Reagan's Timeless Tax Cut

Dressed in jeans, a denim jacket, and cowboy boots, President Ronald Reagan emerged from his humble, hacienda-style adobe ranch house high in the mountains of Santa Barbara. His dog “Millie” by his side, the president walked to the leather-covered patio table and sat down in a chair and faced open pasture. Though this describes many of the 350 days Mr. Reagan spent at Rancho del Cielo during his eight years in office, Aug. 13, 1981, was different.

A large contingent of the press was gathered in front of the ranch house, barricaded by a single piece of rope, awaiting the president’s appearance. Misty fog crawled up the mountain from the Pacific Ocean, and, as Mr. Reagan walked toward the patio table and press corps, he joked that the foggy day was symbolic of the country’s soggy economic state. Positioned on the table in front of him were two stacks of paper that made War and Peace look like a children’s bedtime story.

On that foggy August morning at Rancho del Cielo, Mr. Reagan signed the Economic Recovery Tax Act of 1981 (ERTA), the largest tax cut in U.S. history. David Broder of the Washington Post called the event “one of the most remarkable demonstrations of presidential leadership in modern history.” Twenty-seven years later, there remains much to learn from Mr. Reagan’s economic policy.

His approach was different from his predecessors. During a time of high unemployment and inflation, not to mention relatively high gas prices, (sounds familiar, right?) Mr. Reagan advocated radical economic reforms. Reducing the marginal tax rates on income, market deregulation, and sound monetary policies to reduce inflation were Mr. Reagan’s main goals.
He rightly believed that slashing the marginal tax rates would create an incentive for people to work, ultimately stimulating the economy.

Over a three-year period, the ERTA reduced taxes across the board by 26 percent. Proving the success of free enterprise, the flow of resources into the market increased which encouraged economic growth. Mr. Reagan’s policies resulted in the largest peacetime economic boom and second-largest period of sustained growth in U.S. history. Creating 35 million more jobs, this boom lasted 92 months without a recession. Ultimately, according to the Pacific Research Institute for Public Policy, the American economy grew by one-third in real inflation-adjusted terms — the equivalent of adding the entire economies of East and West Germany to the U.S. economy.

There was a reason Mr. Reagan signed this landmark legislation at his beloved “ranch in the sky” and not in Washington, D.C. For him, the ranch represented freedom, opportunity and the ideals of America’s founding. It was here he went to escape the nonsense of Washington politicians and bureaucrats. Mr. Reagan believed that letting the American people keep more of their own money went beyond being a Republican or Democrat issue, it was simply the right thing to do.

Visiting the ranch as a student with Young America’s Foundation, I am powerfully reminded of this historic day 27 years ago today. Gazing out at the ranch pasture, I can’t help but imagine a gaggle of reporters and photographers anxiously awaiting this historic signing, and the millions of Americans who would subsequently benefit.

Mr. Reagan’s economic policy was built upon hope, optimism and trust in the American people. He understood the essential connection between economic and individual freedom, and that a free America is a strong America. It is a lesson I hope and pray is not lost on the 21st century leaders now seeking the same high office.