Reagan’s first term was dominated by efforts to carry out his economic program–dubbed “Reaganomics” by the media–which consisted in part of large budget reductions in domestic programs and substantial tax cuts for individuals and businesses. The theory of supply-side economics–generating growth by stimulating a greater supply of goods and services, thereby increasing jobs–was a mainstay of the Reagan approach. Central to the administration’s efforts to combat inflation was rigorous control over government spending deficits. Early budget cuts of $39 billion were followed by the passage of a 25% tax cut for individual taxpayers and faster tax write-offs for business.
The administration’s economic policies had mixed results. Unemployment rose to a level of 10.6% by the end of 1982 but declined to around 5.5% late in 1988. Inflation, which had peaked at 13.5% during the Carter years, gradually fell to about 4%-6%. Massive federal deficits piled up, however–a reflection of taxes cutting, greater defense spending, and other economic factors.
The greatest shock to the economy occurred on Oct. 19, 1987, when the stock market plunged 508 points on the Dow Jones average, ending a slide that had begun in August. In two months stocks had lost about 36% of their value, but within a year they recovered almost half of the loss with little apparent damage to the economy.
In other domestic areas, Reagan achieved mixed results. Deregulation became a watchword of the administration, but critics charged that reduced regulation created hazards to public health and safety. During his first term, the president sought to shift dozens of federal programs to the state and local levels under his system of “new federalism.” Officials in these jurisdictions complained that promised federal aid to implement the programs was inadequate. The administration’s efforts to reduce spending for social programs and increase appropriations for defense engendered controversy.
Reagan’s domestic program during his second term focused on tax reform. Late in 1986 the Senate joined the House to pass a major tax bill that reduced the number of tax rates, removed millions of low-income persons from the tax rolls, and eliminated most deductions.
One focus of the administration from the beginning was an agenda of social issues ranging from opposition to abortion to support for mandatory prayer in the public schools. The executive branch adopted much of the social agenda of the conservative fundamentalist supporters of the president, but Reagan had little success in gaining its acceptance by Congress.
Late in 1987, Reagan failed twice to fill a Supreme Court vacancy with judge’s holdingstrong conservative views. The Senate, 58-42, rejected the nomination of Robert Bork after the Judiciary Committee found him insufficiently inclined to protect individual rights and liberties. A second judge, Douglas Ginsburg, withdrew from consideration after it became known that he had smoked marijuana while teaching at Harvard. Reagan’s third choice for the vacancy, Judge Anthony M. Kennedy, was approved.