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The Popular Origins of Neoliberalism in the Reagan Tax Cut of 1981

  • Monica Prasad (a1)
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1. E. George Cross III to Secretary Regan and Deputy Secretary-Designate McNamar, 17 February 1981, “Speechwriting: Drafts, Address to Joint Session/Economy Background, 18 February 1981 [4 of 5],” Ronald Reagan Presidential Library (hereafter RRPL).

2. Reagan Ronald, “Address Before a Joint Session of the Congress on the Program for Economic Recovery February 18, 1981.” Public Papers of President Ronald W. Reagan (Washington, D.C.), 18 February 1981.

3. Office of Management and Budget, Historical Tables: Budget of the U.S. Government: Fiscal Year 2010 (Washington, D.C., 2009), table 7.1.

4. See, e.g., Erskine Hazel Gaudet, “The Polls: Some Gauges of Conservatism,” Public Opinion Quarterly 28, no. 1 (August–September 1980): 154–68; Public Opinion.

5. See Rabe Barry, Statehouse and Greenhouse (Washington, D.C., 2004), on state-level environmental policy, for example.

6. Perlstein Rick, Before the Storm (New York, 2001).

7. Sundquist James L., Politics and Policy (Washington, D.C., 1968), 42.

8. Matusow Allen J., Nixon’s Economy (Lawrence, Kans., 1998).

9. The “Ronald Reagan 1980 Presidential Campaign Papers, 1964–1980.” Prepresidential records are not subject to the Freedom of Information Act, and these records were only released by decision of the Library and Nancy Reagan. In this article, I have also drawn on several recently released collections from the Hoover Institution and the Library of Congress.

10. Himmelstein Jerome L., To the Right: The Transformation of American Conservatism (Berkeley and Los Angeles, 1990); McGirr Lisa, Suburban Warriors: The Origins of the New American Right (Princeton, 2001); Schulman Bruce J., The Seventies: The Great Shift in American Culture, Society, and Politics (New York, 2001).

11. Indeed, using only three variables—federal income tax as percent GDP, inflation, and change in real per capita income—Andrea Campbell is able to predict changes in tax support quite accurately. Campbell Andrea, “What Americans Think of Taxes,” in The New Fiscal Sociology, ed. Martin Isaac, Mehrotra Ajay, and Prasad Monica (Cambridge, 2009); for arguments on inflation as the source of the rising unpopularity of taxes, see Brownlee W. Elliot and Steuerle C. Eugene, “Taxation,” in The Reagan Presidency: Pragmatic Conservatism and Its Legacy, ed. Brownlee W. Elliot and Graham Hugh Davis (Lawrence, Kans., 2003), 155–81; Brownlee W. Elliot, Federal Taxation in America: A Short History (Cambridge, 2004), 127–33; for poll evidence, see Mayer William G., The Changing American Mind (Ann Arbor, 1993).

12. Jack Kemp to Editor, 8 April 1976, Jack Kemp Papers, box 103, folder 3, Correspondence General 1975–80, Manuscript Division, Library of Congress.

13. Bruce Bartlett, “Revolution of 1978,” Jack Kemp Papers, box 89, folder 6, Mueller Kemp, Jack, Economics “Model Notebook” 1975–80 (4 of 4), Manuscript Division, Library of Congress.

14. Irwin Ross, “Jack Kemp Wants to Cut Your Taxes—A Lot,” Fortune, 10 April 1978, Jack Kemp Papers, box 89, folder 5, Manuscript Division, Library of Congress.

15. Jude Wanniski to Karl O’Lessker, 2 November 1984, Jack Kemp Papers, box 41, folder 3, “Correspondence Wall-Wann 1984–1988,” Manuscript Division, Library of Congress.

16. Quoted in Jon Margolis, “Jack Kemp Thinks He Has a Capital Idea,” Chicago Tribune, 25 June 1978, A2. For other verbatim examples months apart, see, e.g., Bill Steigerwald, “Kemp Blitzes U.S. Government Policy,” Los Angeles Times, 14 October 1979, O8; Joseph Sobran, “Bringing Back the Golden Goose,” Washington Post, 22 July 1980, A13.

