Reagan and the Conservative Turn

By 1980 many voters had soured on big government. Inflation and unemployment were both high, the Iran hostage crisis made Washington look weak, and years of Great Society programs had not ended poverty. Reagan ran on a simple promise: cut taxes, cut regulation, shrink bureaucracy, and let the private economy grow. Voters who had trusted government expansion in the 1930s and 1960s were now receptive to the opposite message, and Reagan's landslide win showed how far that mood had shifted.

His economic plan rested on supply-side economics, sometimes called Reaganomics. The claim was that lower tax rates, especially on high incomes and businesses, would encourage more work, investment, and risk-taking, expanding the whole economy enough that tax revenue could eventually rise even at lower rates. Congress passed major cuts in 1981 and again in 1986, and the top marginal income tax rate fell from 70 percent to 28 percent, the steepest drop in the history of the income tax. At the same time Reagan pushed a large peacetime defense buildup against the Soviet Union. Lower revenue plus higher military spending opened a large federal budget deficit, and the national debt roughly tripled during his presidency.

This is why the era is not really one of smaller government. Domestic agencies lost funding and some regulations were rolled back, but overall federal spending and the deficit grew, defense expanded, and government kept a large footprint. The contradiction sets up the fights over debt, taxes, and the role of government that run through the rest of the period.