This Republican President Nearly Tripled the U.S. Debt During His Time in Office

Ronald Reagan is both the patron saint of capitalism to conservative Americans, and the harbinger of destruction and evil to those on the left. Opinions vary and experts disagree about his legacy, but one this remains true: Ronald Reagan nearly tripled the national debt while he was in office. But what did he do with all that money? Was it worth it? What are the consequences today?

We looked into the history of Ronald Reagan to find out why and how he spent so much money and what that means for us today. This is the financial impact of Ronald Reagan.

Why Are We Talking About This?

As the future of the United States and our financial system becomes ever more unclear during the current presidency, it helps to understand what economic and political ideologies are motivating these changes, and where many of the trends we see eroding our financial stability and national budget came from. By understanding Reagan and his presidency, where we are today makes a lot more sense.

Background on Ronald Reagan

In the years before the 1980 election of Ronald Reagan, the politics and parties of the United States had undergone a radical shift, setting the stage for the rise of one of the most radical right-wing candidates in the country.

The rise of fundamentalist Christian groups in politics pulled the Republican party further to the right and created a strong, unified political base that persists today. Conservative Americans also bought into the idea of a vast, unified “culture war” between traditional liberals, right-wing conservatives, and leftists.

New Deal liberalism had also lifted many African Americans and minorities out of poverty and passed several human rights laws, which angered the white population in the South, driving them to vote Republican.

Reagan was a movie star and the former governor of California and campaigned on promises of major tax cuts, the privatization of Social Security, rolling back Medicaid, eliminating the Office of Economic Opportunity, and an escalation of the Cold War with the Soviet Union. Reagan won the election with 50.7% of the popular vote and 489 electoral votes. Republicans also took control of the Senate.

The National Debt During Reagan’s Presidency

The total national debt increased from $997.9 billion in 1981 to $2.9 trillion in 1989. This is an increase of 186.4%, or around $1.9 trillion.

The average annual increase in the national debt over the entirety of Reagan’s presidency (fiscal 1981–1989) was 14.1%, or around $232.4 billion.

What is Reaganomics?

The increase in the government debt, along with the explosion of poverty, income inequality, homelessness, and unemployment today can all be traced back to a set of policies known now as “Reaganomics”.

Reaganomics is a combination of neoliberal economic polices including trickle-down economics, increased defense spending, a balanced federal budget, slowing or cutting government spending, reducing the income and capital gains taxes, deregulation, and tightening the money supply to control inflation.

It should be noted that Reagan was only successful in increasing the military budget, lowering the taxes on the wealthy, and deregulating many industries. He never passed a balanced budget during his presidency.

Economic Recovery Tax Act of 1981

Reagan based his taxation policy on a number of new economic ideas and personalities who argued that tax cuts could reduce inflation and would lead to higher government revenue as the economy grew.

Upon taking the Oval Office, Reagan made passing his new tax law his top priority after it failed to pass under President Carter. This time it passed with overwhelming support.

In essence, this Tax Act cut the top marginal tax rate from 70% down to 50%, more than tripled the amount of inheritance that is exempt from the estate tax (from around $175,000 to $600,000), lowered the capital gains tax from 28% down to 20%, and cut the tax rate for corporations. Essentially, this was a major tax cut for the rich and large corporations.

Additionally, the Act also indexed the tax code to match inflation. This means that due to the high inflation of the time, the effective tax rates for everyone in the country increased and the tax receipts for the government grew by over 10%.

By itself, this Tax Act lowered the total tax revenue by 13%, which significantly worsened the existing budget deficit. While the lowering of the top tax rates also significantly increased income inequality in the country.

This matches what the Congressional Research Service reported in 2012. It stated that the level of tax rates on the richest people has no impact on the economy, economic growth, or productivity, but lower tax rates for the wealthy increase income inequality across the board.

Since the Tax Act was based on flimsy economics and conservative hopes, it failed to fix unemployment and the budget deficit. Instead, it contributed to a double-dip recession and a higher government deficit.

Omnibus Budget Reconciliation Act of 1981

Reagan had promised to cut government spending during his campaign, and he also was a champion of the new conservative movement which demonized the poor, welfare programs, and social assistance. He was able to kill two birds with one stone with the Omnibus Budget Reconciliation Act of 1981.

This Act significantly cut government funding for school lunch programs, food stamps, and Medicaid. He also repealed the Comprehensive Employment and Training Act (which was able to train and find employment for more than 300,000 people every year).

Reagan also greatly restricted the eligibility for unemployment benefits.

These cuts reduced the budget of the annual federal government by $36 billion, but the same Act increased the military budget by $45 billion alone.

Tax Equity and Fiscal Responsibility Act of 1982

Between 1981 and 1982, overall tax revenue dropped by 6%, forcing Reagan and his allies to consider new ideas to address the growing government debt. Instead of reducing government spending, he opted to raise taxes. Reagan passed this Tax Act with the promise from Congress that they would reduce spending by $3 for every $1 in increased taxes. Those spending reductions never happened.

This Tax Act instituted new taxes, tightened some exemptions and credits, reformed some parts of the U.S. healthcare system, created a 10% tax on dividends and interest paid to individuals, increased the tax rate for Federal Unemployment Tax, doubled the tax on cigarettes, and tripled the taxes on telephone services.

Political scientists and economists concluded in 1988 that this Act was “the largest tax increase in American history”, but it only succeeded in increasing tax receipts by 1% of GDP.

Deficit Reduction Act of 1984

Because the tax increases of 1982 did not do enough to raise government revenue, and Reagan and his allies refused to cut spending, they were forced to raise taxes again in 1984.

