Harvard Business School 9-381-173
Rev. February 8, 2000
Professor George C. Lodge prepared this case from published sources as the basis for class discussion rather than to illustrate
either effective or ineffective handling of an administrative situation.
Copyright © 1981 by the President and Fellows of Harvard College. To order copies or request permission to
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1
The Reagan Plan
A short time after he took office as president of the United States, Ronald Reagan told the
American people, “I regret to say that we are in the worst economic mess since the Great
Depression.”1 (See Exhibits 1 through 11.)
Several days later, Budget Director David Stockman revealed the administration’s remedy: a
program of cuts in federal spending accompanied by an across-the-board reduction in income taxes.
A vigorous national debate then ensued over what the effects of the administration’s policies would
be, and whether or not other actions were required to meet the nation’s needs.
Peter G. Peterson, chairman of Lehman Brothers Kuhn Loeb and former adviser to President
Nixon, spoke of “a new and remarkable Reagan Consensus—a true historic first, the most sweeping
reversal in the direction of national economic policy since the New Deal.” But he warned: “As broad
and deep as this consensus is, and as relieved and enthusiastic as the country is about a more honest
sense of its past and a more hopeful sense of its future, one can nonetheless sense an unexpected mix
of conflicting emotions. Amidst all the excitement, there are growing signs of disquiet, however
respectful and discreet, and growing doubts that somehow the Reagan program really fits the Reagan
consensus.”2
Avoiding an Economic Dunkirk
In November 1980 Ronald Reagan, a one-time movie actor and former Republican governor
of California, defeated Jimmy Carter and was elected president of the United States with 51% of the
popular vote. Along with Reagan, riding the crest of what was perceived as a national wave of
“conservatism,” came a number of Republican senators and members of Congress. Indeed, for the
first time in 26 years the Republican party controlled the U.S. Senate, and the Democratic majority in
the House was cut from 117 to 52. Shortly after the election, two Republican congressmen, David
Stockman of Michigan and Jack Kemp of New York, wrote a memorandum giving their advice to the
new president. In December president-elect Reagan selected Stockman to head the Office of
Management and Budget (OMB). Kemp was elected chairman of the House Republican Conference,
1 New York Times, February 6, 1981, p. A12.
2 Address to the Women’s Economic Roundtable, March 18, 1981.
381-173 The Reagan Plan
2
which made him one of his party’s leaders in the House. Excerpts follow from the Stockman-Kemp
paper, entitled “Avoiding a GOP Economic Dunkirk.”3
President Reagan will inherit thoroughly disordered credit and capital
markets, punishingly high interest rates, and a hair-trigger market psychology
poised to respond strongly to early economic policy signals in either favorable or
unfavorable ways.
The preeminent danger is that an initial economic policy package that
includes the tax cuts but does not contain decisive, credible elements on matters of
outlay control, future budget authority reduction, and a believable plan for curtailing
the Federal Government’s massive direct and indirect credit absorption will generate
pervasive expectations of a continuing “Reagan inflation.” Such a development
would almost ensure that high interest rates would hang over the economy well into
the first year, deadening housing and durables markets and thwarting the industrial
capital spending boom required to propel sustained economic growth. Thus,
“Thatcherization”4 can only be avoided if the initial economic policy package
simultaneously spurs the output side of the economy and also elicits a swift
downward revision of inflationary expectations in the financial markets.
A double-dip recession in early 1981 is now at least a 50% possibility given
emerging conditions in the financial markets and gathering evidence from the output
side of the economy. Stagnant or declining real GNP growth in the first two quarters
would generate staggering political and policy challenges. These include a further
worsening of an already dismal budget posture and a profusion of “quick fix”
remedies for various wounded sectors of the economy. The latter would include
intense pressure for formal or informal auto import restraints, activation of . . . costly
housing bailouts, maintenance of current excessive CETA employment levels,
accelerated draw-down of various lending and grant aids under SBA, EDA, and
FmHA, a further 13-week extension of federal unemployment benefits, etc.5
There is further danger; the federal budget has now become an automatic
“coast-to-coast soup line” that dispenses remedial aid with almost reckless abandon,
converting the traditional notion of automatic stabilizers into multitudinous outlay
spasms throughout the budget. For instance, the estimates for FY 1981 trade
adjustment assistance have exploded from $400 million in the spring to $2.5 billion as
of November, and the summer drought will cause SBA emergency farm loan aid to
surge by $1.1 billion above planned levels.
For these reasons, the first hard look at the unvarnished FY 1981 and 1982
budget posture by our own OMB people is likely to elicit coronary contractions
among some, and produce an intense polarization between supply-side tax cutters
3 Wall Street Journal, December 12, 1980. Dunkirk is the French coastal town from which the last remnants of the British army
escaped the German onslaught in the opening period of World War II.
4 “Thatcherization” refers to the policies of Margaret Thatcher, prime minister of Great Britain, whose attempts to reduce
inflation through monetary restraint had increased unemployment and seriously reduced private investment and national
growth.
5 CETA refers to the Comprehensive Employment and Training Act which provides funds for training unemployed workers
and for placing them in jobs in either government or private industry. SBA refers to the Small Business Administration. EDA
refers to the Economic Development Administration, which was created in 1965 as part of a Great Society regional
development program. Besides providing grants for public works construction, loans for commercial business development,
and federal technical assistance to encourage economic growth in rural and urban areas, it supplies financial support for a
number of multistate regional commissions. FmHA refers to the Farmer’s Home Administration, which administers rural
housing rehabilitation loans and disaster loans as voted by Congress.
The Reagan Plan 381-173
3
and the more fiscally orthodox. An internecine struggle over deferral or temporary
abandonment of the tax program could ensue. The result would be severe
demoralization and fractionalization of GOP ranks and an erosion of our capacity to
govern successfully and revive the economy before November 1982.
President Reagan should declare a national economic emergency soon after
inauguration. He should tell the Congress and the nation that the economic,
financial, budget, energy, and regulatory conditions he inherited are far worse than
anyone had imagined. He should request that Congress organize quickly and clear
the decks for exclusive action during the next 100 days on an Emergency Economic
Stabilization and Recovery Program he would soon announce.
Five major principles should govern the formulation of the package:
1. A static “waste-cutting” approach to the FY 81 outlay component of the
fiscal hemorrhage will hardly make a dent in the true fiscal problem. Persisting high
“misery index” conditions in the economy will drive the soup line mechanisms of the
budget faster than short-run, line-item cuts can be made on Capitol Hill. Fiscal
stabilization (i.e., elimination of deficits and excessive rates of spending growth) can
only be achieved by sharp improvement in the economic indicators over the next 24
months. This means that the policy initiatives designed to spur output growth and to
lower inflation expectations and interest rates must carry a large share of the fiscal
stabilization burden. Improvement in the “outside” economic forces driving the
budget is just as important as success in the “inside” efforts to effect legislative and
administrative accounting reductions.
2. For this reason, dilution of the tax-cut program in order to limit shortrun
static revenue losses during the remainder of FY 1981 and FY 1982 would be
counterproductive. Weak real GNP and employment growth over calendar 1981 and
1982 will generate soup line expenditures equal to or greater than any static revenue
gains from trimming the tax program.
3. The needed rebound of real GNP growth and especially vigorous
expansion in the capital spending sector of the economy cannot be accomplished by
tax cuts alone. A dramatic, substantial recision of the regulatory burden is needed
both for the short-term cash flow relief it will provide to business firms and the longterm
signal it will provide to corporate investment planners. A major “regulatory
ventilation” will do as much to boost business confidence as tax and fiscal measures.
4. High, permanent inflation expectations have killed the long-term bond
and equity markets that are required to fuel a capital spending boom and the
regeneration of robust economic growth. Moreover, this has caused a compression of
the financial liability structure of business into the short-term market for bank loans
and commercial paper, and has caused a flight of savings into tangible assets like
precious metals, land, etc. The result of this credit market dislocation and inversion is
that super-heated markets for short-term credits keep interest rates high and volatile
and make monetary policy almost impossible to conduct.