17. Jack Kemp to Gerald Ford, 15 December 1976, Campaign 1980, box 493, Rep. Jack Kemp (R-N.Y.), RRPL.

18. Jack Kemp to Republican Members of Congress, 22 February 1977, Campaign 1980, box 85, Black-Personal Correspondence 1977, RRPL.

19. Charlie Black to Jack Kemp, 23 May 1977, Campaign 1980, box 85, Black-Personal Correspondence 1977, RRPL.

20. Hayward Steven, The Age of Reagan (New York, 2009), 647.

21. Collins Robert M., Transforming America (New York, 2006), 69.

22. Martin Isaac William, The Permanent Tax Revolt (Stanford, 2008), see, e.g., p. 50 for an example of inflation inspiring an episode of the tax revolt.

23. Martin Tolchin, “Jack Kemp’s Bootleg Run to the Right,” Esquire, 24 October 1978, 59–69.

24. Campaign 1980, box 52, Briefings: Republican Tax Cut Blitz Briefing Book: 09/20/1978–09/22/1978 (1/2 and 2/2), RRPL.

25. “Roth-Kemp = Tax Cut = Jobs = Economic Growth,” First Monday, June 1978, Campaign 1980, box 459, Research Files–Kemp [Jack] (Hopkins/Bandow), RRPL.

26. “Remarks of Congressman Jack Kemp (R-N.Y.) at the 44th Annual Convention of the International Longshoremen’s Association, AFL-CIO, Miami, 16 July 1979,” Campaign 1980, box 473, Research Policy–Issues Material–Kemp, Jack (2/2) (Hopkins/Bandow), RRPL; Ed Kelly, “How Kemp Wooed ILA,” Buffalo Evening News, 8 August 1979, Campaign 1980, box 437, Research Policy–Issues Material–Kemp, Jack (1/2) (Hopkins/Bandow), RRPL.

27. “Ronald Reagan Speaks Out on Carter Tax Plan,” CFTR Newsletter, 1 December 1977, Campaign 1980, box 38, Hannaford/CA HQ–Citizens for the Republic–Newsletter, 8/1977–12/1977 (2/3), RRPL; “Ronald Reagan Speaks Out: Republicans Ride the Tax Cut Ride,” CFTR Newsletter, 17 July 1978, Campaign 1980, box 39, Hannaford/CA HQ-Citizens for the Republic, Vol. 2, 6/1978–10/1978 2(3) General, RRPL.

28. “A National Survey of the American Electorate,” MayJune 1978, 83, Campaign 1980, box 183, RRPL.

29. Williams Philip and Wilson Graham, “The American Mid-Term Elections,” Political Studies 27, no. 4 (December): 603–9.

30. Jack Kemp, “Initiating an American Renaissance,” 3 February 1979, 2, Campaign 1980, box 473, Research Policy–Issues Material–Kemp, Jack (1/2) (Hopkins/Bandow), RRPL.

31. On interpreting the meaning of midterm elections, see Tufte Edward R., “Determinants of the Outcomes of Midterm Congressional Elections,” American Political Science Review 69, no. 3 (1975): 812–26; Bafumi Joseph, Erikson Robert S., and Wlezien Christopher, “Balancing, Generic Polls, and Midterm Congressional ElectionsJournal of Politics 72 (2010): 705–19.

32. Richard Bergholz, “Reagan Leans Toward Running,” Los Angeles Times, 14 January 1979, A3.

33. Steering Committee Meeting, 13 January 1979, 16, 22, Campaign 1980, box 105, Meese Files–Campaign Ops–Citizens for the Republic, 5/1979 (background + status, including meeting minutes), RRPL.

34. “A Statewide Survey of Republican Primary Voters in New Hampshire,” January 1980, 5–7, Campaign 1980, box 193, RRPL; “Two Brushfire Surveys of New Hampshire Republican Voters,” February 1980, 10, Campaign 1980, box 196, RRPL; Richard Wirthlin to John Sears, 16 February 1980, 3, Campaign 1980, box 109, Meese, Ed–Campaign Operations–Polling Data (1/2), RRPL.

