The Real Ronald Reagan on Fiscal Policy to Reduce the Deficit

John Wayne, not Jimmy Stewart

[Editor's Note:  See cited post below for explanation of movie reference.  The Dismal Political Economist has been asked more than once to stop the obscure movie references].

The Dismal Political Economist commented earlier on the need that Peggy Noonan of the Wall Street Journal stated, mainly the need for a new Ronald Reagan.  We sort of agreed, certainly the Republicans need a Ronald Reagan, but they need the real one, not the mythical figures of their confused imagination.

Now Leonard Burman, whose intelligent Forum we have cited before has directed us to the speech that Mr. Reagan made before passage of the 1982 tax act that corrected some of the excessive reduction in taxes from the 1981 tax act.  Mr. Burman posts this passage

The single most important question facing us tonight is, do we reduce deficits and interest rates by raising revenue from those who are not now paying their fair share? Or do we accept bigger budget deficits, higher interest rates, and higher unemployment simply because we disagree on certain features of a legislative package which offers hope for millions of Americans at home, on the farm, and in the workplace . . .

We're within sight of the safe port of economic recovery. Do we make port or go aground on the shoals of selfishness, partisanship, and just plain bullheadedness?

Yes, Mr. Reagan really said that.  It is on video tape if you need to see for yourself.

He also said this, which is equally important.

Make no mistake about it, this whole package is a compromise. I had to swallow hard to agree to any revenue increase. But there are two sides to a compromise. Those who supported the increased revenues swallowed hard to accept $280 billion in outlay cuts. Others have accepted specific provisions with regard to taxes or spending cuts which they opposed. There's a provision in the bill for extended unemployment payments in States particularly hard hit by unemployment. If this provision is not enacted, 2 million unemployed people will use up their benefits by the end of March.

So Republicans, think long and hard before you utter words that you want candidates that will emulate Ronald Reagan. Based on your actions in the deficit talks that is exactly what you are saying you don't want.   In fact, you might even want to know what Mr. Reagan has said before you go any further in damaging your credibility.

For those Republicans who insist on an immediate balanced budged, or immediate sharp cuts in social programs the real Mr. Reagan has this message

Over the years, growth in government and deficit spending have been built into our system. Now, it'd be nice if we could just cut that out of our system with a single, sharp slice. That, however, can't be done without bringing great hardship down on many of our less fortunate. neighbors who are not in a position to provide for themselves. And none of us wants that.

Are you listening at all Ms. Bachmann, did you hear any of that? (Ms. Bachman has said she will vote against raising the debt ceiling, no matter what, which means she wants a balanced budget from Aug. 2,2011 forward.  None of the other serious candidates are in the Congress and so will not have to take an actual stand.)

And for those you who wonder how things turned, well not as rosy as Mr. Reagan predicted.

I said my goal was to reduce by 1985 the share of the gross national product taken by the government in taxes, reduce it to 20.5 percent. If we had done nothing, it would have risen to almost 25 percent. But even after passage of this bill, the Federal Government in 1985 will only be taking 19.6 percent of the gross national product.

Actually, the tax decreases of the Reagan era were more than Mr. Reagan thought, and in 1985 tax revenues were 17.7% of GDP. 

The Budget deficit, which was $79 billion when Mr. Reagan took office, grew to $212 billion in 1985, double as a share of GDP from when he took office.  1985 was the year Mr. Reagan had hoped to balance the budget with his tax cuts from his 1981 legislation.

So The Dismal Political Economist will skip Mr. Reagan’s “tax cuts will balance the budget” voodoo economics, but still strongly advise the Republicans to pay attention to the governing philosophy. No, they do not have to, but if they don’t maybe they need to retire the linking of the term “Reagan” with the term “Republican”.