Finally, he came to his economic belief system through his own study of the free market (278). Reagan's transition from Democrat to Republic and his later adoption as a symbol of conservative republicanism will be discussed in this essay through a critical analysis of his economic policy and position on Social Security reform.
President Reagan's economic policy was broadly set in a speech he gave as a candidate on 9 September 1980. In it, he outlined a program based on a rejection of Keynesian economics. He supported cuts in the marginal tax rate and reductions in business taxes. He argued for the elimination of wasteful government spending and for a balanced budget (Hogan 1990a, 218). So when the economic package was revealed to public, its central themes should have surprised no one: tax cuts, reductions in the rate of growth of government spending, deregulation and the slow, stable growth of the money supply (Hogan 1990a, 222; Busch 2005, 29). The tax cuts, which were important to Reagan (due to his personal experiences with taxation) specified a 10% rate reduction for three consecutive years, cuts in business taxes, the elimination of bracket creep (the process by which inflation pushes income earners into higher tax brackets even though their income has not increased enough in "real" dollars to warrant such a raise), capital gains tax reductions, lower estate and gift taxes and the faster depreciation on business investments (Schaller 1992, 42). The Reagan tax cuts were favored by the public as most people would prefer to retain more of their income, and by many members who wanted to take some credit. It also presented the public with an image of induced economic growth that was painless in comparison to strict budget balancing and economic controls (Hogan 1990b, 147).
Reagan's Fiscal Year (FY) 1982 budget projected federal spending at $659.5 billion with a deficit of $45 billion. It included non-defense reductions of around $41.4 billion and an additional $200 billion is cuts over the next three years. A balanced budget was forecast for 1984. Marginal tax rates would be cut from a range from 14% to 70% to one between 10% and 50%. Many social programs would be shifted to the states (Sloan 1999, 115-116; Schaller 1992, 42). His alterations were in the conservative tradition. Government's domestic spending would be cut coinciding with a cut in its major source of revenue. This would act as a constraint against further unchecked growth. A budget victory was also a necessary prerequisite for the upcoming tax cuts; since Reagan wanted lower taxes, he would first need to address the budget.
The budget battle took place over two phases. The first phase involved a Democratic alternative to the Reagan plan that was similar to the president's but different in some major ways. It involved a single year tax cut and increases in spending reductions (Hogan 1990b, 147). Reagan was not willing to trade his three year tax cuts for increased spending cuts, so a short battle in the House resulted. The winner, the administration backed mandated spending reductions on over 200 domestic programs by over $136 billion between FY 1982-1984. The entire program was put into a single bill, which meant all reductions would be considered together and decided by one vote on the floor (148).