35. “A Panel Survey of Vermont Republicans,” February 1980, Campaign 1980, box 197, RRPL.

36. “A Statewide Survey of Republican Primary Voters in Illinois Wave II,” 9–10 February 1980, 17, Campaign 1980, box 195, RRPL.

37. On Kemp name recognition, e.g., see “A Statewide Survey of Republican Primary Voters in Florida,” November–December 1979, 25–26, Campaign 1980, box 191, RRPL. On Kemp as possible vice-presidential pick, see “Kemp’s Talk to Convention May Be Biggest of Career” and “Reagan Nearly Chose Kemp, Aide Reveals,” Jack Kemp Papers, box 382, folder 8, Scrapbooks Vol. 20, 1980, July 15–1981, Feb. 13, Manuscript Division, Library of Congress.

38. Rowland Evans and Robert Novak, “Reagan Talks Out of School,” Washington Post, 12 October 1979, A15.

39. Anderson Martin, Revolution (New York, 1988), 114, 116.

40. Arthur Laffer, quoted in Seymour Zucker, “The Fallacy of Slashing Taxes Without Cutting Spending,” Business Week, 7 August 1978, 62.

41. “Model Notebook K-R: Q&As,” Jack Kemp Papers, box 89, folder 4, Manuscript Division, Library of Congress.

42. Rowland Evans and Robert Novak, “Reagan Talks Out of School,” Washington Post, 12 October 1979, A15.

43. Bill Brock to William Armstrong, 26 January 1979, Jack Kemp Papers, box 103, folder 10, Brunette 1977–79.

44. Jack Kemp to the Editor, 4 March 1980, Jack Kemp Papers, box 89, folder 5, Jack Mueller Kemp, Economics “Model Notebook” 1975–80 (3 of 4), Manuscript Division, Library of Congress.

45. “The President’s package will not reduce inflation, or increase saving.” Donald T. Regan Papers, box 176, folder 1, Manuscript Division, Library of Congress.

46. Council of Economic Advisers, 17 March 1981, “The Current Status of the President’s Program for Economic Recovery,” Donald T. Regan Papers, box 138, folder 4, Economic Recovery Program, March 17–April 3, 1981, Manuscript Division, Library of Congress.

47. “President’s Tax Proposals Economic Rationale,” Office of the Secretary of the Treasury, Donald T. Regan, box 138, folder 3, Economic Recovery Program, Feb. 18–Mar. 3, 1981, Manuscript Division, Library of Congress.

48. Questions and Answers, 17 February 1981, Department of the Treasury, Donald T. Regan Papers, box 138, folder 3, Economic Recovery Program, Feb. 18–Mar. 3, 1981, Manuscript Division, Library of Congress.

49. Congressional Budget Office, “Congress and the Budget,” 10 April 1981, Alice M. Rivlin Papers, box 26, folder “Congress and the Budget,” 16 April 1981, Manuscript Division, Library of Congress.

50. “Some Initial Strategic and Tactical Considerations for the 1980 Presidential Campaign,” 28 March 1980, Campaign 1980, box 104, Meese, Ed–Campaign Planning–Tactics (3/4), RRPL.

51. “Report on a Focus Group Discussion of the 1980 Presidential Election,” 12–13, Campaign 1980, box 250, Political Ops–General–Polling & Strategy (Wirthlin, Beal) (1/5) (Timmons), RRPL; Meeting 9 July 1980, Campaign 1980, box 105, Ed Meese–Campaign Planning Meetings, July 1980, RRPL; Richard B. Wirthlin to Governor Ronald Reagan et al., Campaign 1980, box 152, Meese, Ed–Staff/Advisors–Wirthlin, Dick (2/2), RRPL; “Campaign 80,” 8 October 1980, Campaign 1980, box 221, Media Campaign–[Campaign ’80, 10/8/80 Meeting] (Peter Dailey), RRPL.

52. Richard B. Wirthlin to Governor Reagan et al., 13 August 1980, Campaign 1980, Box 152, Meese, Ed–Staff/Advisors–Wirthlin, Dick (1/2), RRPL.

