The Sad Legacy of Ronald Reagan

The Sad Legacy of Ronald Reagan
by Sheldon L. Richman

On August 2, 1988, President Ronald Reagan announced that he had changed
his mind about the pro-union plant-closing bill. He had vetoed it three
months earlier, but now let it become law without his signature after
intense pressure from presidential nominee George Bush and former
Treasury Secretary James Baker, now Bush's campaign chairman. Reagan
claimed that only this action would enable him to sign a Congressional
trade bill almost unequaled in its anti-consumer protectionism.

Ronald Reagan's faithful followers claim he has used his skills as the
Great Communicator to reverse the growth of Leviathan and inaugurate a
new era of liberty and free markets. Reagan himself said, "It is time to
check and reverse the growth of government."

Yet after nearly eight years of Reaganism, the clamor for more
government intervention in the economy was so formidable that Reagan
abandoned the free-market position and acquiesced in further crippling
of the economy and our liberties. In fact, the number of free-market
achievements by the administration are so few that they can be counted
on one hand-with fingers left over.

Let's look at the record:


In 1980, Jimmy Caner's last year as president, the federal government
spent a whopping 27.9% of "national income" (an obnoxious term for the
private wealth produced by the American people). Reagan assaulted the
free-spending Carter administration throughout his campaign in 1980. So
how did the Reagan administration do? At the end of the first quarter of
1988, federal spending accounted for 28.7% of "national income."

Even Ford and Carter did a better job at cutting government. Their
combined presidential terms account for an increase of 1.4%-compared
with Reagan's 3%-in the government's take of "national income." And in
nominal terms, there has been a 60% increase in government spending,
thanks mainly to Reagan's requested budgets, which were only marginally
smaller than the spending Congress voted.

The budget for the Department of Education, which candidate Reagan
promised to abolish along with the Department of Energy, has more than
doubled to $22.7 billion, Social Security spending has risen from $179
billion in 1981 to $269 billion in 1986. The price of farm programs went
from $21.4 billion in 1981 to $51.4 billion in 1987, a 140% increase.
And this doesn't count the recently signed $4 billion "drought-relief"
measure. Medicare spending in 1981 was $43.5 billion; in 1987 it hit $80
billion. Federal entitlements cost $197.1 billion in 1981-and $477
billion in 1987.

Foreign aid has also risen, from $10 billion to $22 billion. Every year,
Reagan asked for more foreign-aid money than the Congress was willing to
spend. He also pushed through Congress an $8.4 billion increase in the
U.S. "contribution" to the International Monetary Fund.

His budget cuts were actually cuts in projected spending, not absolute
cuts in current spending levels. As Reagan put it, "We're not attempting
to cut either spending or taxing levels below that which we presently

The result has been unprecedented government debt. Reagan has tripled
the Gross Federal Debt, from $900 billion to $2.7 trillion. Ford and
Carter in their combined terms could only double it. It took 31 years to
accomplish the first postwar debt tripling, yet Reagan did it in eight.


Before looking at taxation under Reagan, we must note that spending is
the better indicator of the size of the government. If government cuts
taxes, but not spending, it still gets the money from somewhere-either
by borrowing or inflating. Either method robs the productive sector.
Although spending is the better indicator, it is not complete, because
it ignores other ways in which the government deprives producers of
wealth. For instance, it conceals regulation and trade restricdons,
which may require little government outlay.

If we look at government revenues as a percentage of "national income,"
we find little change from the Carter days, despite heralded "tax cuts."
In 1980, revenues were 25.1% of "national income." In the first quarter
of 1988 they were 24.7%.

Reagan came into office proposing to cut personal income and business
taxes. The Economic Recovery Act was supposed to reduce revenues by $749
billion over five years. But this was quickly reversed with the Tax
Equity and Fiscal Responsibility Act of 1982. TEFRA-the largest tax
increase in American history-was designed to raise $214.1 billion over
five years, and took back many of the business tax savings enacted the
year before. It also imposed withholding on interest and dividends, a
provision later repealed over the president's objection.

But this was just the beginning. In 1982 Reagan supported a
five-cent-per-gallon gasoline tax and higher taxes on the trucking
industry. Total increase: $5.5 billion a year. In 1983, on the
recommendation of his Spcial Security Commission- chaired by the man he
later made Fed chairman, Alan Green-span-Reagan called for, and
received, Social Security tax increases of $165 billion over seven
years. A year later came Reagan's Deficit Reduction Act to raise $50

Even the heralded Tax Reform Act of 1986 is more deception than
substance. It shifted $120 billion over five years from visible personal
income taxes to hidden business taxes. It lowered the rates, but it also
repealed or reduced many deductions.

According to the Treasury Department, the 1981 tax cut will have reduced
revenues by $1.48 trillion by the end of fiscal 1989. But tax increases
since 1982 will equal $1.5 trillion by 1989. The increases include not
only the formal legislation mentioned above but also bracket creep
(which ended in 1985 when tax indexing took effect-a provision of the
1981 act despite Reagan's objection), $30 billion in various tax
changes, and other increases. Taxes by the end of the Reagan era will be
as large a chunk of GNP as when he took office, if not larger: 19.4%, by
ultra-conservative estimate of the Reagan Office of Management and
Budget. The so-called historic average is 18.3%.


For all the administration's talk about deregulation (for example, from
the know-nothing commission which George Bush headed), it has done
little. Much of what has been done began under Carter, such as abolition
of the Civil Aeronautics Board and deregulation of oil prices. Carter
created the momentum and Reagan halted it. In fact, the economic costs
of regulation have grown under Reagan.

Some deregulation has occurred for banks, intercity buses, ocean
shipping, and energy. But nothing good has happened in health, safety,
and environmental regulations, which cost Americans billions of dollars,
ignore property rights, and are based on the spurious notion of "freedom
from risk." But the Reagan administration has supported state seat-belt
and federal air-bag requirements. This concern for safety, however, was
never extended to the Corporate Average Fuel Economy (CAFE) rules,
which, by imposing fuel-efficiency standards, promote the production of
small cars. The shift to small cars will cause an estimated 10,000 to
20,000 highway deaths over the next ten years.


By now it should not be surprising that the size of the bureaucracy has
also grown. Today, there are 230,000 more civilian government workers
than in 1980, bringing the total to almost three million. Reagan even
promoted the creation of a new federal Department of Veterans' Affairs
to join the Departments of Education and Energy, which his
administration was supposed to eliminate.


The Reagan administration has been the most protectionist since Herbert
Hoover's. The portion of imports under restriction has doubled since
1980. Quotas and so-called voluntary restraints have been imposed on a
host of products, from computer chips to automobiles. Ominously, Reagan
has adopted the bogus fair-trade/free-trade dichotomy, and he was eager
to sign the big trade bill, which tilts the trade laws even further
toward protectionism.


Reagan's fans argue that he has changed the terms of public-policy
debate, that no one today dares propose big spending programs. I contend
that the alleged spending-shyness of politicians is not the result of an
ideological sea-change, but rather of their constituents' fiscal fright
brought about by $250 billion Reagan budget deficits. If the deficit
ever shrinks, the demand for spending will resume.

This is the Reagan legacy. He was to be the man who would turn things
around. But he didn't even try. As he so dramatically illustrated when
he accepted the plant-closing bill, there has been no sea-change in
thinking about the role of government.