The Reagan financial stabilization plan must seek to restore credit and capital
market order and equilibrium by supporting monetary policy reform and removing
the primary cause of long-term inflation pessimism: the explosive growth of out-year
federal liabilities, spending authority, and credit absorption.
381-173 The Reagan Plan
4
This points to the real leverage and locus for budget control: severe recision
of entitlement and new obligational authority in the federal spending pipeline, which
creates outlay streams and borrowing requirements in FY 1982, FY 1983, and beyond.
Again, the primary aim of the fiscal control component must be to shift longterm
inflation expectations downward and restore bond and equity markets. Severe
reductions in government spending and federal credit absorption can accomplish
this. In turn, robust long-term capital markets would lessen the traffic jam in shortterm
credit markets by permitting corporate portfolio restructuring and by drawing
savings out of unproductive tangible assets. The conditions for reestablishing
monetary policy credibility would be achieved and short-term interest rates, demand
for money and inflation expectations would adjust accordingly.
5. Certain preemptive steps must be taken early on to keep control of the
agenda and to maintain Capitol Hill focus on the Stabilization and Recovery
Program. Foremost, all remaining petroleum product controls and allocations should
be cancelled on day one.
Reagan’s State of the Union Message
On February 19, 1981, President Reagan presented his “program for economic recovery” to a
joint session of Congress and to a national television audience. Herewith are excerpts from his
address:6
Only a month ago, I was your guest in this historic building and I pledged to
you my cooperation in doing what is right for this nation we all love so much.
I am here tonight to reaffirm that pledge and to ask that we share in restoring
the promise that is offered to every citizen by this, the last, best hope of man on earth.
All of us are aware of the punishing inflation which has, for the first time in
some 60 years, held to double-digit figures for two years in a row. Interest rates have
reached absurd levels of more than 20 percent and over 15 percent for those who
would borrow to buy a home. All across this land one can see newly built homes
standing vacant, unsold because of mortgage interest rates.
Almost eight million Americans are out of work. These are people who want
to be productive. But as the months go by despair dominates their lives. The threats
of layoff and unemployment hang over other millions, and all who work are
frustrated by their inability to keep up with inflation.
One worker in a Midwest city put it to me this way: He said, “I’m bringing
home more dollars than I thought I could ever earn, but I seem to be getting worse
off.” Well, he is. Hourly earnings of the American worker, after adjusting for
inflation, have declined 5 percent over the past five years. And furthermore, in the
last five years, Federal personal taxes for the average family increased 67 percent.
We can no longer procrastinate and hope things will get better. They will
not. If we do not act forcefully, and now, the economy will get worse.
6 New York Times, February 19, 1981.
The Reagan Plan 381-173
5
Can we who man the ship of state deny it is out of control? Our national debt
is approaching $1 trillion. A few weeks ago I called such a figure—a trillion dollars—
incomprehensible. I’ve been trying to think of a way to illustrate how big it really is.
The best I could come up with is to say that a stack of $1,000 bills in your hand only
four inches high would make you a millionaire. A trillion dollars would be a stack of
$1,000 bills 67 miles high.
Interest on Public Debt
The interest on the public debt this year will be over $90 billion. And unless
we change the proposed spending for the fiscal year beginning October 1, we’ll add
another almost $80 billion to the debt.
Adding to our troubles is a mass of regulations imposed on the shopkeeper,
the farmer, the craftsman, professionals and major industry that is estimated to add
$100 billion to the price of things we buy and reduces our ability to produce. The rate
of increase in American productivity, once one of the highest in the world, is among
the lowest of all major industrial nations. Indeed it has actually declined the last
three years.
I have painted a grim picture, but I believe I have painted it accurately. It is
within our power to change this picture and we can act in hope. There is nothing
wrong with our internal strengths. There has been no breakdown in the human,
technological and natural resources upon which the economy is built.
Based on this confidence in a system which has never failed us—but which
we have failed through a lack of confidence, and sometimes through a belief that we
could fine-tune the economy and get a tune more to our liking—I am proposing a
comprehensive four-part program. I will now outline and give in some detail the
principal parts of this program, but you will each be provided with a completely
detailed copy of the program in its entirety.
This plan is aimed at reducing the growth in government spending and
taxing, reforming and eliminating regulations which are unnecessary and
counterproductive and encouraging a consistent monetary policy aimed at
maintaining the value of the currency.
If enacted in full, our program can help America create 13 million new jobs,
nearly three million more than we would without these measures. It will also help us
gain control of inflation.
It is important to note that we are only reducing the rate of increase in taxing
and spending. We are not attempting to cut either spending or taxing to a level
below that which we presently have. This plan will get our economy moving again,
increase productivity growth and thus create the jobs our people must have.
Plans to Reduce Spending
I am asking that you join me in reducing direct Federal spending by $41.4
billion in FY 1982, along with $7.7 billion in user fees and off-budget savings for total
savings of $49.1 billion. This will still allow an increase of $40.8 billion over 1981
spending.
381-173 The Reagan Plan
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I know that exaggerated and inaccurate stories about these cuts have
disturbed many people, particularly those dependent on grant and benefit programs
for their basic needs. Some of you have heard from constituents afraid that Social
Security checks, for example, might be taken from them. I regret the fear these
unfounded stories have caused and welcome this opportunity to set things straight.
We will continue to fulfill the obligations that spring from our national
conscience. Those who through no fault of their own must depend on the rest of us,
the poverty-stricken, the disabled, the elderly, all those with true need, can rest
assured that the social safety net of programs they depend on are exempt from any
cuts.
The full retirement benefits of the more than 31 million Social Security
recipients will be continued along with an annual cost of living increase. Medicare
will not be cut, nor will supplemental income for the blind, aged and disabled.
Funding will continue for veterans’ pensions.
School breakfasts and lunches for the children of low-income families will
continue as will nutrition and other special services for the aging. There will be no
cut in Project Head Start or summer youth jobs.
All in all, nearly $216 billion providing help for tens of millions of Americans
will be fully funded. But government will not continue to subsidize individuals or
particular business interests where real need cannot be demonstrated. And while we
will reduce some subsidies to regional and local governments, we will at the same
time convert a number of categorical grant programs into block grants to reduce
wasteful administrative overhead and to give local government entities and states
more flexibility and control. We call for an end to duplication in Federal programs
and reform of those which are not cost effective.
Already, some have protested there must be no reduction of aid to schools.
Let me point out that Federal aid to education amounts to only 8 percent of total
educational funding. For this the Federal Government has insisted on a
tremendously disproportionate share of control over our schools. Whatever
reductions we’ve proposed in that 8 percent will amount to very little of the total cost
of education. It will, however, restore more authority to states and local school
districts.
Historically, the American people have supported by voluntary
contributions more artistic and cultural activities than all the other countries in the
world put together. I wholeheartedly support this approach and believe Americans
will continue their generosity. Therefore, I am proposing a savings of $85 million in
the Federal subsidies now going to the arts and humanities.
There are a number of subsidies to business and industry I believe are
unnecessary. Not because the activities being subsidized aren’t of value, but because
the marketplace contains incentives enough to warrant continuing these activities
without a government subsidy. One such subsidy is the Department of Energy’s
synthetic fuels program. We will continue support of research leading to
development of new technologies and more independence from foreign oil, but we
can save at least $3.2 billion by leaving to private industry the building of plants to
make liquid or gas fuels from coal.
The Reagan Plan 381-173
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Export-Import Bank Loans
We are asking that another major business subsidy, the Export-Import Bank
loan authority, be reduced by one-third in 1982. We are doing this because the
primary beneficiaries of taxpayer funds in this case are the exporting companies
themselves—most of them profitable corporations.
