Danny Varat: Credit Reagan for the recovery and much more

The second greatest president in American history would have turned 100 last weekend. He left America, and the world, a far better place than he found it. He conquered the tyranny of Soviet communism and the debilitating malaise here at home. By any measure, he achieved as much or more than any American in history.

Yet, many still refuse to acknowledge the factual record. Indeed, many commentators have allowed him only recognition as an optimist or as “the Great Communicator” because they still cannot relinquish their intellectual dogmas that proved wrong on so many counts.

The facts are simple. Ronald Reagan inherited an economy in its worst crisis since the Great Depression. The unemployment rate in January 1981 stood at 7.4 percent, on its way up to 10 percent. Persistent double-digit inflation had pushed interest rates to an unbelievable 21 per cent. Jimmy Carter predicted a bleak economic future.

Taxes on the average American in 1981 were high and rising. Meanwhile, the real wages of American workers fell 9 percent between 1979-1981, offsetting nearly two decades of growth and reducing them back to their 1962 level. Indeed, adding in the massive tax increases of the 1960s and 1970s, the American worker enjoyed less purchasing power than the 1930s.

Reagan reduced taxes. Reagan also indexed the tax brackets to offset inflation. In 1965, a four-person family making the median income paid a 19 percent rate. By 1980, that family in the same relative position paid 28 percent. Reagan’s 1982 budget included a tax cut of about 23 percent over three years and indexing beginning in 1985.

Total federal revenues rose from just over $517 billion in 1980 to more than $1 trillion in 1990 (28 percent in constant dollars). Individual income tax revenue climbed from just over $244 billion in 1980 to nearly $467 billion in 1990 (25 percent in constant dollars).

One dogma claims that the tax cuts favored the rich. In 1981, the top 1 percent of taxpayers paid 18 percent of the total bill. By 1991, however, the top 1 percent of taxpayers paid 25 percent of all income taxes; the top 5 percent paid 43 percent; and the bottom 50 percent paid only 5 percent. The revenue from the rich was used to double personal exemptions and triple the earned-income tax credit, both of enormous benefit to the working poor.

Another dogma blames tax cuts for the deficits. But, spending increases, not revenue declines, accounted for the budget deficit of the 1980s. Spending on social services tripled (in constant dollars) between 1981 and 1989. And, to defuse another dogma, defense spending under Reagan never rose above 28 percent of the budget (it had been 22 percent under Carter).

The economic facts of the Reagan presidency are clear. From 1982 to 1990, the United States experienced 96 straight months of economic growth, totaling nearly 36 percent, the longest peacetime expansion in its history. Almost 20 million brand-new jobs emerged. The stock market nearly tripled in value.

Government revenues — at the federal, state and local levels — nearly doubled. The economy grew at a 4 percent annual rate while the inflation rate ran just over 3 percent. The American economy grew by about one-third in inflation-adjusted terms. This was the equivalent of adding the entire economy of East and West Germany or two-thirds of Japan’s economy to the U.S. economy. Unemployment fell from a peak of 11 percent to about 5.5 percent at its lowest.

By 1984, the Reagan recovery was well under way. How else to explain his landslide victory over Walter Mondale? Paul Krugman, professor of economics at Princeton, describes it thusly, “I still think he did a pretty bad job of managing the budget and the economy because by the time the dust had settled, the economy at the end of Reagan’s term was about where a projection from the ’70s would have led you to expect it to be.”

Really? So, if Jimmy Carter won a second term and Walter Mondale served four years as the 40th president, 1989 would have looked the same as when the Gipper left office? That is the kind of analysis that wins the Nobel Prize.

Someday commentators will view the facts of the Reagan years and appraise them fairly. For now, most still cannot bear to admit the facts.

Fortunately, for the rest of us, it really did happen. And for that, we can thank Ronald Reagan.

P.S., he won the Cold War, too.

Daniel R. Varat holds a Ph. D. from the University of Mississippi. He is a native and resident of Greenville