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Bush & the Reagan Legacy

Posted By Barry Ritholtz On June 7, 2004 @ 10:02 am In Finance,Politics | Comments Disabled

With the passing of the President Reagan this weekend, expect to see a frenzy of politcal jockeying, with the White House hopes to catch some moonglow from the 40th president.

We addressed this issue last October: Bush’s Reagan Moment? [1].

I believe such a tactic is fraught with risk for the White House. The comparison, at least when examinded closely, does not hold up well. Whether its the economic cycle, the use of military power, the accepting responsibility for mistakes and judgement errors, its apparent that 43 is very very different from 40.

But since my expertise is in matters market and economic, lets have a look at the key differences:

President Reagan took a top rate of 75%, cut it to below 30%, and stimulated the economy (long term). People can (and have) legitimately argued whether he overshot, and that the dangers of deficits required that top rate to be brought up to a revenue neutral level — but still far below the 75% starting point. Reagan’s economic actions were big and bold enough that it changed people’s behavior.

Remember, the “Death of Equities” BusinessWeek cover had just run a year before his election. Stocks were uniformly hated.

top_marginal_rate

As this deficit chart makes clear, President Reagan came into office with an existing deficit (at the tail end of a 16 year Bear market), cut taxes dramatically, and jump started the business cycle:

budget_deficit

Compare: When President Bush came into office just as the 18 year Bull market was ending. There was stilla national love affair with stocks; Taxes were relatively low and there was a budget surplus.

Despite these radically different economic environments, Bush cut the top rate (incrementally), and lowered capital gains taxes (5%) and stimulated [2] the stock market [3].

Bush essentially applied a Reagan solution to a very different set of circumstances. Its not surprising that their results have been different.

Sources:
Bush’s Reagan Moment? [1]
Sunday, October 26, 2003

http://bigpicture.typepad.com/comments/2003/10/bushs_reagan_mo.html

An Impact Seen, and Felt, Everywhere [4]
By TODD S. PURDUM
NYT, June 7, 2004

http://www.nytimes.com/2004/06/07/politics/07legacy.html


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2004/06/bush-the-reagan-legacy/

URLs in this post:

[1] Bush’s Reagan Moment?: http://bigpicture.typepad.com/comments/2003/10/bushs_reagan_mo.html

[2] stimulated: http://bigpicture.typepad.com/comments/2003/09/stock_market_vs.html

[3] market: http://bigpicture.typepad.com/comments/2003/10/tax_cuts_stock_.html

[4] An Impact Seen, and Felt, Everywhere: http://www.nytimes.com/2004/06/07/politics/07legacy.html?ex=1402027200&en=58d28a6de92ac3c3&ei=5007&partner=USERLAND

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