And this brings me to a number of other lending programs in which
government makes low-interest loans, some of them for an interest rate as low as 2
percent. What has not been very well understood is that the Treasury Department
has no money of its own. It has to go into the private capital market and borrow the
money to provide those loans. In this time of excessive interest rates the government
finds itself paying interest several times as high as it receives from the borrowing
agency. The taxpayers—your constituents—of course, are paying that high interest
rate and it just makes all other interest rates higher.
By terminating the Economic Development Administration [EDA], we can
save hundreds of millions of dollars in 1982 and billions more over the next few
years. There is a lack of consistent and convincing evidence that EDA and its regional
commissions have been effective in creating new jobs. They have been effective in
creating an array of planners, grantsmen and professional middlemen. We believe
we can do better just by the expansion of the economy and the job creation which
will come from our economic program.
The Food Stamp program will be restored to its original purpose, to assist
those without resources to purchase sufficient nutritional food.
We will, however, save $1.8 billion in FY 1982 by removing from eligibility
those who are not in real need or who are abusing the program. Despite this
reduction, the program will be budgeted for more than $10 billion.
We will tighten welfare and give more attention to outside sources of income
when determining the amount of welfare an individual is allowed. This plus strong
and effective work requirement will save $520 million next year.
I stated a moment ago our intention to keep the school breakfast and lunch
programs for those in true need. But by cutting back on meals for children of families
who can afford to pay, the savings will be $1.6 billion in FY 1982.
Let me just touch on a few other areas which are typical of the kind of
reductions we have included in this economic package. The Trade Adjustment
Assistance program provides benefits for workers who are unemployed when
foreign imports reduce the market for various American products causing shutdown
of plants and layoff of workers. The purpose is to help these workers find jobs in
growing sectors of our economy. And yet, because these benefits are paid out on top
of normal unemployment benefits, we wind up paying greater benefits to those who
lose their jobs because of foreign competition than we do to their friends and
neighbors who are laid off due to domestic competition. Anyone must agree that this
is unfair. Putting these two programs on the same footing will save $1.15 billion in
just one year.
381-173 The Reagan Plan
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Categorical Grant Programs
Earlier I made mention of changing categorical grants to states and local
governments into block grants. We know of course that categorical grant programs
burden local and state governments with a mass of Federal regulations and Federal
paper work.
Ineffective targeting, wasteful administrative overhead—all can be
eliminated by shifting the resources and decision-making authority to local and state
government. This will also consolidate programs which are scattered throughout the
Federal bureaucracy. It will bring government closer to the people and will save
$23.9 billion over the next five years.
Our program for economic renewal deals with a number of programs which
at present are not cost-effective. An example is Medicaid. Right now Washington
provides the states with unlimited matching payments for their expenditures. At the
same time we here in Washington pretty much dictate how the states will manage
the program. We want to put a cap on how much the Federal Government will
contribute but at the same time allow the states much more flexibility in managing
and structuring their programs. I know from our experience in California that such
flexibility could have led to far more cost-effective reforms. This will bring a savings
of $1 billion next year.
The space program has been and is important to America and we plan to
continue it. We believe, however, that a reordering of priorities to focus on the most
important and cost-effective NASA programs can result in a savings of a quarter of a
billion dollars.
Coming down from space to the mailbox—the Postal Service has been
consistently unable to live within its operating budget. It is still dependent on large
Federal subsidies. We propose reducing those subsidies by $632 million in 1982 to
press the Postal Service into becoming more effective. In subsequent years the
savings will continue to add up.
The Economic Regulatory Administration in the Department of Energy has
programs to force companies to convert to specific fuels. It has the authority to
administer a gas rationing plan, and prior to decontrol it ran the oil price control
program. With these and other regulations gone we can save several hundreds of
millions of dollars over the next few years.
Now I’m sure there is one department you’ve been waiting for me to
mention. That is the Department of Defense. It is the only department in our entire
program that will actually be increased over the present budgeted figure. But even
here there was no exemption. The Department of Defense came up with a number of
cuts which reduced the budget increase needed to restore our military balance. These
measures will save $2.9 billion in 1982 outlays and by 1986 a total of $28.2 billion will
have been saved. The aim will be to provide the most effective defense for the lowest
possible cost.
The Reagan Plan 381-173
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I believe my duty as president requires that I recommend increases in
defense spending over the coming years.7 Since 1970 the Soviet Union has invested
$300 billion more in its military forces than we have. As a result of its massive
military buildup, the Soviets now have a significant numerical advantage in strategic
nuclear delivery systems, tactical aircraft, submarines, artillery, and antiaircraft
defense. To allow this imbalance to continue is a threat to our national security.
Notwithstanding our economic straits, making the financial changes
beginning now is far less costly than waiting and attempting a crash program several
years from now.
Commitment on Arms Curbs
We remain committed to the goal of arms limitation through negotiation and
hope we can persuade our adversaries to come to realistic balanced and verifiable
agreements. But, as we negotiate, our security must be fully protected by a balanced
and realistic defense program.
Let me say a word here about the general problem of waste and fraud in the
Federal Government. One government estimate indicated that fraud alone may
account for anywhere from 1 to 10 percent—as much as $25 billion—of Federal
expenditures for social programs. If the tax dollars that are wasted or mismanaged
are added to this fraud total, the staggering dimensions of this problem begin to
emerge.
The Office of Management and Budget is now putting together an
interagency task force to attack waste and fraud. We are also planning to appoint as
Inspectors General highly trained professionals who will spare no effort to do this
job.
No administration can promise to immediately stop a trend that has grown
in recent years as quickly as government expenditures themselves. But let me say
this: Waste and fraud in the Federal budget is exactly what I have called it before—
an unrelenting national scandal—a scandal we are bound and determined to do
something about.
Marching in lockstep with the whole program of reductions in spending is
the equally important program of reduced tax rates. Both are essential if we are to
have economic recovery. It is time to create new jobs, build and rebuild industry, and
give the American people room to do what they do best. And that can only be done
with a tax program which provides incentive to increase productivity for both
workers and industry.
Our proposal is for a 10 percent across-the-board cut every year for three
years in the tax rates for all individual income taxpayers, making a total tax cut of 30
percent. This three-year reduction will also apply to the tax on unearned income
leading toward an eventual elimination of the present differential between the tax on
earned and unearned income.
7 The president’s budget proposed spending approximately $7 billion more on defense in fiscal year 1982 (beginning
October 1, 1981) than had been recommended by President Carter. There would be an increase of $18.5 billion for defense in
1983, rising to an increase of $60 billion in 1986.
381-173 The Reagan Plan
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The effective starting date for these 10 percent personal income tax rate
reductions will be July 1st of this year.
Again, let me remind you this 30 percent reduction in marginal rates, while it
will leave the taxpayers with $500 billion more in their pockets over the next five
years, is actually only a reduction in the tax increase already built into the system.
Unlike some past tax “reforms,” this is not merely a shift of wealth between
different sets of taxpayers. This proposal for an equal reduction in everyone’s tax
rates will expand our national prosperity, enlarge national incomes and increase
opportunities for all Americans.
Some will argue, I know, that reducing tax rates now will be inflationary. A
solid body of economic experts does not agree. And certainly tax cuts adopted over
the past three-fourths of a century indicate these economic experts are right. The
advice I have had is that by 1985 our real production of goods and services will grow
by 20 percent and will be $300 billion higher than it is today.8 The average worker’s
wage will rise (in real purchasing power) by 8 percent and those are after-tax dollars.
This, of course, is predicated on our complete program of tax cuts and spending
reductions being implemented. (See Exhibit 12 for official and other forecasts.)
The third part of the tax package is aimed directly at providing business and
industry with the capital needed to modernize and engage in more research and
development. This will involve an increase in depreciation allowances and this part
of our tax proposal will be retroactive as of January 1.
