The Impact of Reaganomics

Elexus Jionde
Jun 9
9 min read

When the democrat Walter Mondale accepted the Democratic Party's nomination in 1984 to square off against the incumbent president Ronald Reagan, he said, “Mr. Reagan will raise taxes, and so will I. He won't tell you. I just did.” This was true, as Reagan would raise taxes 11 times during his time in office whenever the cash flow was thin, but people wanted to be lied to about taxes and government spending. According to the Amark Foundation, "Ronald Reagan increased the federal deficit by $74 billion ($153B-$79B), an increase of 94%." This is often missing from modern republican narratives about "the last great republican president." How else did Ronald Reagan and "Reaganomics" impact the American economy? Here are 5 ways.

Reagan Destroyed The Power of Unions

One of the few unions that endorsed Reagan in the 1980 elections were the 13,000 members of the Professional Air Traffic Controllers Organization. Reagan had even sent a letter to the president of PATCO, saying,"I pledge to you that my administration will work very closely with you…” So in 1981 when PATCO went on strike to get a 32 hour work week, a $10,000 pay increase, and better retirement benefits, they believed Reagan would be on their side. By the way, that $10,000 pay increase would be on top of the $38,000-50,000 per year they made— or $115-152,000 today. The union had jut negotiated for higher pay, but rejected the Federal Aviation Administration’s offer because it didn’t reduce weekly hours and was $40 million instead of the requested 600 million. Strikers cited the tremendous stress of being the “lawmen” of the sky as one of the main reasons for needing more money. The main problem? Their standing as federal employees prohibited them from striking. Plus people thought they already made enough money. On August 3rd 1981 PATCO declared a strike anyways. Reagan replied by giving them 48 hours to return to work or face termination, with the added stipulation that they would never be eligible for rehire by the government again. 1300 union members broke the strike and returned to work.

Before firing them, Reagan called the demands of the remaining PATCO members an unfair tax burden to fellow citizens, ironically mentioning that he respected the right of workers in the private sector to strike, while he and his administration fought tirelessly to deregulate businesses so they could in fact, crush unions in the private sector. PATCO’s failed strike, and Reagan’s response, signaled that union power was a thing of the past. Contemporary polls showed the general public approving of Reagan’s choice— with over 50% of respondents agreeing with his choice. Reported the Pew Research Center, “just 28% said air traffic controllers should be permitted to strike while 68% said they should not. Even among those in households with a union member, just 40% said the controllers should be allowed to strike.” Shortly after firing the PATCO workers, Reagan defended his budget and tax cuts to the United Brotherhood of Carpenters and Joiners, telling him that his spending cuts were “hardly cruel and inhuman deprivation”. There was no applause for this statement.

Reagan Authorized Massive Budget Cuts

At the dawn of the 80s there was a huge deficit, something that would increase throughout Reagan’s presidency, peaking at 200 billion. No president had balanced the budget in 12 years. Reagan wanted to cut federal spending, and therefore the budget, by approximately 48 billion. Spending for programs like Medicare and Social Security were 48% of the budget, while military defense spending was over 25%. As made clear in episode one, Reagan’s nosy and destructive foreign policy was his main priority. National debt composed another 10% of the budget, meaning roughly 80% of the budget was impossible to cut. So, budget cuts were reserved for smaller Great Society programs that benefited the poor and minorities.

Reagan signed his budget package in March 1981. The slightly altered version of the budget plans cut spending by 35 billion and was adopted by Congress in May. Along with cutting funds for the child nutrition program, the budget cut funding for Medicaid, student aid, small business loans, and veteran benefits. These programs were popular among wide swaths of Americans, and though Americans hated paying taxes, they loved the programs that the taxes provided. Kevin Phillips pointed out that Americans “are hostile to the rich and to big business at the same time as they dislike minorities and the liberal politicians who seem to favor minority interests over the working class.” Reaganomics prioritized new federalism, or shifting social service responsibility to the state level, and privatization, or less government spending by shifting services to the for-profit private sector. But Phillips warned that liberalism, or a belief in big government social programs, was still a pernicious threat to conservative goals of new federalism and privatization.

Reagan's Assassination Attempt May Have Saved His Policies

Meanwhile, Reagan’s main domestic priority was getting Congress to approve of supply side economics, in which he claimed tax cuts for the wealthy would benefit society with investments and spending that would trickle down to the lower class. Reagan used an anecdote from his Hollywood days, saying “When I was in the movies, I’d reach a point each year where after the second movie I’d be in the 90 percent bracket. So I just wouldn’t make any more movies that year. And it wasn’t just me, but Bogart and Gable and others did the same. We weren’t the ones who were hurt. The people who worked the props and the people who worked the yard, they were the ones who were hurt.” Reaganomics believers insisted there was a “war against the rich”, and that they needed to be catered to and encouraged to invest. Hence the push for a lowered tax rates on personal income and capital gains.

To get the tax cuts passed, Reagan would need the support of the public as well as 47 conservative Southern Democrats, like Phil Gramm, in the Democratic-controlled House of Representatives. David Stockman, the newly appointed Director of the Office of Management and Budget informed congressmen on his plan to “starve the beast”. This Starve The Beast strategy had been conceived of by Irving Kristol, “the father of neoconservatism” who proposed slashing taxes and then reimposing fiscal discipline on democratic administrations who would have to “tidy up afterward.” Along with corporate lobbyists and new right activists like Milton Friedman, the pressure to pass the Economic Recovery Tax Act was on. Friedman, who since the 60s had been publishing stingy economy theories based on personal achievement, published the best-selling Free To Choose with his wife Rose in 1980. PBS even aired a 10-part television series based on the book, showing that conservative economic values were being shown to, and accepted by, mainstream Americans— even those who grew up benefiting from New Deal and Great Society programs. Free To Choose promoted the free market, bemoaned welfare, and advocated for school vouchers, you know, the usual. Individual advancement and personal achievement were key components of getting people to accept the budget and tax cuts— phrases people used when they complained about blacks and immigrants getting their share of economic relief.