The Deficit Reduction Act of 1984 repealed interest exclusions, reduced tax benefits for leased property, extended the lives of depreciation for real property, and more.

As with previous tax increases, this largely impacted the poor and middle class.

Tax Reform Act of 1986

The continued increase in government spending and the growth of the government deficit and debt made reforming the tax system Reagan’s top priority during his second term. This priority took the form of the Tax Reform Act of 1986.

This Tax Act lowered the federal income tax rates, reduced the number of tax brackets, lowered the top tax rate from 50% to 28%, expanded some credits, exemptions, and deductions, and more. It essentially removed six million of the poorest Americans from the lowest tax bracket. It also eliminated many deductions and tax havens.  

While the Tax Act simplified the tax system for millions of people, Reagan had effectively cut the tax rate for the richest Americans from 70% to 28% over the course of his presidency, chopping their tax burden by more than half and moving that burden onto the rest of the country. It also reduced the number of tax brackets from 15 to 4 levels; and since tax brackets are largely grouped toward the lower levels of income, this put all of the richest Americans into a lower tax bracket with many more citizens, also lowering their tax burden.

It also made consumer loans and credit card debt no longer deductible, which made life harder for poor Americans who had to take out loans to pay bills.

Additionally, it made changes to the alternative minimum tax which was originally created to go after tax shelters used by rich people and their families. The new Tax Act expanded this minimum tax to go after home deductions that most of the middle-class and poor relied on. This made union dues, medical bills, state and local taxes, and other common expenses no longer deductible.

The Tax Reform Act of 1986 was one of the primary causes of the savings and loan crisis of the 1980s.

Increase in Government Spending

While any of these tax reforms might have seen middling success on their own (depending on your definition of success), any gains they made budget-wise were rendered completely worthless in the face of Reagan’s increased spending.

War on Drugs

It was Nixon who launched the War on Drugs with dubious goals and ill intentions, but it was Reagan who kicked it into overdrive and drastically increased its funding and social impact.

The increased focus on the War on Drugs included a number of new Acts and legislation, increased funding for “fighting” drugs, increased propaganda, and the establishment of mandatory minimum sentences for crimes related to drugs.

In the end, the War on Drugs was not only ineffective at reducing the production, trafficking, and use of drugs, but it actually made it worse in some communities and drastically impacted the economic success of minority neighborhoods. It led to a drastic increase in the prison population, especially among African-Americans and other minorities, and caused huge financial, social, and human costs throughout the country.

Escalation of the Cold War

Reagan feared (at least he said so in public) that the Soviet Union had managed to gain a significant military advantage over the United States. So, he increased the funding to the military during his presidency and used strong pro-war rhetoric that increased tensions with the Soviet Union and other states.

Reagan ordered a huge buildup of military arms and military forces, directing funding to the B-2 Spirit bomber, new cruise missiles, the MX missile program, and the B-1 Lancer bomber, and an increase to the size of the Navy. He was responsible for deploying missiles in West Germany and repeatedly condemned the USSR and Communism in general, calling it an “evil empire”.

Reagan also began the Strategic Defense Initiative, also known as Star Wars, to protect the U.S. from nuclear missile attacks. It was canceled in 1993 because it was essentially useless and extremely expensive.

All this, however, pales in comparison to the amount of money spent on the Reagan Doctrine.

Reagan Doctrine

The Reagan Doctrine is the name given to the policy of Ronald Reagan of providing covert and overt aid, funding, weapons, and other support for anti-communist movements and governments around the world, regardless of their background or extra-judicial activities. Anywhere socialism or pro-worker policies gained a foothold through legal elections or fair voting processes, Reagan intervened through covert CIA action or overt invasion.

Reagan deployed the CIA to Afghanistan to train, equip, and lead the Mujahideen against the USSR, and to Pakistan in the same capacity. By 1987, the cost of this program grew to $600 million per year. Reagan initiated bombings and other military actions against Libya, violating international law.

Reagan also gave backing and support to the dictator of Chad, Hissène Habré, who was a convicted war criminal and guilty of severe and atrocious human rights violations, simply because he said he was anti-communist. He also gave money and support to Efraín Ríos Montt, the dictator of Guatemala, helping him gain the presidency, and leading to the bloodiest period of Guatemala’s history. Montt was also a war criminal and guilty of genocide and the eradication of the Ixil people, among other indigenous groups. Reagan publicly praised both men.

Reagan also launched the Caribbean Basin Initiative which gave huge sums of money to countries that promised to oppose Communism. He armed the anti-communist Contras in Nicaragua who fought against the legal government of the country and were guilty of heinous crimes. He funded the right-wing dictatorships in El Salvador and was directly responsible for the massacre of thousands of people there with CIA training and money. He also supported right-wing governments in Argentina that oppressed its people in its anti-communist efforts.

Reagan authorized the invasion of Grenada after a coup deposed the existing, oppressive, Grenadan government, killing 45 Grenadans and 24 Cubans. The invasion was loudly criticized and condemned by Canada, the United Kingdom, and the United Nations because it was a “flagrant violation of international law”.

Rise of Unemployment

During Reagan’s presidency, and as a direct result of his policies and the work of Ford and Nixon before him, unemployment, homelessness, and poverty all grew.

Unemployment reached 11% in 1982 while poverty rose to 15%. As the economy struggled to recover from successive recessions, the rich grew richer and the wealth gap in the United States grew to its highest level up to that point.

Due to Reagan’s hostile attitude toward organized labor and his work to destroy unions, union participation dropped from 1/4th of the population to 1/6th, leading to lower wages and savings among the poor and working class.

Higher unemployment, homelessness, poverty, and lower wage growth all mean less taxes for the government.

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