Reagan said the effort to end the economic misery should begin with the federal budget, arguing that the federal government was too large and that it spent too much. Reagan mentioned that his proposed budget had moved along until the Democrats in the House presented their version that kept social spending but cut defense spending and raised taxes. Reagan stated that he proposed nothing more than to stop tax increases, not cut taxes. Reagan, speaking in the immediate aftermath of the first Space Shuttle Mission, stated that "We have much greatness before us."
Speaker Tip O'Neill and the Democrats made a show of resistance, but the tidal wave of support in the nation for Reagan was such that the Democrats didn't dare block the President's budget proposal. The House passed the budget bill, and the House and the Senate prepared to "seal the deal" with a Reconciliation Bill.
(Pictured from left-to-right: President Reagan, Vice-President George H.W. Bush, and Speaker of the House Tip O'Neill of Massachusetts).
It was at that point that Reagan administration shot themselves in the foot. The bullet was Social Security; the system had become financially unsound as the number of retirees and beneficiaries increased, and payments would soon exceed contributions. A bitter fight surfaced in the Reagan administration on how to reform Social Security; David Stockman (Director of the Office of Management and Budget) had a plan that cut Social Security benefits using supply-side logic and tactical compromises.
(Pictured: President Reagan with the OMB Director David Stockman during a Cabinet meeting)
Stockman was furious, but in just two days, Baker's predicted backlash started, and Stockman had to admit that his plan was in serious trouble. Democrats, as well as many Republicans, attacked the administration, saying that the cuts to Social Security would devastate America's seniors . . . to a man they felt blindsided by the proposed cuts. The Senate preemptively buried the Social Security proposal in committee with an unanimous vote. Stockman's Social Security plan, and Reagan's authorization of the plan, killed the legislative momentum that had been built to that point by the administration.
Reagan had reached a point where he was happy-enough with the bill, but the committee continued to drag out the process, and Reagan vowed to fight on. On 27 July 1981, Reagan spoke to America from the Oval Office on the stalled budget. Reagan stated that his top priority was the tax program, and that citizens were needlessly frightened over Social Security. Reagan pledged to keep the Social Security checks coming with the full amounts due. Reagan then attacked the Democrats, using a chart to back up his claim that their tax cuts were illusory. Reagan stated that the Democrat's plan would only be beneficial for two years; after that, it would become an economic disaster, increasing the already too-high inflation rate.