Mission Accomplished

COMMENTARY Markets and Finance

Mission Accomplished

Jun 14, 2004 3 min read
Edwin J. Feulner, PhD

Founder and Former President

Heritage Trustee since 1973 | Heritage President from 1977 to 2013

My office windows in Washington, D.C., overlook more than half a dozen American flags, all flying at half-staff in memory of Ronald Reagan. Those flags will remain lowered as we mourn the passing of our 40th president.

But a month from now, those flags will be back at the top of their poles, flying proudly over a powerful and influential nation. And fittingly so. Because those traits -- American pride, American power and American leadership -- are President Reagan's legacy.

To appreciate why, it helps to recall just how bad things were when Mr. Reagan took office in 1981. After all, Americans are by nature optimistic, so we tend to forget the bad things that happen to us. Or at least we put them behind us and move forward.

But optimism was mostly absent in the late 1970s.

It was the era of "stagflation." Prices went up, but economic growth didn't. The "misery index," a combination of unemployment and the rate of inflation, hit 20 (for comparison, today it's less than 7.5). Keynesian economics had failed.

Around the world, there was reason to think the American experiment was a failure. Socialist West Germany had lower unemployment than we did. The Communist Soviet Union was advancing, even as American power seemed to be waning. Soviet troops were moving into Afghanistan, while Iranian students held 52 Americans hostage for more than a year. President Carter's Secretary of State resigned when his boss dared even to attempt to use the military to free the captives. Worse, the mission had failed.

It was time for a change. Mr. Reagan cheerily campaigned in 1980, and when he took office, he kept his promises.

He started with tax policy. Under Carter, the top federal income-tax bracket was 70 percent. It made more sense for wealthy people to hide their money in tax shelters or government bonds than to attempt to start a business or open a plant. Clearly our leaders had forgotten the axiom "Whatever the government wants less of, it taxes more." Investment, however inadvertently, was being treated as smoking and drinking were -- something to be taxed out of existence.

President Reagan changed that. He pushed through The Economic Recovery Tax Act of 1981, slashing tax rates by 25 percent. Suddenly, it made sense to invest again. And Americans did. The Dow Jones Industrial Average soared for the next 18 years. On Reagan's watch, it went from 800 in 1982 to 2,100 in 1988.

New businesses opened their doors and started hiring. And hiring. And hiring. By the time he left office early in 1989, Mr. Reagan could announce, with characteristic modesty, "the people of America created -- and filled -- 19 million new jobs." Indeed, the people created them, but the government, under Reagan, helped by getting out of the way.

Tax-cut naysayers in 1981 warned that the wealthy would no longer "pay their fair share," and that overall tax revenues would decline. Again, Mr. Reagan knew they were wrong.

After his supply-side tax cuts, the top 1 percent of taxpayers saw their share of the total tax burden increase from 19 percent in 1980 to 27 percent in 1988. And the money came pouring in. Total tax collections rose from $500 billion in 1980 to $1 trillion in 1990 (in constant dollars).

In an economy that rewards achievement, Americans achieved spectacularly. Before long, governments worldwide were following our lead and cutting taxes to stimulate growth.

President Reagan was optimistic about our prospects overseas as well. Unlike his predecessors, he didn't believe in containing communism or boycotting it. He wanted to defeat it. "My idea of American policy toward the Soviet Union is simple," he told Richard Allen, who would become his first national security adviser, in 1977. "It is this: We win, and they lose."

He made that victory possible by rebuilding our military. And he placed missiles in Europe, where they could protect our allies and directly threaten the Soviet "evil empire." But his most important idea was the Strategic Defense Initiative.

A missile defense will finally go online later this year, giving the United States, for the first time, a measure of protection against foreign missiles. Mr. Reagan believed so passionately in missile defense that he was willing to walk out of the 1986 Reykjavik summit rather than put SDI on the table. As Mr. Reagan knew, the Soviet Union couldn't keep up with our military or our economic growth. Combined, they made our victory in the Cold War inevitable.

Early in his presidency, Mr. Reagan said, "What I'd really like to do is go down in history as the president who made Americans believe in themselves again."

Mission accomplished, Mr. President. Thank you.

Ed Feulner is the president of The Heritage Foundation (heritage.org), a Washington-based public policy research institute.

First appeared in Investor's Business Daily