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When Ronald Reagan took the oath of office as America’s 40th President on January 20, 1981, the country was experiencing some of the bleakest economic times since the Depression. Taxes were high, unemployment was high, interest rates were high, and the national spirit was low. 

To reverse the economic cliimate of the time, President Reagan put forth an enomoic policy which aimed to reduce government regulation, lower taxes, and promote free-market capitalism as a means to stimulate economic growth and increase individual wealth.

Bringing America back was the new President’s top priority and he shared his vision in his Inaugural Address:

“This Administration’s objective will be a healthy, vigorous, growing economy that provides equal opportunities for all Americans, with no barriers born of bigotry or discrimination. Putting America back to work means putting all Americans back to work. Ending inflation means freeing all Americans from the terror of runaway living costs. All must share in the productive work of this ’new beginning,’ and all must share in the bounty of a revived economy.”

The Foundation For A Path Forward

President Reagan earned a degree in Economics at Eureka college, and even though he would sometimes joke about “two economists having three opinions,” he knew what needed to be done and how to do it.

He consistently advocated for a straightforward and simple, yet detailed plan during his campaign: cut taxes, get control of government spending, and get the government out of the way so that the entrepreneurial spirit of the American people could be unleashed. 

Despite skeptics labeling his plan as "Reaganomics," President Reagan remained resolute, recognizing that empowering individuals with financial resources and investment incentives would lead to job creation, inflation control, and reduced interest rates.

Passing Legislation and Putting The Economy Back On Track

Almost as soon as the Inaugural ceremony was over, President Reagan set his sights on Capitol Hill. From day one, he and his team worked tirelessly to get Congress to pass legislation to put the economy back on track.

Even a near-fatal assassination attempt did not slow him down. While still recovering, he summoned Congressional leaders to the White House to twist their arms. Ronald Reagan may have been the first President to wear pajamas to a meeting with the bipartisan Congressional leadership. He wanted them to know he meant business.

His efforts paid off. In August 1981, President Reagan signed the Economic Recovery Tax Act of 1981, which brought reductions in individual income tax rates, the expensing of depreciable property, incentives for small businesses, and incentives for savings.

So began the Reagan Recovery and a few years later, the Tax Reform Act of 1986 brought the lowest individual and corporate income tax rates of any major industrialized country in the world.

The Numbers Tell The Story

Over eight years the Reagan Administration achieved the following:

20 million new jobs were created

The combination of tax cuts and deregulation was a catalyst for economic growth and job creation. Several industries experienced expansion, including finance, technology, and manufacturing. During this expansion, business had more capital and flexibility, which led to job creation.

Inflation dropped from 13.5% in 1980 to 4.1% by 1988

During the Reagan administration, there was a significant decrease in inflation, with the inflation rate dropping from 13.5% in 1980 to 4.1% by 1988. This decline in inflation was a crucial accomplishment for the administration and was attributed to various factors and policy decisions.

The Administration's focus on fiscal restraint and reducing government spending, combined with tax reforms, deregulation, and the resulting economic growth all worked together to bring down the inflation rate. This decline in inflation provided a more stable economic environment, which contributed to increased business confidence, and investment. 

Unemployment fell from 7.6% to 5.5%

As President Reagan's policies were implemented, economic growth began to take off. This favorable economic environment allowed businesses to thrive and expand, thus creating more jobs and lowering unemployment.

Net worth of families earning between $20,000 and $50,000 annually grew by 27%

Economic expansion, tax cuts, and job growth were primairy drivers of increasing the net worth of families earning between $20,000 and $50,000.  Also contributing to this growth was asset appreciation and inflation moderation during this time period. 

Real gross national product rose 26%

As Reagan's economic policies began taking off this ultimately led a substantial rise in Gross National Product (GNP), reflecting increased productivity, business expansion, and investment.

The prime interest rate was reduced to 10% by August, 1988

The Reagan administration slashed the priime interest rate by more than half, from an unprecedented 21.5% in January 1981 to 10% in August 1988. This achievement stemmed from the administration’s shift in monetary policy aimed at controlling inflation and stimulating economic growth. 

The First Hand Results of the Reagan Recovery

Given actual rates of inflation, through 1987, the Reagan tax cuts saved the median-income two-earner American family of four close to $9,000 in taxes from what it would have owed in 1980.

Tax cuts were only one “leg of the stool.” The second, jobs, was equally strong. Not only were there millions of new jobs, but the benefits of job creation were not limited to one segment of society. Employment of African-Americans rose by more than 25% between 1982 and 1988, and more than half of the new jobs created went to women.

Taming the lion called government spending was another key component of the plan – the “third leg of the stool.” Here, too, President Reagan did what he said he would do. During his Administration, growth in government spending plummeted from 10% in 1982, to just over 1% in 1987. With inflation factored in, Federal spending actually went down in 1987 – the first time that had happened in well over a decade.

So impressive was the Reagan Recovery that at the G7 Economic Summit in 1983, when it was obvious the President’s plan was working, the West German Chancellor asked him to “tell us about the American miracle." That was quite a turnaround from two years earlier, when President Reagan outlined his economic recovery plan to an unconvinced group of world leaders. 

Now, however, they all wanted to know how he did it, so he told them: reducing tax rates restored the incentive to produce and create jobs, and getting government out of the way allowed people to be entrepreneurs. From there, the free marketplace operated as it was supposed to.

As President Reagan observed with a wry smile, “I could tell our economic program was working when they stopped calling it Reaganomics.” But what really pleased him most about the Reagan Recovery was not the vindication or all the impressive statistics. To him, the success of Reaganomics was what it brought to the American people. 

Millions had good jobs and were able to keep more of the money for which they worked so hard. Families could reliably plan a budget and pay their bills. The seemingly insatiable Federal government was on a ‘much-needed diet. And businesses and individual entrepreneurs were no longer hassled by their government, or paralyzed by burdensome and unnecessary regulations every time they wanted to expand.

In a phrase, the American dream had been restored.