53. Ibid.

54. Richard Nixon to Jack Kemp, 5 March 1981, Jack Kemp Papers, box 382, folder 2, Scrapbooks Vol. 18, 1979, Aug. 31–1981, Dec. 28, 1 of 4, Manuscript Division, Library of Congress.

55. Benjamin I. Page and Robert Y. Shapiro suggest that business and political elites manipulated public opinion to oppose inflation in the 1970s (The Rational Public, University of Chicago, 1992, 149). Page and Shapiro’s own work shows that public opposition to taxation dropped as soon as ERTA indexed tax brackets to inflation (163), suggesting objective reasons for the antitaxation climate of the 1970s. If business was indeed behind the public opinion on inflation, its strategy backfired, for the individual income tax cuts that resulted were not favored by business.

56. Wilentz Sean, The Age of Reagan (New York, 2008), 141.

57. “Consumer Attitudes Toward Government Taxation and Spending,” 3 September 1980, Campaign 1980, box 252, Political Ops–Issues–Taxes (Timmons), RRPL.

58. Jude Wanniski, “The Campaign Homestretch,” Peter Hannaford Papers, box 6, folder 6-9, Hoover Institution, Stanford.

59. Richard L. Madden, “Anderson, in Manhattan, says Rivals Flip-Flopped,” New York Times, 10 October 1980, quoted in Shirley Craig, Rendezvous with Destiny (Wilmington, Del.: Intercollegiate Studies Institute, 2009), 687.

60. Sloan John W., The Reagan Effect (Lawrence, Kans., 1999), 164.

61. “A Statewide Survey of Republican Voters in Pennsylvania,” 11 April 1980, Campaign 1980, box 199, RRPL.

62. William J. Casey to Governor Reagan et al., 7 April 1980, 2–3, Campaign 1980, box 128, Meese File–Subject File–Domestic–Briefing Papers /Memos (1/2), RRPL.

63. “Some Initial Strategic and Tactical Considerations for the 1980 Presidential Campaign,” 28 March 1980, 11, Campaign 1980, box 104, Meese, Ed–Campaign Planning–Tactics (3/4), RRPL.

64. Harvey David, A Brief History of Neoliberalism (Oxford, 2005), 43. For an overview of the role of business interests in recent politics that comes to a very different conclusion, see Smith Mark A., American Business and Political Power (Chicago, 2000).

65. Hacker Jacob S. and Pierson Paul, Winner-Take-All Politics: How Washington Made the Rich Richer—And Turned Its Back on the Middle Class (New York, 2010); Lessig Lawrence, Republic, Lost: How Money Corrupts Congress—and a Plan to Stop It (New York, 2011). Hacker and Pierson cite the influence of Charls Walker and the Carlton Group, who “literally wrote many of the key provisions influencing business in the new president’s proposals”(134). But as we will see below, Walker opposed the plank that constituted the largest part of the revenue loss, the individual rate cuts. The accelerated depreciation proposals that the Carlton Group championed were scaled back the very next year, while the individual tax cuts they opposed were kept in place. The administration bought business support for the individual tax cuts with large business tax cuts, and then radically reduced the business tax cuts.

66. Phillips-Fein Kim, Invisible Hands (New York, 2009), xii.

67. See Steuerle Eugene, The Tax Decade (Washington, D.C., 1992), 186–87, for a breakdown of the costs of the tax bill. This means that the largest part of the revenue loss was not “supply side”at all, but “demand side.”

68. See, e.g., ibid.; Pollack Sheldon D., Refinancing America: The Republican Antitax Agenda (Albany, N.Y., 2003).

69. Akard Patrick, “Corporate Mobilization and Political Power,” American Sociological Review 57 (1992): 597615.

70. Art Pine, “DuPont’s Irving S. Shapiro,” Washington Post, 8 February 1981; quoted in Prasad Monica, The Politics of Free Markets (Chicago, 2006), 48.

71. Rowland Evans and Robert Novak, “Big Business is Furious, Too,” Washington Post, 8 June 1981, A15.

72. White Joseph and Wildavsky Aaron, The Deficit and the Public Interest (Berkeley and Los Angeles, 1990), 165.

73. “Cautions from Conservatives,” “Tax Bill ’81 [1 of 2] 2/5 box 10533,” David Gergen Files, RRPL.

