The Reagan Tax Cuts and Foreign Policy


During the 1980's President Ronald Reagan's (our 40th president from
1981 to 1989) domestic policy of a substantial tax cut led to greatly increased
economic prosperity for our country. During Reagan's administration marked
changes were made to the tax code and economic statistics showed a major change
for the better. However, at the same time, the Democrats controlled the Congress
and continued increased spending against Reagan's wishes. The Joint Economic
Committee stated that an across-the-board tax cut was not new. In the 20's the
Mellon tax cuts were implemented by Secretary of Treasury Andrew Mellon during
the Administrations of Hoover, Harding, and Coolidge. In the 60's Kennedy
introduced tax cuts. In both instances the decrease of high marginal tax rates
somehow increased tax payments by the rich. Perhaps a foreshadow of things to
come. Debates were raging over the Reagan tax cuts, known as the Economic
Recovery Tax Act of 1981 (or, ERTA). This act was designed to spur savings,
investment, work, and economic efficiency. This policy would impose a 25%
across-the-board cut in personal marginal tax rates. In the act of decreasing
marginal tax rates, and stimulating economic incentives, ERTA would increase the
flow of resources into production, thus lifting economic growth. This policy
received much criticism because its opponents argued that ERTA would be a
giveaway to the rich, because their tax payments would collapse. Reagan worked
hard and skillfully with the congress to obtain legislation to stimulate
economic growth and curb inflation, he embarked upon a course to cut taxes and
curb inflation. President Reagan was able to sign into law a tax cut in late
1981 even though congressional Democrats tried to block his cuts. All tax payers
received these cuts which helped to spur the economy. The cuts were taken over
three years with a 5% cut in 1981, a 10% cut for 1982, and in 1983 another 10%
cut. Reagan's call for extensive changes in the federal income tax laws helped
bring about passage of the Tax Reform Act of 1986. In 1986 Reagan introduced the
Tax Reform act of 1986. The tax reform act of 1986 chopped taxes, and indexed
taxes for inflation as well. During Reagan's first term the inflation rate was
at -5.7%, unemployment was at1.4%, interest rates were at -.7, and the gross
national product was 7%.
Reagan signed the tax reform bill entitled the Tax Reform act of 1986.
This act simplified and reduced taxes, but the democrats wanted to claim equal
credit for the bill as well. A stock market crash in 1987 raised questions about
the nation's economic health. A new bill to balance the federal budget became
law in 1987, but the huge deficit continued to be a concern to the government.
Congress passed Reagan's requests for cuts in taxes and in some government
programs. Reagan also won increased funds for defense. By 1982, however, the
country was in an recession, which meant that there was an extended decline in
general business activity, typically three consecutive quarters of falling real
gross national product. The economy improved in 1983. But the increased defense
spending and tax cut had led to a record budget deficit. Democrats attacked
Reagan for cutting social welfare programs and called for reduced defense
spending and a tax increase in order to lower the deficit.

Foreign Policy

President Reagan through foreign policy sought to achieve peace through
strength. He had learned how to deal skillfully with Congress and obtain
legislation to strengthen our national defense. In 1983, Reagan sent U.S.
Marines to Lebanon as part of a peacekeeping force. The Marines were recalled in
1984, after some 240 had been killed in a terrorist attack. Reagan also sent U.S.
troops to Grenada in 1983, to prevent what the he saw as a Cuban attempt to take
over the Caribbean island nation. The President denounced the left-wing
Sandinista government of Nicaragua as a threat to peace in Central America, and
he repeatedly requested military aid for the anti-Sandinista guerrillas, known
as contras. In November of 1986 President Reagan confirmed reports that the
United States had secretly sold arms to Iran. He stated that the goal was to
improve relations with Iran, not to obtain release of U.S. hostages held in the
Middle East by terrorists. Later in November, Attorney General Edwin Meese
discovered that some of the arms profits had been diverted to aid the Nicaraguan
"contra" rebels--at a time when Congress had prohibited such aid. An independent
special prosecutor, former federal judge Lawrence E. Walsh, was appointed to
investigate the activities of persons involved in the arms sale or contra aid or
both, including marine Lt. Col. Oliver North of the National Security Council
(NSC) staff. In May