short battle in the House resulted. The winner, the administration backed mandated spending reductions on over 200 domestic programs by over $136 billion between FY 1982-1984. The entire program was put into a single bill, which meant all reductions would be considered together and decided by one vote on the floor (148). Reagan's budgets, however conservative they were and different from previous budgets offered under the liberal presidencies, did not undo the goals of these earlier presidencies. They were a simple reordering of priorities. The New Deal survived while spending in some Great Society programs, such as child nutrition and mass transit, were reduced (Cannon 1991, 240-241). Eventually even the call for a balanced budget was set aside. In late October, 1981, Treasury Secretary Donald Regan said a balanced budget was not probable. Soon afterward, the president himself said it was a "goal" and, therefore, not something inevitable or a commitment (260). The balanced budget was even left out of the main document describing what was known as "Reaganomics," America's New Beginning: A Program for Economic Recovery (235). In 1982, during a recession and rising deficits, the Republican Senate threatened the tax cuts, forcing Reagan to return to the table. The resulting legislation, the Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982, was presented as the greatest tax reform in history by the administration. In it, domestic spending was cut $22 billion and taxes were increased by $215 billion. These increases were mostly on industry (Hogan 1990a, 226). Reagan protected his cuts in the tax rates on individuals. The Deficit Reduction Act of 1984 increased government revenues by an average of $100 billion every year until 1990 but it did so through means other than reducing the tax cut. In fact, Reagan, signed bills increasing taxes several times during his administration through "users fees," the Social Security Tax and the energy tax (Hogan 1990a, 226). Never, however, did he allow a raise in income tax rates. Military policies were also another area which evidence Reagan's commitment to conservativism. The issue of military strength and readiness was a major theme in the election of 1980. Reagan attacked President Carter for perceived weakness around the world. The electorate proved to be a receptive audience. The hostage crisis was daily news since November 1979, the Soviets invaded Afghanistan and were, along with Cuba, active in other parts of the world. There was a definite sense that the United States was losing its military superiority and the security that comes from it. As president, Reagan sought to solve the problem by pouring money into national defense. As part of the FY 1982 budget, the president asked for $32.6 billion more in defense spending over the $26.4 billion in increases Carter already requested. This represents an immediate $59 billion increase in defense spending. Furthermore, over the next five years, the White House planned an annual eight percent increase in defense spending. Between 1982 and 1986, Reagan requested Congress to appropriate $1.46 trillion for defense. This money was designed to support the general Reagan strategy. Put forth in the Annual Defense Report for FY 1983 and the FY 1984-1988 Defense Guidance Plan, the strategy called for economic warfare against the Soviet Union; the modernization of US strategic nuclear forces, arms development leading to arms control; and the ability to deal with the Soviet Union in a prolonged war (Turner 1988, 159-160). His attempts were largely successful. In 1980, defense accounted for 21% of the federal budget while welfare services, for example, accounted for 28%. By 1987, these figures reversed (Turner 1988, 159-160). Reagan successfully created a change in spending principles so quickly after an era that favored social spending to such a degree. In any discussion on Reagan's commitment to Conservative Republicanism, his treatment of the Social Security issue is important. Its importance stems from the fact that it has often been referred to as an example of his less than full commitment to Conservativism as the reforms which were enacted were not reflective of the ideology in question. The future solvency of Social Security was placed in question during the late 1960's into the late 1970's. There were strong electoral incentives to expand and index the program's benefits. The costs this added to Social Security were masked by a strong economy, but when the economy became troubled in the mid-to-late 1970's the program was in danger. High inflation caused benefits to soar (because benefits were tied to the cost of living) while unemployment caused revenues to shrink. Soon it was estimated that Social Security, the most popular and enduring of the New Deal reforms, would be exhausted in 1981 or 1982 (Derthick and Teles 2003, 183). Herein was the opportunity: Reagan could attempt to reform and save Social Security in a way consistent with conservative ideals. He failed to do so. What resulted was a patchwork solution and an issue the Democrats would use effectively against the Republicans for decades to come. Part of the problem was Reagan's unclear stance on the issue and the internal divisions within his own administration about how to handle the situation. President Reagan was conflicted about Social Security. Personally, he was not a fan of the program but he was politically astute enough to recognize its danger to him on the campaign trail and promised not to cut benefits (Derthick and Teles 2003, 183-184). Reagan's lack of clarity on the issue probably led to, or allowed, the internal division. Stockman was the lead man on the budget and believed that the only