For Wednesday: Johnson ch. 9
Next week, student hours: today and tomorrow 1-2, and by appointment.
Oral presentations: today will be Jacques, Stephanie, and Miles. Need 3-4 volunteers for Wednesday.
Stylistic points:
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How the Iran Crisis Changed US Politics
- The 1978-79 Iranian Revolution deposes the Shah, disrupts global oil supply and triggers a recession.
- In 1979, Iranian students take US embassy workers hostage. The crisis lasts 444 days. An attempt at rescue ends in humiliating failure.
- Reagan wins, GOP takes the Senate for the first time since 1952 and makes major gains in the House.
A policy window opens -- but for what?
"In private, Stockman agreed that his former congressional mentor, John Anderson, running as an independent candidate for President in 1980, had asked the right question: How is it possible to raise defense spending, cut income taxes, and balance the budget, all at the same time?"
Why raise defense spending?
Public opinion had shifted:
USSR
Concern about deficit
In this present crisis, government is not the solution to our problem; government is the problem.
Minutes later, a less-remembered line
Now, so there will be no misunderstanding, it's not my intention to do away with government. It is rather to make it work -- work with us, not over us; to stand by our side, not ride on our back. Government can and must provide opportunity, not smother it; foster productivity, not stifle it.
Shift in GOP Economic Policy
Republicans had not always been tax cutters. In the second 1960 debate, Nixon said:
I think it may be necessary that we have more taxes. I hope not. I hope we can economize elsewhere so that we don’t have to. But I would have no hesitation to ask the American people to pay the taxes even in l961 – if necessary – to maintain a sound economy and also to maintain a sound dollar
The inflation of the 1970s created "bracket creep."
Jack Kemp and the Kemp-Roth tax bill: 30% across-the-board cut in income taxes. Takes off after the overwhelming victory of California's Prop 13 shows the appeal of tax cuts.
The Laffer Curve:
March 18, 1981, Reagan survives an assassination attempt and his approval rating jumps 8 points.
Significance of the Reconciliation process?
OBRA: purported to cut federal spending by an estimated $130.6 billion over three years by cutting funding for many social programs.
But ... Baseline budgeting:
There was less there than met the eye. Nobody has figured it out yet. Let’s say that you and I walked outside and I waved a wand and said, I’ve just lowered the temperature from 110 to 78. Would you believe me? What this was was a cut from an artificial CBO base. That’s why it looked so big. But it wasn’t. It was a significant and helpful cut from what you might call the moving track of the budget of the government, but the numbers are just out of this world. The government never would have been up at those levels in the CBO base.”
Tax cut
Provisions
- Across-the-board 23% cut in individual income tax rates over three years. It also reduced the top marginal tax rate for individuals from 70% to 50% and lowered corporate and capital gains taxes.
- Accelerated depreciation: The act introduced the Accelerated Cost Recovery System (ACRS), which allowed businesses to write off the costs of their assets over a shorter period. This was intended to stimulate business investment and economic growth.
1982
- Contractionary monetary policy triggers a deep recession, topping at 10.8 percent, still the highest since the Great Depression.
- Scroll up to see the deficit graph again.
Reagan agrees to tax hikes:
- The Tax Equity and Fiscal Responsibility Act of 1982 had several key provisions, including an increase in the federal unemployment tax wage base and tax rate.
- The Highway Revenue Act of 1982 raised the gasoline excise tax from 4 cents to 9 cents through the fall of 1988.
- The Social Security Amendments of 1983 sped up increases in the payroll tax rate and provided for the taxation of some Social Security benefits.
- The Deficit Reduction Act of 1984 reduced tax benefits from income averaging and extended telephone excise tax through 1987.
- The Consolidated Omnibus Budget Reconciliation Act of 1985 permanently raised the cigarette excise tax to 16 cents per pack.
- Omnibus Budget Reconciliation Act of 1987 extended the telephone excise tax through 1990 and eliminated the estate tax deduction loophole for employee stock ownership plans.
