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Tax and Reagan Essay At the end of the Carter presidency, the nation’s idealistic dreams of the 60’s was worn down by inflation, foreign policy turmoil and rising crime rate, the nation was troubled by the late 70’s. Due to this many Americans were ready to embrace a new conservatism in social, economic and political life in the 80’s. In the 1980 bid for President, Reagan won the Republican nomination after two failed attempts in 1968 and 1976. Although Ronald Reagan once held Democratic views, he grew more conservative and he official took the side of the Republicans in the 1960’s. Reagans domestic views were the change Americans were looking for and Reagan, along with his running mate George H. W Bush, won the 1980 election. In his 1981 inauguration, Reagans famous words about the economy were, â€Å"In this present crisis, government is not the solution to our problems; government is the problem. † After only 71 days in office Reagan survived an assassination attempt and gained even more support from Americans. So he initiated his domestic policies by advancing a set of policies, also known as Reaganomics, his policies were launched as a three prong assault on taxes, social welfare spending and regulatory bureaucracy. Reagan organized his cabinet, and with the release of the Iranian hostages the day he was inaugurated, freed Reagan and his cabinet to dig right in to come up with a solution to fix the economy. Two major components of the solution was to reduce taxes and budget cuts. Reagan emphasized the importance of supply side economics and the importance of investments to bolster the economy. To boost investments, after just a few weeks in office Reagan submitted a tax reduction plan to congress which would reduce taxes by 23 percent over three years and trim the budget by 41 billion. Reagan won approval of the Economic Recovery Tax Act. Due to the act passing, the tax rate for wealthy American dropped from 70 percent to 50 percent. This freed up money for the wealthy to invest in productive enterprises. Corporate income tax rate was also reduced from 70 percent to 34 percent. Also under this tax plan individual tax brackets were indexed for inflation and the poor were exempt from individual income tax. The most important aspect of Reaganomics is the major reversal of the tax treatment of business income. In 1981 a set of investment incentive was approved, the tax bill the Accelerated Cost Recovery System as part of the Economic Recovery Tax Act was put in place. The ACRS idea was to increase the tax deduction for the depreciation of property, this freed up more cash for business to expand. And since this was put into place during a recession, it released a copious amount of cash flow and expected to add between $50 and $100 billion to the incomes of businesses and individuals income. This expansion would increase government revenues and offset the loss of tax dollars stemming from the original tax cut. The investment incentives would gradually be reduced over the period of 1981 to 1985, in 1996 the tax laws broadened what businesses and individuals could claim as a tax deduction. A culmination of this as well as tax cuts reduced the federal revenue GDP from 20. 2 percent in 1981 to 19. 2 percent in 1989 at the end of the Reagan presidency. Reagan wanted to turn our nation back into the once leader of capitalist societies after we had helped rebuild Germany and Japan, their industry thrived due to newer more productive technology taking America out as the leader. America was stuck with old equipment that was not as efficient as Germany and Japan. Reagan understood that providing companies with tax breaks that the extra money in tax breaks would allow companies to restore their companies with newer more efficient technology to gain the leadership back. But cutting taxes was not going to be enough to put the economy back into place, the budget needed to be balanced and with that came cutbacks To balance the budget Reagans budget director, David Stockman, hoped to offset the tax reduction with comparable cutbacks in federal expenditures. To try to obtain this goal, Stockman proposed cutbacks in Social Security and Medicare. These measures seemed too ambitious as Congress and the President rejected the notion, not wanting to cause hostile feelings among the middleclass who views their benefits as sacred. Reagan was a firm believer that the less involved the government was in the lives of individuals and affairs of businesses, the more prosperous we would become. He scaled back government spending on programs such as Aid to Families with Dependent Children and school lunch programs and pushed the responsibilities onto each state. Reagan called this the â€Å"new federation†, where others called it cold-hearted Hooverism. As some charged that the economic program attacked the lower class, Reagan recalled his own impoverished child hood and still stood firm that the less fortunate were not going to thrive by taking handouts, rather help themselves by creating a thriving private sector where employment is available. The budget cuts affected the fastest growing programs in the 1960’s they included; food stamps, comprehensive employment and training act, federal guaranteed loan programs for higher education, these programs saw the highest cuts. Although all categories except for the defense budget, were affected by budget cuts, the two highest were income security and education, training, employment and social service. With some 21 million people receiving food stamps, Congress was very cautious on the cutbacks and although the cutbacks did occur most of the welfare programs were preserved due to their importance. The hardest hit were families with a low mean census income, or households only ran by one parent, typically the mother. The majority of these households that were affected were African American. Their assistance was either completely cut off because they were now considered above the poverty line or their assistance was cut back. This discouraged many women from working because non-working women were making more dispensable income per month relying on welfare benefits. Another class that these cutbacks affected were the nearly poor. They were the ones who were barely above the poverty line with the aid of food stamps and unemployment benefits, but because of their income level, were deemed that they did not need assistance and access to higher education and housing were restricted with this group. This group however struggled to make ends meet living off of just their incomes. Although Congress cutback welfare benefits, they continued to lavish huge subsidies and tariff protection to the huge business corporation and the rich farmers. Critics dubbed this â€Å"welfare for the rich†. And even though cut backs happened, the administration fell short of its goals and the deficit increased. This put our country into a severe recession, Reagan often received letters from impoverished Americans about their standard of living and Reagan would often respond with a handwritten note of encouragement and put a personal check in with it. His plan was that by giving too the corporations that their prosperity would trickle down to the lower class. By the middle of his first term, Reagan proved that his method was working, with decreased inflation and increased employment, his stimulus package was improving the economy. He showed Americans that government does not have to be relied on in order to make a living. Beginning in the late 1982’s Americans were enjoying the longest economic peacetime and by 1984 had more faith about the current economic system, and Reagan was credited for making it happen. But it is often overlooked that Reagan and his domestic policies created record debt and accumulated more debt than the government had seen in its entire history. This was partially because Reagan knew the importance of defense and was known to say, â€Å"Defense is not a budget item, you spend what you need. † Reagan along with his Defense Secretary, Casper Weinberges, pushed thru a 1. 2 trillion, 5 year military spending program. In this program, Reagan brought back to life some of the projects that were initiated during the Carter administration. He revived the B-1 program which Carter had cancelled due to the expense. But the most aspiring plan was the Strategic Defense Initiative dubbed the â€Å"Star Wars Initiative†. This plan was to devise satellites that were laser equipped so that it could detect and destroy incoming nuclear ballistic missiles, and destroy them before they could impact the United States. Regan made nuclear arms control one of the keynotes of his administration and called upon the nation’s scientist to use their talents to help make this plan become reality. With talks with the Soviet Union over weapons control, a meeting between Reagan and Gorbachev ended bitterly when Gorbachev demanded that talks of arms control were contingent of the US abolishing the SDI program. Regan continued with the program, Congress allowed the funding which reached to 30 billion dollars and did not have anything to show for it. With the collapse of the Soviet Union, by the mid 1990’s the SDI was forever put on hold. The Regan administration gave our nation hope. He was able to reduce inflation and increase employment. His defense plan however put the nation into the largest debt it had ever seen. Reaganomics to this day is still debated, supporters point out the 118 million jobs that it created along with the increase of trade. While critics say that his cutting of funding was irresponsible resulting in threats to public health and safety. When Reagan left office after 8 years he had the highest approval rating of any President since Roosevelt and the highest of any president since him as well.