It was a new year. A new president was being sworn in against a backdrop of a fledgling economy on the brink of recession. Americans were suffering from high taxes, high unemployment, high interest rates, and a low national morale. No, I’m not talking about 2021 when President Biden was sworn in, although the comparisons are strikingly similar. I’m talking about 1981 when Ronald Reagan was sworn in.
Reagan came into office with a mission and a plan to execute it. Bringing America back was President Reagan’s top priority. During his inaugural address, Reagan faced the crisis head on, stating, “This Administration’s objective will be a healthy, vigorous, growing economy that provides equal opportunities for all Americans, with no barriers born of bigotry or discrimination. Putting America back to work means putting all Americans back to work. Ending inflation means freeing all Americans from the terror of runaway living costs. All must share in the productive work of this ’new beginning,’ and all must share in the bounty of a revived economy.”
His economic plan consisted of four pillars: 1) cut federal income tax and the capital gains tax to encourage investment; 2) reduce the growth of government spending to “starve the beast”; 3) cut government regulations to make starting and operating a business easier; and 4) tighten up the money supply in order to reduce inflation. Reagan faced charges of promoting “voodoo economics” or “trickle down economics” but helped push these changes through even despite the criticism he received from Democrats and even those in his own party. Nevertheless, Reagan plowed ahead, trusting his instincts that putting more money in people’s pockets, reducing spending, and getting the government out of the way will enable the free market and boost the economy.
He worked with Congress to produce and push forward the Economic Recovery Tax Act of 1981, which laid the foundation for the “Reagan Recovery.” A few years later, the Tax Reform Act of 1986 brought the lowest individual and corporate income tax rates of any major industrialized country in the world.
President Reagan’s numbers tell the story. According to the Ronald Reagan Presidential Foundation, over eight years of the Reagan Administration:
- “20 million new jobs were created”
- “Inflation dropped from 13.5% in 1980 to 4.1% by 1988”
- “Unemployment fell from 7.6% to 5.5%”
- “Net worth of families earning between $20,000 and $50,000 annually grew by 27%”
- “Real gross national product rose 26%”
- “The prime interest rate was slashed by more than half, from an unprecedented 21.5% in January 1981 to 10% in August 1988”
- “Given actual rates of inflation, through 1987, the Reagan tax cuts saved the median-income two-earner American family of four close to $9,000 in taxes from what it would have owed in 1980.”
As they say, the proof is in the pudding. Rather than embrace a proven economic model to reduce inflation, which now sits over 10% versus last year, and cut taxes, President Biden and the DC liberals are still promoting a slimmed down version of, his disastrous “Build Back Better” plan. Biden’s BBB plan would raise taxes, pump taxpayer dollars into growing government bureaucracy (in addition to the trillions already spent), and accelerate inflation. Democrats want these policies enacted even while small businesses are still struggling to recover from the pandemic.
President Biden should abandon this disastrous plan and work with Republicans, as he pledged to do on the campaign trail, to halt this runaway train of spending and debt. Heading into recession territory is no time to raise taxes and overspending is a recipe for disaster as inflation is raging. There’s a few things Reagan could teach Biden on the economy and much of it comes down to this: do the exact opposite of what you are currently doing.
Bob Carlstrom is President of AMAC Action and served in President Reagan’s Office of Management and Budget
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