The Reagan Tax Cuts And Foreign Policy Essay, Research Paper

The Reagan Tax Cuts and Foreign Policy

During the 1980’s President Ronald Reagan’s (our 40th president from

1981 to 1989) domestic policy of a substantial tax cut led to greatly increased

economic prosperity for our country. During Reagan’s administration marked

changes were made to the tax code and economic statistics showed a major change

for the better. However, at the same time, the Democrats controlled the Congress

and continued increased spending against Reagan’s wishes. The Joint Economic

Committee stated that an across-the-board tax cut was not new. In the 20’s the

Mellon tax cuts were implemented by Secretary of Treasury Andrew Mellon during

the Administrations of Hoover, Harding, and Coolidge. In the 60’s Kennedy

introduced tax cuts. In both instances the decrease of high marginal tax rates

somehow increased tax payments by the rich. Perhaps a foreshadow of things to

come. Debates were raging over the Reagan tax cuts, known as the Economic

Recovery Tax Act of 1981 (or, ERTA). This act was designed to spur savings,

investment, work, and economic efficiency. This policy would impose a 25%

across-the-board cut in personal marginal tax rates. In the act of decreasing

marginal tax rates, and stimulating economic incentives, ERTA would increase the

flow of resources into production, thus lifting economic growth. This policy

received much criticism because its opponents argued that ERTA would be a

giveaway to the rich, because their tax payments would collapse. Reagan worked

hard and skillfully with the congress to obtain legislation to stimulate

economic growth and curb inflation, he embarked upon a course to cut taxes and

curb inflation. President Reagan was able to sign into law a tax cut in late

1981 even though congressional Democrats tried to block his cuts. All tax payers

received these cuts which helped to spur the economy. The cuts were taken over

three years with a 5% cut in 1981, a 10% cut for 1982, and in 1983 another 10%

cut. Reagan’s call for extensive changes in the federal income tax laws helped

bring about passage of the Tax Reform Act of 1986. In 1986 Reagan introduced the

Tax Reform act of 1986. The tax reform act of 1986 chopped taxes, and indexed

taxes for inflation as well. During Reagan’s first term the inflation rate was

at -5.7%, unemployment was at1.4%, interest rates were at -.7, and the gross

national product was 7%.

Reagan signed the tax reform bill entitled the Tax Reform act of 1986.

This act simplified and reduced taxes, but the democrats wanted to claim equal

credit for the bill as well. A stock market crash in 1987 raised questions about

the nation’s economic health. A new bill to balance the federal budget became

law in 1987, but the huge deficit continued to be a concern to the government.

Congress passed Reagan’s requests for cuts in taxes and in some government

programs. Reagan also won increased funds for defense. By 1982, however, the

country was in an recession, which meant that there was an extended decline in

general business activity, typically three consecutive quarters of falling real

gross national product. The economy improved in 1983. But the increased defense

spending and tax cut had led to a record budget deficit. Democrats attacked

Reagan for cutting social welfare programs and called for reduced defense

spending and a tax increase in order to lower the deficit.

Foreign Policy

President Reagan through foreign policy sought to achieve peace through

strength. He had learned how to deal skillfully with Congress and obtain

legislation to strengthen our national defense. In 1983, Reagan sent U.S.

Marines to Lebanon as part of a peacekeeping force. The Marines were recalled in

1984, after some 240 had been killed in a terrorist attack. Reagan also sent U.S.