Depreciation System
The present depreciation system is obsolete, needlessly complex, and
economically counterproductive. Very simply, it bases the depreciation of plant,
machinery, vehicles and tools on their original cost with no recognition of how
inflation has increased their replacement cost. We are proposing a much shorter
write-off time than is presently allowed. We propose a 5-year write-off for
machinery; three years for vehicles and trucks; and a 10-year write-off for plants.
In fiscal year 1982, under this plan business would acquire nearly $10 billion
for investment and by 1985 the figure would be nearly $45 billion. These changes are
essential to provide the new investment which is needed to create millions of new
jobs between now and 1986 and to make America competitive once again in world
markets. These are not make-work jobs, they are productive jobs with a future.
I’m well aware that there are many other desirable tax changes such as
indexing the income tax brackets to protect taxpayers against inflation. There is the
unjust discrimination against married couples if both are working and earning,
tuition tax credits, the unfairness of the inheritance tax especially to the familyowned
farm and the family-owned business and a number of others. But our
program for economic recovery is so urgently needed to begin to bring down
inflation that I would ask you to act on this plan first and with great urgency. Then I
pledge to you I will join with you in seeking these additional tax changes at an early
date.
8 The preliminary GNP in 1980 was $2,627 billion, expressed in 1980 dollars. President Reagan was using a real 1980 GNP of
$1,481 billion, expressed in 1972 dollars.
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American society experienced a virtual explosion in government regulation
during the past decades. Between 1970 and 1979, expenditures for the major
regulatory agencies quadrupled, the number of pages published annually in the
Federal Register nearly tripled and the number of pages in the Code of Federal
Regulations increased by nearly two-thirds.
The result has been higher prices, higher unemployment and lower
productivity growth. Over-regulation causes small and independent businessmen
and women, as well as large businesses, to defer or terminate plans for expansion
and, since they are responsible for most of our new jobs, those new jobs aren’t
created.
We have no intention of dismantling the regulatory agencies—especially
those necessary to protect the environment and to assure the public health and
safety. However, we must come to grips with inefficient and burdensome
regulations—eliminate those we can and reform those we must keep.
I have asked Vice President Bush to head a cabinet-level Task Force on
Regulatory Relief. Second, I asked each member of my Cabinet to postpone the
effective dates of the hundreds of regulations which have not yet been implemented.
Third, in coordination with the Task Force, many of the agency heads have taken
prompt action to review and rescind existing burdensome regulations. Finally, just
yesterday, I signed an Executive Order that for the first time provides for effective
and coordinated management of the regulatory process.
Although much has been accomplished, this is only a beginning. We will
eliminate those regulations that are unproductive and unnecessary by Executive
Order where possible and cooperate fully with you on those that require legislation.
The final aspect of our plan requires a national monetary policy which does
not allow money growth to increase consistently faster than the growth of goods and
services. In order to curb inflation, we need to slow the growth in our money
supply.9
We fully recognize the independence of the Federal Reserve System and will
do nothing to undermine that independence. We will consult regularly with the
Federal Reserve Board on all aspects of our economic program and will vigorously
pursue budget policies that will make their job easier in reducing monetary growth.
A successful program to achieve stable and moderate growth patterns in the
money supply will keep both inflation and interest rates down and restore vigor to
our financial institutions and markets.
This, then, is our proposal. America’s New Beginning: A Program for
Economic Recovery. I do not want it to be simply the plan of my Administration—I
am here tonight to ask you to join me in making it our plan. Together, we can embark
on this road not to make things easy, but to make things better.
9 The White House press release accompanying this speech noted that the president’s “economic scenario assumes that the
growth of money and credit are steadily reduced from 1980 levels to one-half those levels by 1986.”
381-173 The Reagan Plan
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Can we do the job? The answer is yes. But we must begin now. Our social,
political and cultural, as well as our economic institutions, can no longer absorb the
repeated shocks that have been dealt them over the past decades.
We are in control here. There is nothing wrong with America that we can’t
fix. So I’m full of hope and optimism that we will see this difficult new challenge to
its end—that we will find those reservoirs of national will to once again do the right
thing. . . .
The people are watching and waiting. They don’t demand miracles, but they
do expect us to act. Let us act together.
Thank you and good night.
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13
Exhibit 1 Projections from the White House report, “America’s New Beginning:
A Program for Economic Recovery,” February 18, 1981
A. Federal Revenues and Outlays ($ billions)
Fiscal Year Revenues Outlays Deficit (–) or Surplus (+)
1981 600.2 654.7 –54.5
1982 650.5 695.5 –45.0
1983 710.1 733.1 –23.0
1984 772.1 771.6 +0.5
1985 851.0 844.0 +7.0
1986 942.1 912.1 +30.0
B. Shift in Budget Priorities
1962 1981 1984
Dollar Amounts (in billions)
DOD-military 46.8 157.9 249.8
Safety net programs 26.2 239.3 313.0
Net interest 6.9 64.3 66.8
All other 26.9 193.2 142.0
Total 106.8 654.7 771.6
Outlay Shares (percents)
DOD—military 43.8 24.1 32.4
Safety net programs 24.5 36.6 40.6
Net interest 6.4 9.8 8.6
All other 25.2 29.5 18.4
Total 100.0 100.0 100.0
C. Federal Budget and GNP
Fiscal Year Outlays as Percent of GNP
1981 23.0
1982 21.8
1983 20.4
1984 19.3
1985 19.2
1986 19.0
Source: A White House report, “America’s New Beginning: A Program for Economic
Recovery,” February 18, 1981.
381-173 The Reagan Plan
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Exhibit 2 Present Law Depreciation and Accelerated Cost-Recovery System
Item Present Law Depreciation
Accelerated CostRecovery
System
Recovery Periods
Tangible personal property Guidelines allow 21/2 to 50 years,
depending on asset type or activity,
with optional 20% variance for each.
3 years (autos, light trucks, and
machinery and equipment used for
research and development); 5 years
(most machinery and equipment); or
10 years (long-lived public utility
property).
Real estate Determined by facts and
circumstances or by guidelines
ranging from 25 to 60 years,
depending on the type of building.
10 years for owner-occupied
factories, stores, and warehouses; 15
years for other nonresidential and for
low-income housing; 18 years for
other residential.
Recovery Method
Tangible personal property Straight line; or for new property,
taxpayer may elect declining balance
up to 200%, or sum-of-years digits.
Accelerated write-off built into tables.
Real estate Same for new residential; up to
150% declining balance for new,
nonresidential; up to 125% declining
balance for used residential; straight
line for used nonresidential.
Same for 10-year property; straight
line for other.
Investment tax credit 31/3% for machinery and equipment
written off or held for 3 to 5 years; 6
2/3 for 5 to 7 years; 10% if longer.
6% for 3-year class and 10% for 5year
and 10-year eligible property.
Carryovers Choice of 20% shorter or longer
lives; straight line or accelerated
methods, where allowed. Deductions
may add to net operating loss which
can be carried over 7 years.
Extends net operating loss and
investment credit carryover period
from 7 to 10 years.
Timing of eligibility When placed in service. When placed in service, or for
property with at least a 2-year
construction period, as acquired.
Source: A White House report, “America’s New Beginning: A Program for Economic Recovery,” February 18, 1981.
