By Siddharth Gundapaneni
We know that Presidents have only so much control over an economy and that they aren’t always responsible for what goes on in a given year, but oftentimes a President is the driving force behind the economic success of a nation. Our fortieth president, Ronald Reagan was exactly that. Touting astounding growth paired through limited government principles, Reagan’s economic record was one for the books. With each party having an incentive to vilify the other as our nation stands divided, the track record of Ronald Reagan has also been repeatedly smeared through a campaign of mdisinformation. And on the topic of a divided nation, it’s always pleasant to reminisce about a united America under Reagan.
Let’s start off by addressing the elephant in the room: what happened with his tax cuts? The most commonly-perpetuated claims was that Reagan only cut taxes for the rich, expecting the wealth to “trickle down.” Aside from the fact that Reagan (or Vice President Bush) never publicly uttered the phrase “Trickle-Down Economics,” the claim as a whole is simply false. Reagan did notably cut the top marginal income tax rate from 70% all the way down to 28%, but he also cut the income taxes of every tax bracket, and no, these tax cuts were not deficit financed. In fact, the specific tax cuts nearly paid for themselves. When taking a look at IRS data from the Statistics of Income, it should be noted that income tax revenues almost quintupled among those over $200,000 from 1980 to 1988. In 1980, the federal government collected about $19 billion in income tax revenue from those making over $200,000, and in 1988 that number rose to $99 billion. These tax cuts did in fact raise revenues, seeing Laffer Curve-esque revenue feedback in action. So then one might ask, what provisions in Reagan’s tax cuts did contribute to the debt? When viewing the Tax Reform Act of 1986, arguably the largest tax cut during Reagan’s tenure, we see numerous provisions that are not a rate tax cut, but rather increased deductions that overwhelmingly support working class Americans, such as the standard deduction, personal exemption, earned income tax credit, and more. That reform led to a whopping six million low-income Americans no longer paying federal income taxes. The effect of such a policy is often understated by historians. Millions of low-income Americans being relieved of one of their largest yearly costs should always be touted as a successful policy, but instead partisan politicians will make Reagan out to be the demagogue that despises the well-being of the impoverished. Many commentators and analysts remark that the 1950s and 60s was a time of optimal income taxation, yet the understanding is often lacking when it comes to how many people actually paid the excessively high rates. Hence why Reagan was able to quintuple revenues following the series of tax cuts passed, as people began to fully pay the fairer rates levied.
Furthermore, Reagan also receives ample criticism from fiscal conservatives that claim his increased military expenditures ballooned the debt, making him a hypocrite. This is also quickly disproven, when examining the details of the situation. At the time of Reagan’s inauguration, America was just recovering from almosta decade of high inflation and unemployment — also known as stagflation. The primary catalyst in ending said economic turmoil was Federal Reserve Chairman Paul Volcker. His policy of stark increases to interest rate targets and slow inflation is now remembered as the “Volcker Shock.” Unfortunately, almost all economic policy has its trade-offs, and the Volcker Shock was no exception. These high interest rates gave Reagan a slowed economy with savings disincentivized, and borrowing having a higher cost than ever. Such policy was necessary, but in no way the fault of Reagan. Thus, for an accurate understanding of how much Reagan really contributed to the debt, we must factor out interest payments on the debt, which were much higher during the Volcker Shock. Reagan also had to deal with the Savings and Loan Crisis that peaked in 1987, and passed a multitude of bailout programs for banks that were eventually paid back to future administrations. This tends to make Reagan look worse when viewing spending patterns, as Reagan’s contributions to the deficit were overstated, and presidents that followed him were paid back by the banks which made them look even better. By that same logic, we can factor out bailouts for crises that didn’t add much to the debt. When comparing the annualized spending growth of all presidents post-WWII, and accounting for bank bailouts and net interest payments, the results may be shocking to some. President Reagan averaged the lowest spending growth of all post-war presidents, as in reality he did not add half as much to the debt as many commentators may portray.
Still, Reagan was no saint. He definitely increased military spending more than most fiscal conservatives had hoped. But was Reaganomics a failure? Absolutely not! Reagan improved the lives of millions by strengthening federal transfers to the impoverished, while also allowing more financial choice by putting more money in the hands of constituents through tax cuts.