74. McQuaid Kim, Uneasy Partners (Baltimore, 1994), 165.

75. James W. Fuller to William J. Casey, 12 June 1980, Campaign 1980, box 105, Ed Meese Files–Campaign Ops–Business Advisory Panel Meeting, 6/1980, RRPL.

76. Business Advisory Panel meeting, 17 June 1980, Campaign 1980, box 105, Meese, Ed–Campaign Planning Meetings, June 1980, RRPL.

77. See, e.g., Jack Kemp, “Congress’ First Priority: Lower Federal Tax Rates,” Human Events, 27 November 1976.

78. See, e.g., Anderson Martin, Revolution (New York, 1988), 140–63, for a lively denial.

79. Hayward Steven, The Age of Reagan (New York, 2009), 7071.

80. George Skelton, “Reagan Assails Wall Street’s Economic Advice,” New York Times, 29 May 1981, A6.

81. Reagan Ronald, An American Life (New York, 1990), 232, 244.

82. The White House, “President Reagan’s Program for Economic Recovery,” April 1981, Craig Fuller Files, OA 10972, Economic/Budget Policy April 1981 (3).

83. David A. Stockman, “Reagan Economic Program II–General Materials [2 of 5],” box OA9020, White House Office of Public Affairs: Records.

84. “Savings and Investment in the Program for Economic Recovery,” White House Office of Public Affairs: Records, OA 9015, “Reagan Tax Cut Plan [4 of 8],” RRPL.

85. Boskin Michael, “Taxation, Saving, and the Rate of Interest,” Journal of Political Economy 86, no. 2, pt. 2 (April 1978): S3S27.

86. Department of the Treasury, “Background on the President’s Tax Program.” Edwin Meese III Files, OA 2990, Background on the President’s Tax Program, Binder 1, RRPL.

87. Michael J. Boskin to Ed Meese, 26 March 1980, Campaign 1980, box 116, Ed Meese–Correspondence File–EM Correspondence 3/1980 (2/2), RRPL.

88. U.S. Congress, Leading Economists’ Views of Kemp-Roth (Washington, D.C., 1978).

89. Richard R. Nelson to Murray Weidenbaum, 16 March 1981, Weidenbaum Files, OA 11004, MLW General Correspondence 3/12/81–3/31/81 (3), RRPL.

90. Quoted in Seymour Zucker, “The Fallacy of Slashing Taxes Without Cutting Spending,” Business Week, 7 August 1978, 62.

91. See, e.g., Paul Krugman, “The Bankruptcy Boys,” New York Times, 21 February 2010, for a recent version of the “starve the beast” explanation.

92. Ronald Reagan, “Address to the Nation on the Economy,” 5 February 1981.

93. Robert H. Michel to Republican Colleagues, 29 May 1981, Strategy-Republican, CA 8618, M. B. Oglesby Files, RRPL.

94. See Bartlett Bruce, “‘Starve the Beast’: Origins and Development of a Budgetary Metaphor,” Independent Review 12, no. 1 (Summer 2007): 526.

95. Richard G. Darman, “Meeting of Legislative Strategy Group,” 12 May 1981, Craig Fuller Files, box 10972, Economic/Budget Policy, 5/81, RRPL.

96. Charls E. Walker to Richard V. Allen, MC box 1, 013293, 18 February 1981: “There are billions and billions of dollars around the world that will flow into U.S. bonds and stocks just as soon as foreign investors become convinced that the program will work.” However, see Krippner Greta, Capitalizing on Crisis (Cambridge, Mass., 2011), 95, for a discussion of general absence of attention to the role of foreign markets in financing the deficit at this time.

97. Department of the Treasury, “Background on the President’s Tax Program.” Edwin Meese III Files, OA 2990, Background on the President’s Tax Program, Binder 1, RRPL.

98. David A. Stockman, “Reagan Economic Program II–General Materials [2 of 5],” box OA9020, White House Office of Public Affairs: Records. See also Morgan Iwan, “Reaganomics and Its Legacy,” in Ronald Reagan and the 1980s, ed. Hudson Cheryl and Davies Gareth (New York, 2008), 104.