The Reagan Plan 381-173
15
Exhibit 3 Projections from the White House report, “America’s New Beginning: A Program for
Economic Recovery,” February 18, 1981
A. Direct Revenue Effects of Proposed Tax Reductions ($ billions)
Fiscal Years
1981 1982 1983 1984 1985 1986
Individual
30 percent phased rate reduction –6.4 –44.2 –81.4 –118.1 –141.5 –162.4
Business
Accelerated cost recovery system
after interaction with individual tax –2.5 –9.7 –18.6 –30.0 –44.2 –59.3
Total –8.8 –53.9 –100.0 –148.1 –185.7 –221.7
B. Economic Scenarios
Calendar Years
1981 1982 1983 1984 1985 1986
Nominal gross national product (billions) $2,920.0 $3,293.0 $3,700.0 $4,098.0 $4,500.0 $4,918.0
Percent change 11.1 12.8 12.4 10.8 9.8 9.3
Real gross national product (billions,
1972 dollars) 1,497.0 1,560.0 1,638.0 1,711.0 1,783.0 1,858.0
Percent change 1.1 4.2 5.0 4.5 4.2 4.2
Implicit price deflator 195.0 211.0 226.0 240.0 252.0 265.0
Percent change 9.9 8.3 7.0 6.0 5.4 4.9
Consumer price index,a 1967 = 100 274.0 297.0 315.0 333.0 348.0 363.0
Percent change 11.1 8.3 6.2 5.5 4.7 4.2
Unemployment rate Percent 7.8 7.2 6.6 6.4 6.0 5.6
Source: A White House report, “America’s New Beginning: A Program for Economic Recovery,” February 18, 1981.
aCPI for urban wage earners and clerical workers (CPI-W).
Exhibit 4 Growth in Major Components of Real National Product, 1976–1980
Component 1976 1977 1978 1979 19801
Percent change:
Real gross national product..................................................... 4.4 5.8 5.3 1.7 –0.3
Personal consumption expenditures .................................... 5.7 5.0 4.8 2.0 –.3
Business fixed investment.................................................... 7.8 13.5 9.0 2.9 –6.0
Residential fixed investment ................................................ 19.8 12.5 –.0 –6.1 –17.6
Government purchases of goods and services.................... –1.3 3.6 1.6 1.9 1.5
Federal ............................................................................. –.8 5.0 –1.3 2.1 4.7
State and local.................................................................. –1.7 2.7 3.3 1.7 –.3
Real domestic final sales2 ....................................................... 4.9 5.9 4.4 1.7 –1.3
Change as a percent of GNP:
Inventory accumulation............................................................ .4 .4 .2 –.8 .0
Net exports of goods and services .......................................... –.7 –.4 .9 .8 .9
Source: Economic Report of the President, 1981, p. 138.
Note: Change from fourth quarter to fourth quarter.
1 Preliminary.
2 GNP excluding change in business inventories and net exports of goods and services.
381-173 The Reagan Plan
16
Exhibit 5 Productivity, Compensation, and Labor Costs
170
150
130
110
90
70
160
140
120
100
80
60
125
105
85
65
1973 1974 1975 1976 1977 1978 1979 1980 1981
RATIO SCALE RATIO SCALE
1977 = 100 1977 = 100SEASONALLY ADJUSTED
170
150
130
110
200
180
160
140
120
100
165
145
125
105
85
65
Source: U.S. Department of Labor
Prepared by Federal Reserve Bank of St. Louis
Percentages are annual rates of change for periods indicated.
Latest data plotted: 4th quarter
1stQtr.'731stQtr.'731stQtr.'73
4thQtr.'734thQtr.'73
1stQtr.'751stQtr.'751stQtr.'75
3rdQtr.'753rdQtr.'753rdQtr.'75
3rd Qtr. '75
4thQtr.'77
4th Qtr. '77
4th Qtr. '77
4thQtr.'80
4th Qtr. '80
4th Qtr. '80
−0.6%
−1.7%
+1.9%
+8.4%
+7.4%
+8.5%
+13.1%
+6.3%
+10.4%
−2.2%
+10.9%
+5.8%
+8.3%
+9.7%
135.5
137.6
OUTPUT PER HOUR
OF ALL PERSONS
98.5
HOURLY
COMPENSATION
UNIT LABOR COSTS
3rd Qtr. '75
The Reagan Plan 381-173
17
Exhibit 6 U.S. Price Developments
Measures of Price Change, 1976–1980
Item 1976 1977 1978 1979 19801
Implicit price deflators2
Gross national product ........................................................ 4.7 6.1 8.5 8.1 10.0
Personal consumption expenditures ................................... 5.0 5.9 7.8 9.5 10.4
Private nonfarm business output......................................... 4.9 5.7 8.3 8.3 10.3
Consumer prices. total 5.0 6.6 9.0 12.7 312.6
Farm value of food .............................................................. –12.9 6.4 17.5 7.4 314.5
Energy4 ............................................................................... 6.2 8.2 7.5 36.5 318.9
Home purchase and finance5 .............................................. 3.8 8.9 13.4 19.8 317.7
All other ............................................................................... 6.3 6.1 7.3 7.9 39.8
Producer prices of finished goods, total 2.7 6.9 8.7 12.6 12.0
Food .................................................................................... –4.4 7.4 11.6 7.8 7.4
Energy................................................................................. 5.0 9.2 6.4 62.0 28.4
All other ............................................................................... 5.6 6.4 7.9 9.3 11.1
1 Preliminary.
2 Seasonally adjusted data.
3 November 1979 to November 1980.
4 Includes only prices for direct consumer purchases of energy for the home and for motor vehicles.
5 In both the table and the text, “home purchase and finance” consists of home purchase and financing, taxes, and insurance on
owner-occupied homes.
Note: Percent change from fourth quarter to fourth quarter.
Exhibit 7 Change in U.S. Employment, Unemployment, and Participation Rates
Component 1976 IV 1977 IV 1978 IV 1979IV 1980IV
Percent change from year earlier1
Increase in civilian employment, total ............................. 3.4 4.4 3.6 2.1 –0.3
Males 20 years and over............................................. 2.6 3.3 2.5 1.3 –.7
Females 20 years and over......................................... 4.6 5.2 5.4 3.9 1.5
Both sexes 16–19 years ............................................. 3.0 8.0 2.6 –.9 –6.7
White........................................................................... 3.3 4.3 3.2 2.0 –.2
Black and other........................................................... 4.2. 4.7 7.0 2.91 –.9
Percent2
Unemployment rate, total3.............................................. 7.8 6.6 5.9 5.9 7.5
Males 20 years and over............................................. 6.0 4.8 4.1 4.4 6.3
Females 20 years and over......................................... 7.4 6.7 5.7 5.7 6.7
Both sexes 16–19 years ............................................. 19.1 16.6 16.3 16.2 18.3
White........................................................................... 7.0 5.7 5.1 5.2 6.6
Black and other........................................................... 13.3 13.3 11.5 11.3 14.1
Participation rate, total4.................................................. 61.8 62.6 63.5 63.8 63.7
Males 20 years and over............................................. 79.9 79.9 79.8 79.6 79.2
Females 20 years and over......................................... 47.4 48.6 50.1 51.0 51.4
Both sexes 16–19 years ............................................. 54.4 56.8 58.4 58.1 56.4
White........................................................................... 62.1 62.9 63.7 64.1 64.1
Black and other........................................................... 59.6 60.6 61.8 61.7 61.2
1 Changes for 1978 IV adjusted for the increase of about 250,000 in employment and labor force in January 1978 resulting from
changes in the sample and estimation procedures introduced into the household survey.
2 Seasonally adjusted.
3 Unemployment as percent of civilian labor force.
4 Civilian labor force as percent of civilian noninstitutional population.
Source: Economic Report of the President, 1981, pp. 147, 149.
381-173 The Reagan Plan
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Exhibit 8
A. Money Stock Measures and Liquid Assets
[Averages of daily figures; billions of dollars, seasonally adjusted]
M1 M2 M3 L Percent change from year
or 6 months earlier3
Year and Month
Sum of currency,
demand deposits,
travelers checks,
and other
checkable
deposits1 (OCD)
M1-8 plus
overnight RPs
and Eurodollars,
MMMF shares,
and savings and
small time
deposits2
M2 plus large
time deposits
and term RPs
M3 plus
other liquid
assets
M1 M2 M3
December
1959 ...................................... 141.2 297.1 298.3 388.0 ................. ...................................
