The Reagan Tax Cuts and Foreign Policy

Topics: Ronald Reagan, Cold War, Mikhail Gorbachev Pages: 5 (1435 words) Published: October 8, 1999
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...

References: "Iran-Contra Affair," Microsoft® Encarta® 96 Encyclopedia 1993-1995. 1996
Grolier Interactive Inc.
Edition copyright © 1992 by Houghton Mifflin Company.
Hyland, W.G., ed., The Reagan Foreign Policy (1987).
The American Heritage® Dictionary of the English Language, Third
The Atlantic Monthly, February 1994; Reagan and the Russians; Volume 273.
The Joint Economic Committee reports on the Reagan Tax Cuts
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