As we commemorate the 30th anniversary of Ronald Reagan’s election in 1980, the lessons of his presidency are more relevant than ever. Reagan celebrated the virtues of lower taxes and limited government, while warning that excessive regulation chokes economic growth and job creation. Unfortunately, many policymakers in Washington seem to have forgotten these lessons. But the 2010 election results suggest that the American people have not.
All across the country, candidates ran on a boldly Reaganite message of lower taxes and smaller government. This message clearly struck a chord.
Americans are deeply concerned that, in the midst of our worst prolonged economic slump since the Great Depression, Congress may soon allow a massive tax hike.
The Reagan record demonstrates how low tax rates can spur economic growth by changing incentives to work, hire and invest.
Reagan took office at a time when the top federal income tax rate was 70 percent and the economy was in a severe slump. By the time he left office, the top tax rate was 28 percent, capital gains taxes were much lower, and America had experienced an unprecedented economic boom.
Of Reagan’s tax policy, historians Larry Schweikart and Michael Allen write in A Patriot’s History of the United States, “Production, employment, job creation, and entrepreneurship all surged, achieving near record levels .... The blessings reached across the entire strata of American life.”
Policymakers today should keep this history in mind and avoid raising taxes on anyone.
Reagan was also determined to reduce burdensome government regulation, and did so successfully. Reagan’s deregulation of U.S. energy markets was one of his most impressive accomplishments. Instead of government regulation, he offered market-based solutions.
In contrast, the current administration has increased regulation dramatically. New regulations being drafted by the Environmental Protection Agency, for example, are expected to drive up energy costs and kill jobs. If policymakers want to address energy problems, Reagan showed that there are better ways to do it than job-killing regulations.
It’s often pointed out that President Reagan left behind a budget deficit. While that’s true, the federal deficit in January 1989 was much, much smaller as a percentage of gross domestic product than our deficit is today.
Moreover, Reagan was prosecuting the Cold War, which required large defense expenditures, and he also had to deal with a free-spending Democratic Congress. While Reagan regretted his inability to achieve deeper spending reductions, he did make substantial progress on spending between 1981 and 1984. Economists Veronique de Rugy and Tad DeHaven have noted that real non-defense discretionary outlays dropped by 13.5 percent in Reagan’s first three budgets.
At the end of Reagan’s two terms, he had reversed the decades-long trend of ever-expanding government. As a result of his policies, America had produced 14 million new jobs. Schweikart and Allen note, “This was nothing short of stupendous, given that since 1970, all of the European nations combined had not generated a single new job .... Reagan had destroyed liberal assumptions that only a steadily growing government sector could produce economic stability and prosperity.”
Ronald Reagan was an exceptional leader. His policies put us on a path for years of prosperity. The lessons of his presidency can guide us today.