1960 ...................................... 142.2 311.7 313.7 402.9 0.7 4.9 5.2
1961 ...................................... 146.7 334.4 338.3 429.5 3.2 7.3 7.8
1962 ...................................... 149.4 361.7 368.7 465.0 1.8 8.2 9.0
1963 ...................................... 154.9 392.0 402.9 502.4 3.7 8.4 9.3
1964 ...................................... 162.0 423.4 438.7 538.9 4.6 8.0 8.9
1965 ...................................... 169.6 457.9 479.1 583.0 4.7 8.1 9.2
1966 ...................................... 173.8 479.2 502.9 614.6 2.5 4.7 5.0
1967 ...................................... 185.2 524.4 556.5 668.0 6.6 9.4 10.7
1968 ...................................... 199.5 567.1 606.2 731.7 7.7 8.1 8.9
1969 ...................................... 205.9 588.6 611.4 762.6 3.2 3.8 .9
1970 ...................................... 216.8 626.4 672.9 814.2 5.3 6.4 10.1
1971 ...................................... 231.0 711.1 771.1 900.7 6.5 13.5 14.6
1972 ...................................... 252.4 803.2 879.5 1,020.3 9.3 13.0 14.1
1973 ...................................... 266.4 859.8 977.9 1,140.3 5.5 7.0 11.2
1974 ...................................... 278.0 908.0 1,060.4 1,246.0 4.4 5.6 8.4
1975 ...................................... 291.8 1,024.4 1,163.0 1,373.5 5.0 12.8 9.7
1976 ...................................... 311.1 1,169.4 1,302.3 1,528.9 6.6 14.2 12.0
1977 ...................................... 336.4 1,296.4 1,462.5 1,722.7 8.1 10.9 12.3
1978 ...................................... 364.2 1,404.2 1,625.9 1,936.8 8.3 8.3 11.2
1979 ...................................... 390.5 1,525.2 1,775.6 2,151.7 7.2 8.6 9.2
1980 ...................................... 415.6 1,669.4 1,965.1 2,378.4 6.4 9.5 10.7
1981 ...................................... 441.9 1,841.2 2,187.2 ............................. 6.3 10.3 11.3
1980
Jan......................................... 392.7 1,538.7 1,792.0 2,175.3 5.6 7.7 9.2
Feb ........................................ 396.9 1,553.4 1,811.5 2,199.5 6.6 7.9 9.4
Mar ........................................ 396.7 1,559.6 1,819.1 2,210.9 5.4 7.1 7.9
Apr......................................... 391.0 1,553.6 1,811.5 2,218.8 2.0 5.7 6.6
May........................................ 391.3 1,568.2 1,833.5 2,232.1 1.3 6.8 7.8
June....................................... 394.9 1,589.3 1,852.6 2,246.6 2.3 8.6 8.9
July........................................ 399 3 1,614.0 1,873.6 2,264.4 3.4 10.0 9.3
Aug........................................ 406.9 1,633.4 1,897.4 2,291.3 5.1 10.6 9.7
Sept....................................... 411.1 1,644.9 1,912.8 2,309.0 7.8 11.2 10.6
Oct......................................... 416.3 1,654.0 1,928.3 2,326.0 13.4 13.3 12.6
Nov........................................ 419.1 1,668.5 1,951.0 2,355.6 14.7 13.2 13.2
Dec........................................ 415.6 1,669.4 1,965.1 2,378.4 10.8 10.3 12.5
1981
Jan......................................... 419.2 1,680.8 1,989.3 2,408.7 10.7 8.4 12.7
1
Net of demand deposits due to foreign commercial banks and official institutions M1 differs from the sum of components presented in Table B-62 by
the amount of demand deposit, held by thrift institutions at commercial banks that are estimated to be used in servicing thrift OCD liabilities.
2
M2 differs from the sum of components presented in Table B 62 by the amount of demand deposits held by thrift institutions at commercial banks.
3
Monthly percent changes are from 6 months earlier at a compound annual rate.
Note: See table B 62 for components.
Source: Board of Governors of the Federal Reserve System.
The Reagan Plan 381-173
19
Exhibit 8 (continued)
B. Selected Interest Rates
21.0
20.0
19.0
18.0
17.0
16.0
15.0
14.0
13.0
12.0
11.0
10.0
9.0
8.0
7.0
0 1 13 14 1111 829 28 25 23 20 29 26 24 21 3018 131618 15
PERCENT AVERAGES OF DAILY RATES ENDED FRIDAY
12 10 7 5 26 44 1
FEB MAR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB
19811980
APR
5-YEAR
TREASURY SECURITIES
DISCOUNT
RATE
3-MONTH
TREASURY BILL
FEDERAL FUNDS RATE
381-173 The Reagan Plan
20
Exhibit 9 Federal Budget Receipts, Outlays, and Debt, Fiscal Years 1977–1982 ($ millions)
Actual Estimate
Description 1977 1978 1979 1980 1981 1982
Budget Receipts and Outlays:
Total receipts...................................................................... 357,762 401,997 465,940 520,050 607,525 711,780
Federal funds ................................................................ 241,312 270,484 316,351 350,849 415,239 484,105
Trust funds..................................................................... 152,763 168,012 189,641 213,875 242,545 286,113
Interfund transactions.................................................... –36,313 –36,498 –40,052 –44,674 –50,259 –58,437
Total outlays....................................................................... 402,710 450,804 493,635 579,613 662,740 739,296
Federal funds ................................................................ 295,756 331,985 362,381 419,214 474,932 530,817
Trust funds..................................................................... 143,267 155,318 171,305 205,074 238,068 266,916
Interfund transactions.................................................... –36,313 –36,498 –40,052 –44,674 –50,259 –58,437
Total surplus or deficit (–) .................................................. –44,948 –48,807 –27,694 –59,563 –55,215 –27,516
Federal funds ................................................................ –54,444 –61,804 –46,030 –68,364 –59,693 –46,712
Trust funds..................................................................... 9,496 12,694 18,335 8,801 4,477 19,196
Outstanding Debt, End of Period:
Gross Federal debt ............................................................ 709,138 780,425 833,751 914,317 992,398 1,057,664
Held by Government agencies...................................... 157,295 169,477 189,162 199,212 205,293 225,559
Held by the public.......................................................... 551,843 610,948 644,589 715,105 787,105 832,105
Federal Reserve System............................................ 105,004 115,480 115,594 120,846 ................................................
Other........................................................................... 446,839 495,468 528,996 594,259 ................................................
Budget Receipts ..................................................................... 357,762 401,997 465,940 520,050 607,525 711,780
Individual income taxes...................................................... 157,626 180,988 217,841 244,069 284,013 331,677
Corporation income taxes.................................................. 54,892 59,952 65,677 64,600 66,009 64,648
Social insurance taxes and contributions .......................... 108,688 123,410 141,591 160,747 184,824 214,664
Excise taxes....................................................................... 17,548 18,376 18,745 24,329 44,393 69,633
Estate and gift taxes .......................................................... 7,327 5,285 5,411 6,389 6,909 7,668
Customs duties .................................................................. 5,150 6,573 7,439 7,174 7,439 7,800
Miscellaneous receipts:......................................................
