Reaganomics and the Democrats

Bruce Bartlett, a former senior policy analyst in the Reagan White House, posted this chart on his web log in order to make the point that Ronald Reagan as President was a pragmatist who was able to compromise without losing sight of his main goal.

He is right about that, but I want to use the chart as a point of departure to make two further points.

(1)  Under the Reagan administration, the tax burden was shifted downward.  The average blue-collar worker may have paid more in taxes in 1989 than in 1981.

(2)  Ronald Reagan did not govern the country all by himself.  The so-called Reaganomics program could not have been enacted without the cooperation of the Democrats in Congress.

Take the Economic Recovery Tax Act of 1981.  This included not only President Reagan’s proposal to lower the top tax rate from 70 to 50 percent, but a Christmas tree of tax breaks and loopholes, mainly for the benefit of big corporations, that were added by the Democratic majority in Congress.  President Reagan signed the whole mess into law rather than renounce his original plan.

Under the Tax Reform Act of 1986, most of those tax breaks and loopholes were rescinded.  The top tax rate was further reduced from 50 to 28 percent, while the tax rate for the lowest bracket was increased from 11 to 15 percent.  The net result was a further small reduction in taxes overall, but that net figure masks the downward shift in the tax burden.

Then there were the Social Security Amendments of 1983.  These amendments raised Social Security payroll taxes in gradual annual increments and gradually raised the age for full Social Security benefits from age 65 to 67.  A majority of both Republicans and Democrats, in both houses of Congress, supported these amendments.

The amendments achieved their purpose.  They kept the Social Security Trust Fund solvent to this day and for decades into the future.  But they also increased the tax burden on blue collar workers.  Congress didn’t have to do that.  If instead a bill had been passed raising the amount of income subject to Social Security taxes, the same goal could have been achieved by shifting the tax burden upward instead of downward.

If the Congressional Democrats in the 1980s had shown half the unity and conviction of the Congressional Republicans in the 2000s, they could have stopped Reaganomics before it got started.

Why didn’t they?

Ronald Reagan

Corporate business, starting in the 1970s and continuing to this day, became more assertive politically, both in elections and in influencing the legislative process.  Liberals who went against business interests would have paid a higher price than they would have in an earlier era.

Also in the 1970s liberals started to redefine themselves as supporters of abortion rights, affirmative action, environmentalism, gay rights, opposition to censorship and the like rather than supporters of labor unions, full employment and the interests of wage-earners.  Some defined themselves as “social liberals and economic conservatives.”

Liberals also had to reckon with Ronald Reagan’s immense popularity.  He won the popular vote in 1980 by 10 percentage points [1] and in 1984 by 18 percentage points; his chosen successor won in 1988 by a near-landslide 8 percentage points.

Democrats tried to convince themselves that Reagan’s popularity rested only on his winning personality.  But Reagan also  had a coherent and understandable economic philosophy, based on the ideas of Milton Friedman, Friedrich Hayek and Ludwig von Mises.  His opponents merely had objections and doubts; indeed, some of them in their hearts believed he was right.

Click on Reagan’s Tax Increases for Bruce Bartlett’s original article on the Capital Gains and Games web log.

Click on Effective Federal Tax Rates by Decile for statistics supporting the argument that the overall tax burden increased during the Reagan years for lower-income taxpayers.

Click on The Reagan Years for a menu of links to statistical information compiled by Steve Kangas on the Reagan era’s economic policies.  [Added 2/25/11]

Click on Reagan Revolution Home to Roost – in Charts for statistical information from Campaign for America’s Future. [Added 3/4/11]

[1]  Ronald Reagan won slightly under 51 percent of the popular vote in 1980, but incumbent President Jimmy Carter won only 41 percent, with most of the rest going to third-party candidate John Anderson.  He was always popular.  He was elected governor of California in 1966 by a 15 percentage point margin and in 1970 by more than 7 percentage points.

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2 Responses to “Reaganomics and the Democrats”

  1. Blaj Says:

    Enigma at just posted some interesting commentary about Reagan and the tendency for his praise to be somewhat misaligned with his actual policy. I guess he was just incredibly charismatic.


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