Source: H.W. Brands. Reagan: The Life (2015)
About a month after being shot, President Ronald Reagan asked for, and received permission to, address Congress. Reagan had to fight through extended arms and hands to reach the podium. Reagan reveled in, and reciprocated, that good feeling . . . he felt like he was once again performing. Soon enough in his address, Reagan launched into the topics of spending, inflation, and taxes . . . still, six months after his election, the economy was still in "Stagflation" mode. Inflation had scarcely abated and interest rates were punishingly high. Eight million Americans were unemployed, and real wages were down.
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."
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."
After his speech, Reagan's approval rating increased to 68%, which would be the highest it would reach during his remaining time in office. In the House,
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.
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.
Reagan authorized Stockman's proposal, believing that Social Security was finally on sound footing. Stockman's plan may have been good economic austerity, but Chief of Staff James Baker III understood that the real issue was politics, not economics, and that there would be a severe political backlash against the administration with the planned cuts in Social Security. Baker refused to have Reagan's fingerprints on Stockman's plan, and he wanted Heath and Human Services to be the arm of the Executive branch that pushed for the plan.
(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.
(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.
The House and Senate Reconciliation Committee on the budget bill was the largest in history, with 72 Senators and 183 Representatives. The Democrats on the committee dragged out the process, hoping to gain at least some advantage. Reagan saw Speaker Tip O'Neill as a "New Dealer" that believed in "Big Government" and "Big Spending". O'Neill and the Democrats held up the budget bill long enough that Reagan started to bargain. Instead of 10% cuts on tax increases per year for three years, it became 5% per year for ten years. Also, without any prompting, Congress accepted a reduction in the top tax rate for unearned income, from 70% to 50%, which was something Reagan wanted, but hadn't yet officially proposed.
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.
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.
Reagan challenged Americans to hold their elected members of Congress accountable, and to contact them in record numbers. Reagan's appeal worked its magic; Congress finally was in a mood to follow the President. Baker told Reagan that the Reconciliation Budget Bill passed, and would be on his desk very soon. The reconciled bill featured cuts for projected federal government spending, 3% for fiscal 1982, 4% in 1983, and 4.5% in 1984. Schools took a 20% hit, school lunches went down 33%, funding for Food Stamps was cut 15%. Medicaid lost $1 billion, the Job Corps lost 20% of its budget, public housing fell 40%, and funding for the Arts decreased 30%. Reagan awaited word on the Tax Cut Bill, and he only had to wait to the next day. The House voted 238-195, and the Senate 89-11, which was a larger-than-expected majority. Reagan received all he had hoped for and more. (Pictured from left-to-right: "The Troika" - Chief of Staff James Baker III, Special Counsel Edwin Meese, and Deputy Chief of Staff Michael Deaver . . . they were the "tip of the spear" for Reagan during his first term)
Business depreciation accelerated, the "Marriage Penalty" for two-income couples decreased, and the exclusion of estate taxes increased, exempting all but the very wealthy. The biggest bonus was the indexing of tax rates to eliminate "Bracket Creep" and inflation. Reagan signed the budget and tax bills, saying they were the "greatest political win in half a century". But another battle loomed: tax cuts were written on stone, but in comparison, spending cuts were written on paper with ink that readily disappeared. Spending cuts had to work their way through hostile committee after hostile committee, but for the moment, it was indeed "heady days" for the Reagan administration at the end of the Summer of 1981.