Deposits of earnings by Federal Reserve System........ 5,908 6,641 8,327 11,767 13,069 14,710
All other ......................................................................... 622 772 910 975 899 980
Budget Outlays ....................................................................... 402,710 450,804 493,635 579,613 662,740 739,296
National defense ................................................................ 97,501 105,186 117,691 135,856 161,098 184,399
International affairs ............................................................ 4,813 5,922 6,091 10,733 11,314 12,152
General science, space, and technology........................... 4,677 4,742 5,041 5,722 6,258 7,590
Energy................................................................................ 4,172 5,861 6,856 6,313 8,739 11,973
Natural resources and environment................................... 10,000 10,925 12,091 13,812 14,110 14,039
Agriculture.......................................................................... 5,532 7,731 6,238 4,762 1,112 4,803
Commerce and housing credit........................................... 98 3,324 2,565 7,782 3,456 8,058
Transportation.................................................................... 14,636 15,445 17,459 21,120 24,054 21,551
Community and regional development .............................. 6,348 11,070 9,542 10,068 11,144 9,084
Education training, employment, and social services........ 20,985 26,463 29,685 30,767 31,773 34,511
Health................................................................................. 38,785 43,676 49,614 58,165 66,032 74,636
Income security.................................................................. 137,900 146,181 160,159 193,100 231,650 255,006
Veterans benefits and services.......................................... 18,038 18,974 19,928 21,183 22,591 24,462
Administration of justice..................................................... 3,600 3,802 4,153 4,570 4,786 4,882
General government .......................................................... 3,169 3,706 4,093 4,505 5,170 5,246
General purpose fiscal assistance..................................... 9,499 9,601 8,372 8,584 6,854 6,902
Interest ............................................................................... 38,009 43,966 52,556 64,504 80,405 89,946
Allowances................................................................................................................................................................................................. 1,920
Undistributed offsetting receipts ........................................ –15,053 –15,772 –18,488 –21,933 –27,796 –31,863
Composition of undistributed offsetting receipts:
Employer share, employee retirement.......................... –4,548 –4,983 –5,271 –5,787 –6,561 –6,798
Interest received by trust funds..................................... –8,131 –8,530 –9,950 –12,045 –13,435 –15,165
Rents and royalties on the Outer Continental Staff ...... –2,374 –2,259 –3,267 –4,101 –7,800 –9,900
Note.—Under provisions of the Congressional Budget Act of 1974, the fiscal year for the Federal Government shifted beginning with fiscal year 1977.
Through fiscal year 1976, the fiscal year was on a July I–June 30 basis. Beginning October 1976 (fiscal year 1977), the fiscal year is on an October 1–
September 30 basis. The period July 1, 1976 through September 30, 1976 is a separate fiscal period known as the transition quarter.
Refunds of receipts are excluded from receipts and outlays.
See “Budget of the United States Government, Fiscal Year 1982” for additional information.
Source: Economic Report of the President, 1981, p. 315.
The Reagan Plan 381-173
21
Exhibit 10 Governmental Surplus or Deficit and Gross National Product, 1958–1980 ($ billions)
Fiscal years—unified budget
Calendar years—government sector, national income and
product accounts
Federal surplus or deficit (–)1 Federal surplus or deficit (–)
Federal and State and local
surplus or deficit (–)Year
Amount
As percent of
GNP Amount
As percent
of GNP Amount
As percent
of GNP
1958 .......................................... –2.9 –0.7 –10.3 –2.3 –12.6 –2.8
1959 .......................................... –12.9 –2.7 –1.1 –.2 –1.6 –.3
1960 .......................................... .3 .1 3.0 .6 3.1 .6
1961 .......................................... –3.4 –.7 –3.9 –.7 –4.3 –.8
1962 .......................................... –7.1 –1.3 –4.2 –.7 –3.8 –.7
1963 .......................................... –4.8 –.8 .3 .1 .7 .1
1964 .......................................... –5.9 –1.0 –3.3 –.5 –2.3 –.4
1965 .......................................... –1.6 –.2 .5 .1 .5 .1
1966 .......................................... –3.8 –.5 –1.8 –.2 –1.3 –.2
1967 .......................................... –8.7 –1.1 –13.2 –1.7 –14.2 –1.8
19682
......................................... –25.2 –3.0 –6.0 –.7 –6.0 –.7
19692
......................................... 3.2 .4 8.4 .9 9.9 1.0
1970 .......................................... –2.8 –.3 –12.4 –1.2 –10.6 –1.1
1971 .......................................... –23.0 –2.2 –22.0 –2.0 –19.4 –1.8
1972 .......................................... –23.4 –2.1 –16.8 –1.4 –3.3 –.3
1973 .......................................... –14.9 –1.2 –5.6 –.4 7.8 .6
1974 .......................................... –6.1 –.4 –11.5 –.8 –4.7 –.3
1975 .......................................... –53.2 –3.6 –69.3 –4.5 –63.8 –4.1
1976 .......................................... –73.7 –4.5 –53.1 –3.1 –36.5 –2.1
1977 .......................................... –53.6 –2.9 –46.4 –2.4 –18.3 –1.0
1978 .......................................... –59.2 –2.8 –29.2 –1.4 –.2 .0
1979 .......................................... –40.2 –1.7 –14.8 –.6 –11.9 .5
19803
......................................... –73.8 –2.9 –62.3 –2.4 –34.8 –1.3
Source: Economic Report of the President, 1981, p. 41.
1 Includes off-budget outlays.
2 A 10-percent income tax surcharge was introduced in July 1968—thus entering calendar year 1968 but fiscal year 1969.
3 Preliminary.
Exhibit 11 Crowding-Out Average Federal and Federally Assisted Borrowing
Volume
($ billions)
Absorption
Ratea (%)
GNP Deflator
(%)
3 Month
T-bills (%)
1955–1969 9.8 16.6 2.6 3.5
1970–1979 58.1 24.9 6.6 6.3
1980 124.4 35.5 9.0 11.4
1981 154.5b 43.0b 9.1b na
Source: White House fact sheet, November 5, 1981.
a Proportion of all capital raised in nonfinancial sector of the U.S. credit markets.
b Estimates
381-173-22-
Exhibit12U.S.BalanceofPayments,InternationalTransactions,1965–1980
Merchandise1,2Investmentincome3
YearorquarterExportsImports
Net
balanceReceiptsPaymentsNet
Netmilitary
transactions
Nettraveland
transportation
receipts
Otherservices,
net3
Balanceon
goodsand
services1,4
Remittances,
pensions,and
otherunilateral
transfers1
Balanceon
current
account1,4
1965.................................26,461–21,5104,9517,436–2,0885,348–2,122–1,2801,3878,284–2,8545,431
1966.................................29,310–25,4933,8177,526–2,4815,045–2,935–1,3311,3655,961–2,9323,029
1967.................................30,666–26,8663,8008,021–2,7475,274–3,226–1,7501,6125,709–3,1252,584
1968.................................33,626–32,9916359,368–3,3785,990–3,143–1,5481,6303,563–2,952611
1969.................................36,414–35,80760710,912–4,8696,043–3,328–1,7631,8333,393–2,994399
1970.................................42,469–39,8662,60311,746–5,5166,230–3,354–2,0382,1805,624–3,2942,330
1971.................................43,319–45,579–2,26012,706–5,4367,270–2,893–2,3452,4952,268–3,7011,434
1972.................................49,381–55,797–6,41614,764–6,5728,192–3,420–3,0632,766–1,941–3,854–5,795
1973.................................71,410–70,49991121,808–9,65512,153–2,070–3,1583,18411,021–3,8817,140
1974.................................98,306–103,649–5,34327,587–12,08415,503–1,653–3,1843,9869,3095
–7,1862,124
1975.................................107,088–98,0419,04725,351–12,56412,787–746–2,7924,59822,893–4,61318,280
1976.................................114,745–124,051–9,30629,286–13,31115,975559–2,5584,7119,382–4,9984,384
1977.................................120,816–151,689–30,87332,587–14,59817,9891,628–3,2935,086–9,464–4,605–14,068
1978.................................142,054–175,813–33,75942,972–22,07320,899886–3,1885,959–9,204–5,055–14,259
1979.................................182,055–211,524–29,46965,970–33,46032,510–1,275–2,6955,8064,878–5,666–788
1978:
I.....................................30,922–42,063–11,1419,607–4,5395,068441–7521,4154,969–1,204–6,173
II....................................35,404–43,699–8,2959,957–5,4744,483303–7521,466–2,795–1,3074,102
III...................................36,828–44,336–7,50810,557–5,7174,840139–9101,506–1,933–1,233–3,166
IV..................................38,900–45,715–6,81512,851–6,3436,5083–7741,5714931,313–820
1979:
I.....................................41,805–46,919–5,11414,263–7,2257,038–29–6111,4482,732–1,3241,408
II....................................42,815–50,885–8,07015,250–7,9807,270–102–6371,428–110–1,383–1,493
III...................................47,198–54,258–7,06018,050–8,7319,319–443–8341,5242,506–1,4071,099
IV..................................50,237–59,462–9,22518,407–9,5248,883–700–6131,405–250–1,552–1,802
1980:
I.....................................54,708–65,558–10,85020,846–10,75210,094–922–6901,570–798–1,812–2,610
II....................................54,710–62,215–7,50516,641–10,5086,133–994–2961,557–1,105–1,326–2,431
III...................................56,288–59,116–2,82819,113–10,6468,467–632–2481,6186,377–1,4774,900
1Excludesmilitarygrants.