troops to Grenada in 1983, to prevent what the he saw as a Cuban attempt to take

over the Caribbean island nation. The President denounced the left-wing

Sandinista government of Nicaragua as a threat to peace in Central America, and

he repeatedly requested military aid for the anti-Sandinista guerrillas, known

as contras. In November of 1986 President Reagan confirmed reports that the

United States had secretly sold arms to Iran. He stated that the goal was to

improve relations with Iran, not to obtain release of U.S. hostages held in the

Middle East by terrorists. Later in November, Attorney General Edwin Meese

discovered that some of the arms profits had been diverted to aid the Nicaraguan

“contra” rebels–at a time when Congress had prohibited such aid. An independent

special prosecutor, former federal judge Lawrence E. Walsh, was appointed to

investigate the activities of persons involved in the arms sale or contra aid or

both, including marine Lt. Col. Oliver North of the National Security Council

(NSC) staff. In May 1989 North was tried and convicted of obstructing Congress

and unlawfully destroying government documents, but his conviction was

subsequently overturned. Reagan ordered the bombing of military targets in

Libya in 1986 in retaliation for its role in international terrorism. His policy

of reflagging (flying the U.S. flag on) Kuwaiti oil tankers and providing them

with a U.S. naval escort in the Persian Gulf led to clashes with Iran in 1987.

President Reagan during his administration sought to improve relation with the

Former Soviet Union, and foreign relations did improve greatly. Reagan and

Gorbachev paved the way to the end of the cold war. They accomplished this by

means of Summit Conferences. Several of these conferences were held from 1985

to 1987. The President and Mr. Gorbachev conducted this summit in Geneva in

1985. As the result of a U.S. initiative, President Reagan and General Secretary

Gorbachev agreed at the November 1985 Geneva Summit to have experts explore the

possibility of establishing centers to reduce the risk of nuclear war. The

impetus for this initiative grew out of consultations between the Executive

Branch and Congress, particularly Senators Sam Nunn and John Warner. U.S. and

Soviet experts held informal meetings in Geneva on May 5-6 and August 25, 1986.

In October 1986, at their meeting in Reykjavik, President Reagan and General

Secretary Gorbachev indicated satisfaction with the progress made at the experts

meetings and agreed to begin formal negotiations to establish Nuclear Risk

Reduction Centers. Those negotiations were held in Geneva on January 13 and May

3-4, 1987. The negotiations resulted in the Agreement that was signed in

Washington September 15, 1987, by Secretary of State Shultz and Foreign Minister

Shevardnadze. Under the Agreement, which is of unlimited duration, each party

agreed to establish a Nuclear Risk Reduction Center in its capital and to

establish a special facsimile communications link between these Centers. These

Nuclear Risk Reduction Centers became operational on April 1, 1988. The American

National Center (known as the NRRC) is located in Washington, DC in the

Department of State. The Soviet National Center became the Russian National

Center with the dissolution of the Soviet Union and is located in Moscow in the

Russian Federation Ministry of Defense. Reagan’s greatest diplomatic achievement

was the 1987 treaty with the Soviet Union banning intermediate-range nuclear

forces (INF), it was approved by the Senate in 1988. The Iran-contra affair

proved embarrassing to the congress. Congressional hearings in 1987 revealed

that presidential aides had secretly sold arms to Iran in an effort to free U.S.

citizens being held hostage in the Middle East. The aides had then illegally

given some of the arms money to contra guerrillas.

Conclusion

The Reagan Tax cuts showed that reducing excessive tax rates stimulates

growth, reduces tax avoidance, and can increase the share of tax payments given

by the rich. With respect to foreign policy Reagan’s performances especially

with Mikhail Gorbachev showed a high approval of performance with the people.

Reagan had the highest poll ratings for performance of any president since World

War 2. It appears that his leadership helped to make the feeling of the country

to have a more confident outlook on the future.

References

“Iran-Contra Affair,” Microsoft? Encarta? 96 Encyclopedia 1993-1995. 1996

Grolier Interactive Inc.

Edition copyright ? 1992 by Houghton Mifflin Company.

http://www.house.gov/joe/welcome.html

http://www.reaganhome.com/taxcuts.html

http://www.theatlantic.com/atlantic/election/connections/foreign/reagrus.htm

Hyland, W.G., ed., The Reagan Foreign Policy (1987).

The American Heritage? Dictionary of the English Language, Third

The Atlantic Monthly, February 1994; Reagan and the Russians; Volume 273.

The Joint Economic Committee reports on the Reagan Tax Cuts