Economic Recovery

“In this present crisis, government is not the solution to our problem; government is the problem…It is my intention to curb the size and influence of the federal establishment and to demand recognition of the distinction between the powers granted to the Federal Government and those reserved to the states or to the people.”

Guided by a faith in free markets and a distrust of government-only solutions, Reagan embarked on a plan to cut marginal tax rates across-the-board, restrain the growth in government spending, reduce the burden of government regulations and maintain a stable monetary policy. These four pillars were the underpinnings of what became known as Reaganomics. Reagan devoted most of his first year in office to the priority of persuading Congress to pass his economic recovery program, recognizing it was the cornerstone of everything else he wanted to do as President. Key to the success of this effort were his alliances with the more conservative “Reagan Democrats,” especially in the Democrat-controlled House of Representatives, and his ability and willingness to compromise when necessary in ways that advanced his long-term goals. His policies led to the end of an inherited recession – the worst since the Great Depression – and the start of a two-decades-long spurt of sustained economic growth. In his First Inaugural Address, he boldly signaled his new approach by bluntly asserting that “government is not the solution to our problem; government is the problem.”

Key Reagan Domestic Policy Actions and Achievements

  • Deregulated energy prices
  • Abolished the federal apparatus of wage and price controls
  • Reduced the top income tax rate from 75% to 50% in 1981
  • Reduced the top income tax rate from 50% to 28% in 1986
  • Restrained domestic spending growth, while failing to get most of the cuts he wanted
  • Reduced government regulations significantly
  • Reduced double digit inflation and interest rates through conservative monetary policies
  • Encouraged private sector growth and entrepreneurship
  • Fired air traffic controllers conducting an illegal strike against the government
  • Raised the gasoline tax “user fee” by 5-cents-per-gallon for transportation improvements
  • Raised Social Security payroll tax and cut benefits, in deal to protect program solvency

In His Own Words

“In this present crisis, government is not the solution to our problem; government is the problem.”
First Inaugural Address, January 20, 1981

“The key to restoring the health of the economy lies in cutting taxes.”
Official Announcement, Intent to Run for President, New York Hilton, New York, NY, November 13, 1979

“Cutting the tax rates has opened the floodgates on entrepreneurship in our country.”
Remarks at a Symposium at the University of Tennessee in Knoxville, September 24, 1985