part that could be cut enough to balancing the budget (the "future savings to be identified later" in the budget) were the middle class entitlements of Social Security, Medicare and retirement benefits (186). He quickly presented a plan to the president that called for increasing the penalty for early retirement. Since nearly two-thirds of those receiving benefits had started doing so early, this promised to save the government a great deal of money. It also promised to reduce the income of many citizens (Sloan 1999, 134). Baker and Darman immediately understood the danger Stockman's plan posed for the president and were horrified when Reagan (who did not see the danger) enthusiastically embraced Stockman's idea during a meeting. Skillfully, they sought to distance Stockman's idea from the president by having it announced at the Department of Health and Human Services. Reagan still was heavily criticized by the Democrats and soon a deal was needed. Reagan, now on the defensive, appointed Alan Greenspan to head a commission charged with the responsibility of addressing the coming crisis in Social Security. Leaders of both parties had a role in deciding who sat on the commission (Cannon 1991, 252). Social Security was a major issue in the election of 1982 and helped send many Republican members of Congress back to private employment. Soon, a deal was made between Howard Baker and Bob Dole that allowed the administration to save face on the issue (Sloan 1999, 134-135). The Social Security reforms, based on the Greenspan Commission's recommendations, called for the reduction of benefits through taxation, the acceleration of an already scheduled payroll tax increase, a higher age of retirement and a greater penalty for early retirement (Derthick and Teles 2003,201). Reagan's failure to enact conservative Social Security reforms to create a great shift in one of the signature programs of the New Deal was the result of context and skill. Contextually, Reagan's reconstruction was not powerful enough to make great changes in Social Security. The decades old program was still favored by the public, so the chances of fundamentally altering it were slim. This constraint was made worse by the lack of skill shown by Reagan. Embracing Stockman's plan so early and without any preparation had major repercussions. It was immediately rejected by both parties in Congress (Derthick and Teles 2003, 184). One of the major strategic errors made by the administration was to announce the plan without congressional consultation while also passing on two plans backed by Congress that would have saved Social Security, sparing Reagan the troubles caused by his actions (185-186). Perhaps the biggest failure was that the administration's initial response, cutting benefits to early retirees, gave the Democrats an issue to use against the Republicans (1 84). This issue is partly responsible for the poor showing the Republicans had in the 1982 midterm elections where they lost 26 House seats (198). The result of the Social Security issue was a bad one for the administration. Reagan signed a bill that was not entirely in line with conservative thought and lost seats on Election Day. Even when taking the Social Security issue into account, Reagan's policies are indicative of his commitment to Conservative Republicanism. Indeed, even his stand on Social Security, irrespective of the outcome, is evidence of the aforementioned. This claim is amply supported by the facts of Reagan's position on the issue, as discussed in the preceding paragraphs and the fact that he did not generate the support requisite for the implementation of his position speaks to his lack of clarity on the issue and his inability to present the case in a persuasive manner, and is hardly indicative of wavering commitment to conservativism. In closing, it is important to emphasize this last point as well as highlight the fact that Reagan's brand of conservatism, and the policies to which they gave rise, did not alienate the Democrats, whether the voting public or elected officials, partly because they did not seek to undo that which previous Democratic Administrations had done. Instead, he revised and built upon them. It is, thus, that Reagan not only figures as one of the nation's most important symbols of Conservative Republicanism but as one of its more popular presidents in recent years. Works Cited Busch, Andrew E. "Ronald Reagan and Economic Policy." in The Reagan Presidency: Assessing the Man and His Legacy. Paul Kengor and Peter Schweizer, ed. New York: Rowan and Littlefield Publishers, Inc, 2005. Cannon, Lou. President Reagan: The Role of a Lifetime. New York: Simon and Schuster, 1991. Derthick, Martha and Steven Teles. "Riding the Third Rail: Social Security Reform." in The Reagan Presidency: Pragmatic Conservatism and its Legacies. W. Elliot Brownlee and Hugh Davis Graham, eds. Lawrence, Kansas: The University of Kansas Press, 2003 Hogan, Joseph. "The Federal Budget in the Reagan Era." in The Reagan Years: The Record in Presidential Leadership. Joseph Hogan, ed. New York: University Press, 1990a. Hogan, Joseph. "Reaganomics and Economic Policy." in The Reagan Presidency: An Incomplete Revolution Dilys M. Hill, Raymond Moore and Phil Williams, ed. New York: St. Martin's Press, 1990b. Schaller, Michael. Reckoning With Reagan: American and its President in the 1980 's. New York: Oxford University Press, 1992. Sloan, John. The Reagan Effect: Economics and Presidential Leadership. Lawrence, Kansas: University of Kansas Press, 1999. Turner, Michael.. "Defense Policy and Arms Control." in Reagan 's First Four Years: A New Beginning John D. Lees and Michael Turner, eds. New York: St. Martin's Press, 1988. Read More