99. Murray Weidenbaum, “Interest Rates and Monetary Policy,” 7 May 1981, [Economic/Budget Policy, 5/81], box 10972, Craig Fuller Files, RRPL.

100. Martin Anderson, “Memorandum for Governor Reagan,” 22 August 1980, Campaign 1980, box 129, Meese Files–Subject File–Federal Spending [Anderson to RR re: economic conditions], RRPL.

101. Anderson Martin, Revolution (New York, 1988).

102. See Reeves Richard, President Reagan (New York, 2005), 8081.

103. Elliot Brownlee W. and Eugene Steuerle C., “Taxation,” in The Reagan Presidency, ed. Brownlee W. Elliot and Graham Hugh Davis (Lawrence, Kans., 2003).

104. Weaver R. Kent, Automatic Government: The Politics of Indexation (Washington, D.C., 1988), 203.

105. In an earlier examination of this episode (Prasad Monica, The Politics of Free Markets, [Chicago, 2006], 4561), I also failed to notice this.

106. “Talking Points,” Francis Hodsoll Files S.M., Series I: Subject File, box 5, “Tax Bill,” RRPL.

107. See, e.g., Congressman Mickey Edwards’s letter to the president on oil exemptions: “I am prepared to work for, fight for, bleed for, die for the tax package—but if the Democrats offer more relief from the windfall profits tax, I could either vote for the Democrat package or begin to groom a successor and wind up my Congressional affairs.” (Mickey Edwards to the President, 13 July 1981, Oglesby Files, Misc-Members of Congress, CA 8618, RRPL.)

108. Ehrman John, The Eighties (New Haven, 2005), 57.

109. “Voodoo Politics,” Wall Street Journal, 14 January 1982, 29.

110. Jenkins, Aylward, Napolitano, Masterton, Laguarte, and Green to the President, 25 February 1982, BE004 National Economy (062644) [5 of 5], WHORM Subject Files, RRPL.

111. Ernest F. Hollings to the President, 10 March 1982, BE004 National Economy (062644) [5 of 5], WHORM Subject Files, RRPL.

112. Edwin L. Harper to Regan, Baker, Meese, and Stockman, 25 March 1982, Economic Policy Advisory Board OA 9449, Ed Meese Files, RRPL.

113. Ibid.

114. Ibid.

115. See, e.g., Steuerle, The Tax Decade; Pollack, Refinancing America.

116. Greider William, The Education of David Stockman and Other Americans (New York, 1982).

117. John [Mueller] to Jack Kemp, 16 November 1981, “Ideas on the Trickle-Down Problem,” Jack Kemp Papers, box 82, folder 13, Mueller Correspondence 1981, October–December, Manuscript Division, Library of Congress.

118. Jack Kemp, “Statement by Congressman Jack Kemp on Ways and Means Chairman Dan Rostenkowski’s Tax Proposal,” 10 April 1981, Jack Kemp Papers, box 134, folder 6, Taxes and taxation General 1979–84, Manuscript Division, Library of Congress.

119. Reagan Ronald, An American Life (New York, 1990), 232.

120. On tax cuts after Reagan, see, e.g., Pollack, Refinancing America; Micklethwait John and Wooldridge Adrian, The Right Nation: Conservative Power in America (New York, 2004).

121. See, e.g., Monroe Alan D., “Public Opinion and Public Policy, 1980–1993,” Public Opinion Quarterly Volume 62 (1998): 628.

122. Wilensky Harold, Rich Democracies (Berkeley and Los Angeles, 2002); Prasad, The Politics of Free Markets.

123. For just a few examples, see Mayer William G., The Changing American Mind (Ann Arbor, 1993); Smith, American Business and Political Power.

124. Prasad, The Politics of Free Markets, 62–82. Indeed, deregulation began on the left, championed by Ralph Nader and Ted Kennedy.

125. Lessig, Republic, Lost, 2.

126. Walter W. Heller, “The Kemp-Roth-Laffer Free Lunch,” Wall Street Journal, 12 July 1978, 20.

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