Presented by Judicial Crisis Network: Writing Off Bernie? Debate Questions; Foggy Economics
Good morning, it’s Tuesday, Aug. 13, 2019. Thirty-eight years ago today, from the sanctuary of his ranch high above Santa Barbara, Calif., President Reagan signed two sweeping economic bills into law. Officially known as the Economic Recovery Tax Act of 1981 and the Omnibus Budget Reconciliation Act of 1981, they were then and forever known as “the Reagan tax cuts” and “the Reagan budget cuts.”
“This represents $130 billion in savings over the next three years,” Reagan told reporters brought to Rancho del Cielo for the signing ceremony that foggy and chilly morning. “This represents $750 billion in tax cuts over the next five years. And this is only the beginning.”
Fifteen years ago this summer Ronald Reagan went to his reward, and even for those who covered the epic budget battles of the 1980s, memories of the man are starting to fade into the mists that covered the mountain the day he signed those two pieces of legislation.
A salient question remains, however: Did the Reagan budget cuts and tax cuts really spur the economy? And how should we remember their architect? Many books have delved into the Reagan presidency, some of them written by friends and loved ones. So perhaps it’s a fool’s errand to tackle these issues in this morning newsletter. I’ll take a stab at it nonetheless. First, I’d point you to RealClearPolitics’ front page, which presents our poll averages, videos, breaking news stories, and aggregated opinion columns spanning the political spectrum. We also offer original material from our own reporters and contributors, including the following:
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Sanders Campaign Accuses Press of “Bernie Write-Off.” Phil Wegmann has the story.
What Dem Debate Hosts Can Learn From Fox’s 2015 Tack. Eric Felten compares the questions tossed out in Miami and Detroit to the more pointed ones posed to the GOP field four years ago.
Is China About to Cause the Next Asian Economic Crisis? Hal Lambert spotlights some troubling trends.
Victoria Nuland Tells All on Steele Dossier … Not. The former assistant secretary of state has downplayed her role in the spread of the anti-Trump dossier. But newly emerged evidence indicates otherwise, Eric reports in RealClearInvestigations.
Repeal of “Cadillac Tax” a Mistake for Both Parties. In RealClearPolicy, James Capretta argues that the Obamacare funding source is vital to controlling costs.
Offshore Wind Grips Governors. In RealClearEnergy, Paul Steidler points out the high cost of transmission upgrades to accommodate power from the renewable source, along with reliability issues that undercut expectations.
How Netflix Lays Waste to “Quarterly Capitalism” Narrative. RealClearMarkets editor John Tamny writes that focusing on short-term earnings causes companies to err on the side of caution -- and is a path to obsolescence.
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In the 1980 campaign, Ronald Reagan vowed to cut federal incomes taxes, vastly increase defense spending, and balance the budget. These didn’t prove to be compatible goals; or, maybe a more charitable way of saying it is that two out of three ain’t bad. In other words, the budget never came close to being in balance. To this day, Reaganites blame the Democrats who controlled the purse strings in Congress. Democrats point to another culprit: simple math.
The idea that the government could drastically cut revenues while increasing spending and still balance the budget had a cover story. It was provided by economist Arthur Laffer, who postulated that some amount of reduction in government spending could actually pay for itself by spurring the private sector economy, which in turn would generate more tax revenue. The idea wasn’t wrong. It’s just that the short-hand version embraced by small-government acolytes reduced a subtle and interesting economic phenomenon to a conservative catechism. They called it “supply-side” economics.
During the 1980 primary season, Reagan opponent (and future vice president) George H.W. Bush called it “voodoo economics.” Reaganites themselves liked to quote early supply-sider John F. Kennedy who had said “a rising tide lifts all boats.” Democrats countered by dubbing the Reagan program “trickle-down economics.” The appellation that stuck came from Paul Harvey, the conservative radio host credited with coining the term “Reaganomics.”
Whatever you called it, on Aug. 13, 1981, Reagan basically signed it into law. The president, who believed in omens, noted on that dank morning that it had been sunny all week on his mountain -- he blamed the journalists for bringing the lousy weather with them.
A more salient portent had come the day before when the Wall Street Journal reported that the forthcoming government revenue projections were already lower than what the administration had been predicting. The country was headed for a double-dip recession -- the first since the 1930s -- and Reagan’s fiscal policies were not going to forestall it.
And so in that not-so-shiny California setting, Reagan was asked whether he would revise his own projections about the legislation he was signing -- and whether the nation was headed for another recession. “We think that we are in a soggy economy,” Reagan allowed, “and it’s going to go on.”
With benefit of nearly four decades’ hindsight, what can we say about the Reagan cuts? Ronald Reagan promised that reducing tax rates would spur innovation and business formation. This came to pass: By 1983 and 1984, the economy was roaring. Certainly some of this was due to the temporary fix of deficit spending and the relatively inefficient public works program associated with the military buildup. Yet that wasn’t all there was to it. Reagan’s plan seemed especially tailored to boosting the entrepreneurial impulses of the “idea” industries. In one sense, the “Reagan Revolution,” at least as it related to budget policy, helped fuel the “Technology Revolution.” IBM introduced the first PC while Reagan was president and high-tech companies Microsoft, Dell, Compaq, Sun Microsystems, and Cisco all got their start.
On the other hand, the president who described the federal government as the problem, not the solution, did not rein in federal spending. Not hardly. The national debt tripled during Reagan’s presidency, and the deficit-spending trajectory launched by him has stayed with us. Today, the annual amount taxpayers spend just servicing the federal debt -- paying interest on it -- is higher than Pentagon spending was during each year of Reagan’s first term. That’s a lot of money.
But on this morning 38 years ago, that future was shrouded in the fog that covered Rancho del Cielo. Some things were always clear to Reagan, though. A journalist looking around at Reagan’s ranch asked him jokingly, “How much will you take for the place?”
“Oh,” Reagan replied, “you can’t sell heaven.”
Carl M. Cannon
Washington Bureau chief, RealClearPolitics