On this day in 1981, Congress passed President Reagan’s plan to cut tax rates by 25 percent over three years. The proposal had been a central pillar of Reagan’s presidential campaign a year earlier, and six months into his first term - in the face of a recession unequaled until today - he was determined to get it done.
It already had been a busy year for the new president, who was on something of a legislative hot streak. Congress had passed his budget proposal, which had included significant program cuts coupled with a $25 billion increase in the defense budget. The administration also had just nominated the first woman to the Supreme Court, Sandra Day O’Connor. And let’s not forget that four months earlier, Reagan literally had come within an inch of losing his life to an assassin’s bullet.
But suffering one legislative defeat after another, House Democrats, led by Speaker Thomas P. “Tip” O’Neill, weren’t about to lie down meekly and let Reagan have his way - again. Knowing they had lost the debate over whether to cut taxes, O’Neill and the Democrats proposed a smaller cut for people earning less than $50,000 a year.
It was this counterproposal that Reagan took on in a prime-time address to the nation on July 27.
“This is not the time for political fun and games,” he said that night. “This is the time for a new beginning. I ask you now to put aside any feelings of frustration or helplessness about our political institutions and join me in this dramatic but responsible plan to reduce the enormous burden of federal taxation on you and your family.”
Two days later, on July 29, the Republican-controlled Senate approved Reagan’s plan by a vote of 89-11. In the Democratic-controlled House, where I was a staff member for a freshman Republican from Oregon who had swept in on Reagan’s coattails, the Capitol switchboard was jammed from countless Americans calling to voice their support for the president’s plan. The vote was 238-195 in favor - 48 Democrats crossed the aisle to vote for the largest tax cut in American history.
The rest of the story is well-known, but let’s look again at the numbers. Over the eight years of the Reagan administration, 20 million new jobs were created; inflation dropped from 13.5 percent in 1980 to 4.1 percent in 1988; unemployment fell from 7.6 percent to 5.5 percent; the net worth of middle-income families grew annually by 27 percent; and the overall economy grew by 40 percent.
It’s instructive to consider the differences between then and now. Once again, America has a president in his first term wrestling with massive economic dislocation. But with the 2001 and 2003 tax cuts set to expire at the end of the year, the fight has been enjoined over whether to allow for what many are calling the largest tax increase in history.
Reagan’s tax cuts didn’t save him politically, at least in the near term. The ensuing and prolonged Fed-driven recession would pull the president’s approval rating below 40 percent, and Republicans would lose 26 House seats in the 1982 midterm elections.
Despite the political beating he took, Reagan stubbornly refused to back away from his domestic agenda. Nervous House and Senate Republicans looking to the 1984 elections, who had supported the president and survived 1982, were urged to “stay the course.” Tensions grew in Republican cloakrooms as the mantra morphed into “stay the curse.” Even Reagan, his eye on deficits but ever the cheerleader for tax freedom, had his doubts at times.
We too often discuss Reagan’s greatest achievements - winning the Cold War and reviving the economy - as separate and distinct policies. But both of these achievements were based on a deeper, more fundamental policy: advancing freedom, first at home, then abroad.
Winning the Cold War required more than simply increasing military spending. It required, as Reagan said, returning America to its historic role as an “exemplar of freedom” and proving to the Soviet regime that communism was a historical dead end. That required restoring America’s economic might through an expansion of economic freedom at home.
Reagan’s freedom agenda also worked wonders on the minds of the American people. By 1984, Gallup found that a majority of Americans were satisfied with the direction of the country - up 30 points since 1979. Two years later, it would reach as high as 70 percent. Reagan’s re-election theme, “Morning in America,” was more than just a slogan - it was how Americans truly felt.
But during Reagan’s prime-time address to the nation in late July 1981, all of that was aspiration and a long way off. “Our struggle for nationhood, our unrelenting fight for freedom, our very existence,” he concluded, “these have all rested on the assurance that you must be free to shape your life as you are best able to, that no one can stop you from reaching higher or take from you the creativity that has made America the envy of mankind.”
In other words, it starts with freedom.