He repeated his false claim about the number of jobs created under Raygun and has yet to mention that Raygun was forced to raise taxes because of the revenue shortfall. In The Atlantic Monthy of December 1981, William Greider published the results of talking with David Stockman, Raygun's director of the Office of Management and Budget, and revealed the truth about the supply-side, tax cut fantasy. Entitled "The Education of David Stockman," it caused quite a stir at the time.
According to Stockman, here's the BIG IDEA behind Raygun's tax cuts:
The supply-side approach, which Stockman had only lately embraced, assumed first of all, that dramatic action by the new President, especially the commitment to a three-year reduction of the income tax, coupled with tight monetary control, would signal investors that a new era was dawning, that the growth of government would be displaced by the robust growth of the private sector. If economic behavior in a climate of high inflation is primarily based on expectations about the future value of money, then swift and dramatic action by the President could reverse the gloomy assumptions in the disordered financial markets. As inflation abated, interest rates dropped, and productive employment grew, those marketplace developments would, in turn, help Stockman balance the federal budget.
Stockman and his subordinates ran his figures through an OMB computer and were shocked that the results weren't the same as they happily predicted: there would be massive budget deficits if the tax cuts were enacted. What to do? Easy! "First, he changed the OMB computer." Bravely going forward, Stockman predicted that a bull market would being in April but Wall Street wasn't buying this nonsense:
Henry Kaufman, of Salomon Brothers, one of the preeminent prophets of Wall Street, delivered a sobering speech that, in the cautious language of financiers, said the same thing that John Anderson had said in 1980: cutting taxes and pumping up the defense budget would produce not balanced budgets but inflationary deficits.
Was Kaufman right? Stockman agreed that he was, and conceded that his own original conception—that dramatic political action would somehow alter the marketplace expectations of continuing inflation—had been wrong.
The prediction of a boom was pushed back a few months, to no avail:
In August, when enactment of the Reagan program was supposed to create a boom, instead, the financial markets sagged. Interest rates went still higher, squeezing the various sectors of the American economy. Real-estate sales were dead, and the housing industry was at a historic low point. The same was true for auto sales. Farmers complained about the exorbitant interest demanded for annual crop loans. Hundreds of savings-and-loan associations were at the edge of insolvency. The treasury secretary, perhaps also losing his original faith in the supply-side formulation, suggested that it was time for the Federal Reserve Board to loosen up on its tight monetary policy. Donald Regan saw a recession approaching.
At the end, Stockman admitted the truth: supply-side really meant "trickle-down" and the important part of this economic fantasy was tax cuts for the rich:
"The hard part of the supply-side tax cut is dropping the top rate from 70 to 50 percent—the rest of it is a secondary matter," Stockman explained. "The original argument was that the top bracket was too high, and that's having the most devastating effect on the economy. Then, the general argument was that, in order to make this palatable as a political matter, you had to bring down all the brackets. But, I mean, Kemp-Roth was always a Trojan horse to bring down the top rate." ..."It's kind of hard to sell 'trickle down,'" he explained, "so the supply-side formula was the only way to get a tax policy that was really 'trickle down.' Supply-side is 'trickle-down' theory."
PBS has a "Cliff Notes" version of the story:
1981
February 18: Reagan unveils his "program for economic recovery" to a Joint Session of Congress. Reagan calls for $41.4 billion in cuts from the Carter budget, mostly from "Great Society" programs to benefit the poor, and vows to maintain a ‘safety net’ for the poor, the disabled, and the elderly. He also calls for a 30% tax cut over three years and an increase in defense expenditures, and vows not to cut Social Security.
April 28: Reagan appears before Congress for the first time since the assassination attempt, receiving a hero's welcome and overwhelming support for his economic package. Despite optimism and support for Reagan's tax cuts and increased defense spending, the country plunges into recession, as the Federal Reserve Board raises interest rates to fight inflation. Soon, the United States will face the largest budget deficits in its history.
July 29: Congress passes Reagan’s tax bill. Instead of a 30% tax cut, Reagan accepts 25%. Reagan predicts the nation will be "seeing some signs" of prosperity by end of the year.
October 18: Reagan admits to reporters that the nation is in "a slight recession," but predicts recovery by the spring. Several days later Reagan says a balanced budget in 1984 is "not probable."
November 6: Unemployment reaches a six-year high. Reagan redefines balanced budget as "a goal."
November 10: Budget Director David Stockman charges that the predicted growth rates of 5% which the Reagan program had assumed was a "rosy scenario," based on little more than faith, and that "supply side" was a Trojan horse designed to benefit the rich.
1982
Fall: The nation sinks into its worst recession since the Great Depression. Reagan fears budget deficits as high as $200 billion. On November 1, more than 9 million Americans are officially unemployed.
1983
January 1: The official unemployment rate reaches 11.5 million. Hardest hit is "rustbelt." In Milwaukee, 20,000 wait in 20 degree weather to apply for 200 jobs at auto-frame factory.
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