President Reagan's Fiscal Policies: The Record of His First Term

AuthorJoseph J Hogan
Published date01 April 1987
Date01 April 1987
DOI10.1111/j.1467-9256.1987.tb00266.x
Subject MatterArticle
Pokh
(1987)
1,
14-20
PRESIDENT
REAGAN’S
FISCAL POLICIES:
THE
RECORD
OF
HIS
FIRST
TERM
Joseph
J
Hogan
RONALD Reagan came to office in
198
1
with
an
economic plan to fight what most Amen-
voters and politicians, including Jimmy Caner, strongly r&ded as-unacceptably high
~CS
of inflation and unemployment,
as
well
as
damagingly low production, investment
and
economic
growth
rates (Abramson
ef
al,
1983).
The nav President’s economic
plan
Sought
to
tackle these problems by effecting five major politico-economic objectives:
to
reduce
dramatidy the nondefence spending of the federal government, to rebuild rapidly the
nahn’s defences, to promote economic growth by restoring incentives through massive Cuts
in federal revenues,
to
balance the budget in
fisd
1984,
and
to
lower inflauon rates
bY
restraining monetary growth
(Barrett,
1984;
Hedo
and Penner,
1983).
Because the Federal
Reserve Board since
October
1979,
had been pursuing a policy of depressing mOnetaLy
growth, President Reagan had
to
Concentrate on effecting
the
fiscal components
of
his
economic strategy. The incoming administration decided
to
fold the President’s
fiscal
Polides
into the annual executive budget for fiscal
1982,
and then sought
to
implement these policies
via the congressional budget process (He&,
1984;
Mills,
1984;
Palmer and
Mills,
198%
Pfifiner,
1983).
The purpose
of
this
essay
is, using recently published budget and
related
materials that cover the President’s first tern,
to
assess the extent
to
which President Reagan’s
first administration
was
successful in achieving his
fiscal
policy objectives.
In overall terms, President Reagan succeeded handsomely in his intention to lower federal
taxes;
he
also
succeeded in obtaining a sharp acceleration in the amount of money spent on
national defence. President
Reagan
failed
to
achieve the initial reductions that he sought in
nondefence spending, but he managed to significantly lessen the total amount spent on non-
defence programmes. However,
the
Reagan administration failed
to
produce
a
balanced
budget in
fiscal
1984.
Instead, the
1983
fiscal
budget produced
a
record peacetime deficit
of
208
billion, with even larger deficits forecast for later on in this decade. The major develop-
ments in each
of
these areas
will
now
be
summksed.
Revenues
The federal tax burden increased from
I
8.5
percent of
gross
national product ((XU” at the
end ofthe Eisenhower administration (Mills,
1984)
to
(as
indicated in table
1)
21.6
percent
of
GNP in fiscal
1982.
The first Reagan adminiswation suceeded in dramatically reducing this
longterm trend towards increasing the total of federal revenues. The provisions of the
Economic Recovery
Tax
Act
of
198
1
were largely responsible for quickly reducing federal
revenues to
18.6
percent of GNP in
fiscal
1984.
Indeed, it ha hen estimated by the
dent‘s Office of Management
and
Budget
that
the
1981
Tax
~a
reduced federal revenues bY
$963
billion over the
fiscal
198
1-7
period, whereas
the
Congressional Budget Office projects
the loss over the same period
as
S
1’04
1
billion (Hutton and ()”eill,
1982;
Wehr,
198
1).
These
reductions far exceeded the president‘s request in his first budget submission for just Sound
$300
billion in
tax
cuts. But this increase in revenue IosseS was willingly accepted by President
Reagan a price
worth
paying
in
order
to
create
an
initid
and positive impression in the
minds of the voters
as
a
president who
-
in
sharp
conmt of the voters’ perceptions of Gerald
Ford and Jimmy Carter
as
ineffective presidents
-
could lead Congress and therefore imple-
ment his governing agenda (Omstein,
1982).
Defence Spending
The defence budget fell from
9.1
percent
of
GNP during the Vietnam era
to
around
5.2
per-
cent of GNP during the mid
1970s,
before picking up
to
around
6.0
percent
of
GNP at the end
of
Carter’s presidency (Mills,
1984).
Although Congress trimmed President Reagan’s request
for defence spending during the second half
of
his first term, the president succeeded

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