2AdjustedfromCensusdatafordifferencesinvaluation,coverage,andtiming.
3FeesandroyaltiesfromU.S.directinvestmentsabroadorfromforeigndirectinvestmentsintheUnitedStatesareexcludedfrominvestmentincomeandincludedinotherservices,net.
4Inconcept,balanceongoodsandservicesisequaltonetexportsandimportsinthenationalincomeandproductaccounts(andthesumofbalanceoncurrentaccountandallocationsofspecialdrawingrights
isequaltonetforeigninvestmentintheaccounts),althoughtheseriesdifferbecauseofdifferenthandlingofcertainitems(gold,extraordinarymilitaryshipments,etc.),revisions,etc.
(Seenextpageforcontinuationoftable.)
381-173-23-
Exhibit12(continued)
U.S.assetsabroad,
net[increase/capitaloutflow(–)]
ForeignassetsintheU.S.
net[increase/capitalinflow(+)]Statisticaldiscrepancy
YearorquarterTotal
U.S.official
reserveassets6
OtherU.S.
Government
assets
U.S.private
assetsTotal
Foreignofficial
assets,total
Otherforeign
assets
Allocationsof
special
drawingrights
(SDRs)
Total(sumofthe
itemswithsign
reversed)
Ofwhich:
Seasonal
adjustment
discrepancy
1965...............................–5,7151,225–1,605–5,335742134607..................................–458..................................
1966...............................–7,319570–1,543–6,3453,661–6724,333..................................629..................................
1967...............................–9,75853–2,423–7,3877,3793,4513,928..................................–205..................................
1968...............................–10,977870–2,274–7,8339,928–77410,703..................................438..................................
1969...............................–11,585–1,179–2,200–8,20612,702–1,30114,002..................................–1,516..................................
1970...............................–9,3362,481–1,589–10,2286,3596,908–550867–219..................................
1971...............................–12,4742,349–1,884–12,93922,97026,879–3,909717–9,779..................................
1972...............................–14,497–4–1,568–12,92521,46110,47510,986710–1,879..................................
1973...............................–22,874158–2,644–20,38818,3886,02612,362..................................–2,654
1974...............................–34,745–1,4675
366–33,64334,24110,54623,696..................................–1,620
1975...............................–39,703–849–3,474–35,38015,6707,0278,643..................................5,753
1976...............................–51,269–2,558–4,214–44,49836,51817,69318,826..................................10,367
1977...............................–35,793375–3,693–31,72550,74136,57514,167..................................–880
1978...............................–61,191732–4,644–57,27964,09633,29330,804..................................11,354..................................
1979...............................–61,774–1,133–3,783–56,85837,575–14,27151,8451,13923,848..................................
1978
I.................................–15,048187–1,009–14,22618,20415,4222,783..................................3,015121
II................................–5,749248–1,257–4,740775–5,2736,049..................................9,076732
III...............................–9,977115–1,386–8,70617,0694,77712,292..................................–3,926–2,850
IV...............................–30,418182–991–29,60928,04818,3689,680..................................3,1901,998
1979
I.................................–7,768–3,585–1,102–3,0812,201–8,74410,9451,1393,02074
II................................–15,300322–991–14,6316,407–10,09516,502..................................10,3851,167
III...............................–25,2152,779–766–27,22824,9415,78919,152..................................–825–3,641
IV...............................–13,492–649–925–11,9184,025–1,2215,246..................................11,2692,400
1980
I.................................–12,711–3,268–1,467–7,9767,194–7,21514,4091,1526,975–99
II................................–25,712502–1,191–25,0237,9497,775174..................................20,1941,460
III...............................–20,196–1,109–1,320–17,76711,0038,0252,978..................................4,293–4,022
5IncludesextraordinaryUSGovernmenttransactionswithIndia.
6Consistsofgold,specialdrawingrights,convertiblecurrencies,andtheU.S.reservepositionintheInternationalMonetaryFund(IMF).
Note—QuarterlydataforU.S.officialreserveassetsandforeignassetsintheUnitedStatesarenotseasonallyadjusted.
Source:EconomicReportofthePresident,1981,p.344.
2,
381-173 The Reagan Plan
24
Exhibit 13 Selected International Comparisons, U.S.A. and Main Industrial Countries
A. Real GNP Growth in Major Industrial Countries, 1976–1982 (percent change from previous period;
seasonally adjusted annual rates)
1980 1981
Country
1976 to
1979
annual
average Year
Second
half First half
Second
half
1982 first
half
United States.................................. 3.9 –3/4 –1 3/4 1 2 1/2 3 1/2
Japan ............................................. 5.9 5 – 3/4 4 4 1/4 4 3/4
Germany......................................... 3.8 1 3/4 –3 1/2 1 1/2 2
France3 .......................................... 3.3 1 3/4 1/2 1 2 2 1/4
United Kingdom3 ............................ 1.5 –2 1/2 –5 3/4 1/2 –2 1/2 0
Italy3............................................... 3.2 3 3/4 –3 1/2 –1 1/4 2 1/4 2 1/2
Canada........................................... 2.9 –1/2 – 1/2 1 3/4 2 3 1/4
Total of above countries.................. 3.9 1 –1 1/4 1 1/4 2 1/4 3
B. Changes in Industrial Production in Major Industrial Countries, 1970–1980 (percent change)
To 1980 first quarter from
Country 1970 1976
Germany.................................................................................................................... 29 15
France ....................................................................................................................... 36 10
United Kingdom ......................................................................................................... 15 9
Japan ........................................................................................................................ 56 29
United States............................................................................................................. 41 16
C. Inflation in Major Industrial Countries, 1976-1982 (percent change in prices)
Country
1976 to 1978
annual
average 1979 1980 1981
1982 first
half
United States.......................................... 6.2 8.9 10 1/2 10 9 1/2
Japan ..................................................... 5.5 3.1 6 1/4 5 1/4 5
Germany................................................. 3.2 3.9 5 1/4 4 3
France .................................................... 9.4 10.9 13 3/4 11 3/4 9 1/2
United Kingdom ...................................... 11.7 12.2 15 1/2 12 9
Italy......................................................... 12.0 14.8 20 3/4 15 3/4 13 1/2
Canada................................................... 9.8 9.1 9 3/4 10 9 3/4
Total of above countries.......................... 6.8 8.1 10 1/2 9 1/4 8 1/4
D. Productivity
Real gross domestic product per employed person
(average annual percent change)
1950–79 1950–65 1965–73 1973–79
United States................................................ 1.8 2.4 1.7 0.5
Canada......................................................... 2.1 2.7 2.4 .4
France .......................................................... 4.3 4.8 4.5 2.9
Germany....................................................... 4.8 5.6 4.3 3.1
Japan ........................................................... 6.9 7.2 9.1 3.4
United Kingdom ............................................ 2.3 2.2 3.4 1.1
Source: Economic Report of the President, 1981, pp. 30, 183, 189; U.S. Dept. of Labor, Bureau of Labor Statistics, Bulletin 2084,
October 1981, p. 20.