NCPA - National Center for Policy Analysis

Replicating Economic Growth Reforms of the 1980s and 1990s

December 19, 2014

Republicans will take over the House and Senate in January 2015, but can a Democrat president and a Republican Congress actually get anything done? According to former Senator Phil Gramm (R-Texas) and Michael Solon of US Policy Metrics, yes: Presidents Ronald Reagan (R) and Bill Clinton (D) both held office with divided governments -- and also in the midst of recessions -- and each were able to spark economic growth.

Gramm and Solon highlight some bipartisan policy achievements of the Reagan and Clinton presidencies, including spending cuts, tax cuts, Social Security reform, passing a Balanced Budget Agreement, welfare reform and the NAFTA trade agreement. Those efforts, they write, were accomplished with support from 66 percent of congressional Democrats and 84 percent of Republicans, leading to strong economic growth.

If today's Congress embarked upon similar measures to spur the economy, Gramm and Solon say the nation would see similar benefits:

  • Under Reagan, Congress dropped the top marginal tax rate from 50 percent to 28 percent and created just two tax brackets rather than 14. Similar reform today would produce similar growth.
  • Under Clinton, Congress passed a Balanced Budget Act that imposed restraints on spending. Passing a similar act today would save the nation $1.9 trillion over the next 10 years.
  • Today's slow economic growth has resulted in a federal revenue loss of $5.4 trillion below the United States' 10-year revenue projections since 2007. In all previous postwar recoveries, the United States recaptured all lost recession revenues. If today's Congress passed similar Reagan-era tax reform and Clinton-era budget reform and recaptured just one-third of the revenues lost since the recession, Gramm and Solon contend the United States would see a $1.8 trillion drop in its 10-year deficit.
  • During the Clinton presidency, Congress passed welfare reform in 1996. Were today's Congress to restore the welfare work requirements that have been waived and apply similar restrictions to all means-tested programs, welfare spending would fall. Gramm and Solon estimate that reducing the welfare spending increase by half would save $731 billion over the next 10 years.

During the last six years of the Reagan and Clinton presidencies, the United States' average economic growth rate was 4.4 percent. America's economic growth rate has been just 2 percent since the end of the recession in 2009.

Source: Phil Gramm and Michael Solon, "The Reagan-Clinton Template for Success," Wall Street Journal, December 16, 2014.


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