Conservative and moderate democrats were further pressured to approve of Reagan’s tax cuts after an infamous assassination attempt by John Hinckley Jr, in a deranged attempt to woo the affections of teenaged actress Jodi Foster.Just 70 days into term, Reagan came within two minutes of dying at the hospital due to blood loss, and two staff members and a cop were also shot and injured. Press Secretary James Brady was permanently disabled as a result. It’s worth noting that it had only been 18 years since the assassination of the last president— a memory that for many patriotic Americans was still fresh. The White House played up Reagan’s hospital bed charm, where he asked all the medical personnel before surgery if they were republicans. It cannot be overstated how much the assassination attempt would serve to mitigate criticisms of Reagan’s choices throughout the rest of the decade. “What happened to Reagan on Monday is the stuff of which legends are made,” wrote David Broder for the Washington Post.

Before the shooting, Reagan had 74% approval from republicans, 38% approval from democrats, and 53% approval from Independents. After the shooting, Reagan had 92% republican approval, 51% Democratic approval, and 70% independent approval. After weeks of recovery that still included work and photo opps, Reagan was welcomed back by Congress with a three-minute ovation at the end of April. The Tax Recovery Bill sailed through the house in May and passed in the senate in late July, with the support of hella democrats breaking ranks— including one guy named Joe Biden. Reagan signed the bill into law in August.

The omnibus reconciliation act also cut federal income and business taxes by 25%, just 5% shy of the 30% that Reagan originally asked for. Capital gains taxes were also cut, making investments more appealing to the wealthy. And for the lower class? The Washington Post detailed: “The scope of the changes is reflected in the following rough administration and congressional estimates: in the Aid to Families with Dependent Children program, the basic welfare program, 400,836 families will be cut off the rolls and another 258,528 will have benefits reduced. In the food stamp program, 875,000 families will be dropped from the program and 1.4 million households, or 5 million people, will have benefits reduced.” But it’s ok, right? Shit would trickle down, right?

Reagan Introduced Government Cheese

In 1981, 35 states had a stock of 500 million total pounds of subsidized cheese and other dairy products. After a 1977 Carter policy invested 2 billion dollars in the dairy industry within 4 years, dairy farmers overproduced because the government purchased what farmers couldn’t sell and turned it into butter, cheese, and dehydrated milk powder. But in 1981 a lot of it was beginning to go bad. After many public complaints that the cheese should go to the needy, Reagan established the Temporary Emergency Food Assistance Program to give out 30 million pounds to the elderly and low-income, with California being the first state to receive cheese from the surplus. Government cheese itself had been around since the World War II era, but 1981 was the first year it was directly given away for free. The first giveaways were often late and usually moldy. Eventually 300 million pounds were given out. To qualify, a family of four had to earn under $15,630 a year. Single people living on less than $7,970 a year also could get a slice.

Reagan Changed The Way Many Americans Saw Welfare

Contrary to the popular belief that everyone who was on welfare or desired it were lazy freeloaders who didn’t want to work, the decision to work for pennies in service and potentially being ineligible for welfare that you definitely needed was not an easy one. A 1984 profile described a working mother’s plight thusly: “She loses both the welfare and Medicaid coverage if she and her son keep their jobs. If she chooses to quit her job, she would qualify for a $516 monthly welfare payment, an amount roughly equal to or exceeding her family's actual take home income after expenses. Or her son could quit work and the family would qualify for a smaller welfare payment. With the welfare payment, however, would come a return to the Medicaid program with full medical coverage and eligibility to receive up to $250 in food stamp benefits. By any strict accounting standard, it is to her advantage to quit work and go on welfare, a choice she does not, in fact, intend to make.” Something that often goes undiscussed is how the 1981 Budget restricted welfare eligibility, setting asset limits for needy families at $1000. This means that saving more than $1000 made you ineligible for welfare— even though $1000 was not enough to live off or invest on. Unsurprisingly, people receiving welfare would blow through their savings instead of stacking up substantial amounts of cash. And yes, this problem continued long after Reagan left office. The hard choices that poor Americans would have to make took place among a backdrop of ableism, racism, and misogyny, and threading all of these things together, classism and a hatred of the poor.

In 1980, an asshole named Bob Johnson published the Public Assistance game, the tagline being: Why work for a living?. The Baltimore Sun described that “The welfare recipient starts off with $500 and gets more for each illegitimate child. The working person starts off with a $150 paycheck. The welfare recipient tries to stay out of work; the working person tries to keep out of the poorhouse.” It further summarized: “Board spaces offer instructions, such as "Hit sub shop. Collect $50" and "Special [sexual favor] for police chief. Collect $300". Others suggest: "Play pinball machine all day," "Lie on job application," "Buy case of wine" and "Snowstorm immobilizes police. Loot $2,000.” The game brought the outrage of the NAACP, National Organization For Women, and other groups, making many stores stop selling it— but not before 135,000 copies were purchased.

While his administration grappled with a 100 million dollar deficit, Reagan targeted welfare as a system rife with waste and fraud. During a meeting with senators, he told a blatantly fictional tale about a young man going into a grocery store and buying an orange with a food stamp and taking the change from the stamp to buy vodka. Change from food stamp purchases was no more than 99 cents, and it wasn’t even possible to buy a bottle of vodka with 99 cents. This is one of the many instances in politics where welfare, like many things, was not discussed honestly. Instead of discussing wages not keeping up with cost of living, welfare recipients were stereotyped as lazy Americans who just needed to work.

Get more information about the Reagan years in this video: