The Reagan Resolve

Ed Meese discusses "The Reagan Resolve" on The Rita Cosby Show

Click the play icon below to hear the recording.

The Carleson Center for Welfare Reform is an organization devoted to advancing Ronald Reagan’s philosophy of government. The Carleson Center is named in honor of Robert B. Carleson, who helped Gov. Ronald Reagan reform the California welfare system in the early 1970s when the state was on the verge of bankruptcy. All of the Carleson Center’s founders worked for Ronald Reagan, as governor or as president. It is supported by the American Civil Rights Union (ACRU).

Through our Executive Branch experience with Ronald Reagan, supported by his writings and public speeches, we have a well-founded understanding of his governing philosophy. Reagan’s guiding template was clear, consistent and based on timeless principles that can be applied to today’s public policy problems. Most importantly, it addresses the government’s proper role in the nation’s economy and with the individual states. The following pages outline policies that we, as founders of the Carleson Center, firmly believe Ronald Reagan would advocate were he in office today.

American Exceptionalism

When Barack Obama was asked if he believed in American Exceptionalism, he responded, “I believe in American exceptionalism, as I believe the Greeks believe in Greek exceptionalism, and the Brits believe in British exceptionalism.”

Ronald Reagan however, believed America was “a shining city on a hill,” in his often used phrase. Reagan understood that American Exceptionalism was not a matter of patriotic chauvinism, but historic fact. As he put it:

“Ours was the first revolution in the history of mankind that truly reversed the course of government, and with three little words: ‘We the People.’ ‘We the People’ tell the government what to do; it doesn’t tell us. ‘We the People’ are the driver; the government is the car. And we decide where it should go, and by what route, and how fast. Almost all the world’s constitutions are documents in which governments tell the people what their privileges are. Our Constitution is a document in which ‘We the People’ tell the government what it is allowed to do. ‘We the People’ are free. This belief has been the underlying basis for everything I’ve tried to do these past 8 years.”

[Reagan’s Farewell Address to the Nation, January 11, 1989]

American Exceptionalism is the belief that America stands in support of extending its ideas and principles — equal justice and liberty for all — ultimately to all people and all nations the world over, not through conquest, but through persuasion. Our Founders believed that the broader the liberty and the rights of man were recognized, the more secure they would remain.

America’s founding ideas and principles have made our country the preeminent economic and military force for freedom — by any objective measure — in the history of the world.

Reaganomics

Despite current economic despair, the American economy was even more deeply troubled in the late 1970s. Four consecutive, worsening recessions plagued the country from 1969 to 1982 during which the stock market and its investors lost 70% in real value. The decade ended with double digit inflation, double digit interest rates and double digit unemployment. President Reagan summed the state of the nation up shortly after taking office:

“In the last two decades, Americans have suffered oppressively increased taxation, inflation, unemployment, and interest rates. … We're suffering the worst inflation in 60 years. Almost 8 million Americans are continuing to be out of work. … Interest rates have climbed to an unprecedented 20 percent, with home mortgage rates of 15 percent destroying for millions the dream of home ownership. Investment in industry is lagging behind our major competitors, with too much of the personal savings of our people flowing into nonproductive inflation hedges instead of job-creating, long-term investment or savings.

Millions of Americans feel that for them the standard of living is actually going down, and it is. It's shocking and a depressing fact that after being adjusted for the continued cheapening of the dollar by inflation, the hourly earnings of American workers have dropped by 5 percent in the last 5 years. This is a complete reversal of the American experience and will have profound impact on the spirit of our people if something isn't done and done quickly.

And while our workers have been experiencing a decline in their standard of living, government has continued to spend money like there's no tomorrow. And come to think of it, that could be a self-fulfilling prophecy. In those same 5 years, those workers' taxes went up by 67 percent. Federal spending grew to 23 percent of the nation's gross national product, the highest peacetime share in our history. And the Federal Government has shown a deficit every year after 1969. In fiscal year 1980 that deficit was $59.6 billion, the second largest in history. And we face another deficit of similar magnitude in this year of fiscal 1981. Now, this kind of irresponsibility can't go on. …

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 cost of this has been staggering. An estimated $100 billion per year—now I can say billion—is added on to the cost of everything we buy, just to pay for the cost of Federal regulations. And then there's the unseen cost which is harder to calculate but nonetheless devastating: Regulation tends to smother innovation, discourage new investment, increase labor costs, and reduce competition.

This Federal Goliath, unleashed and uncontrolled, brought us to the economic brink that is now confronting this Nation. … Together, we can put our economic house in order again and regain control of this situation.

[Remarks at the Mid-Winter Congressional City Conference of the Natn’l League of Cities, March 2, 1981]

According to the Keynesian economic doctrine that prevailed during the 1970s, simultaneous inflation and recession were simply not possible. Under Keynes’ theory, recession is caused by insufficient aggregate demand while inflation is caused by excessive aggregate demand. Since it is impossible to have both too much and too little demand at the same time, recession and inflation together is not supposed to be possible. But it was happening.

Keynesian economists to this day argue that economic growth is stimulated by increased government spending, deficits and debt. That combination, in theory, is supposed to increase demand, leading to increased production to satisfy that demand, and thus restore economic growth. But Keynes’ theory didn’t work in the 1930s, it didn’t work in the 1970s, and it is certainly not working now.

Reagan noted the American people’s rejection of the wrong-headed economic debacle of the late 1970s (i.e. 13.5% inflation, prime interest rates approaching 22% and almost 11% unemployment) in a message to Congress early in 1984 — as his prescription for economic recovery firmly took hold:

“This isn’t a Keynesian Recovery produced by big-spending bureaucrats tinkering with aggregate demand...Instead, this recovery was created by the incentives of tax-rate reduction, which shifted resources away from government back to American producers, savers, and investors.”

[Remarks on Signing the Annual Report to Congress on the State of Small Business, March 19, 1984]

Keynesian economic theory was explicitly rejected by Reagan in favor of the idea that economic growth results from incentives for individuals and companies to produce products and services. Reagan later explained his economic philosophy succinctly in his autobiography:

“The more government takes in taxes, the less incentive people have to work… And the principle applies as well to corporations and small businesses: When government confiscates half or more of their profits, the motivation to maximize profits goes down, and owners and managers make decisions based disproportionately on a desire to avoid taxes; they begin looking for tax shelters and loopholes that contribute nothing to the growth of our economy. Their companies don’t grow as fast, they invest less in new plants and equipment, and they hire fewer people.

[“An American Life” by Ronald Reagan, p. 232]

[See Appendix I for Further Information]

The Reagan Promise

Ronald Reagan’s campaign for the presidency gave voice to the frustration of the American people with the top-down government ethos reigning in Washington. He summarized that dissatisfaction in his autobiography:

“People are tired of wasteful government programs and welfare chiselers, and they’re angry about the constant spiral of taxes and government regulations, arrogant bureaucrats, and public officials who think all of mankind’s problems can be solved by throwing the taxpayers’ dollars at them.”

[“An American Life” by Ronald Reagan, p. 147]

Reagan’s presidential campaign advocated a four-point economic recovery plan that he faithfully implemented after he was elected.

  1. Reducing Tax Rates — to instill incentives for economic growth. In 1981, the top income tax rate was brought from 70% down to 50%, with a 25% across-the-board cut in income tax rates for everyone in all the other tax brackets. The tax reform in 1986 subsequently reduced tax rates even further, leaving just two rates, 28% and 15%.
  2. Reducing Federal Spending — to contain the size of government, including an almost 5% spending cut the first year in FY 1981 (equivalent to a $175 billion cut in one year today.) Even throwing in the Reagan defense buildup — which won the Cold War without firing a shot — total federal spending declined from a high of 23.5% of GDP in 1983 to 21.2% in 1989. This reduction constituted a 10% real decrease in the size of government relative to the size of the economy.
  3. Deregulation — to reduce government intrusion in people’s lives and the cost of red tape on the private sector. Reagan’s first executive order after taking office eliminated price controls on oil and natural gas. Production soared, and the price of oil declined by over 60% by 1986.
  4. Stable Monetary Policy — to restrain money supply growth compared to demand to control inflation, and thus maintain a stable value for the dollar. This cemented the economic gains achieved by cutting tax rates and federal spending, and deregulating the economy.

President Reagan’s recovery plan was intended to counter the government’s negative impact on the economy, or as he put it:

“Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.

[Remarks to the White House Conference on Small Business, Aug. 15, 1986]

The four-point plan resulted in the most successful economic experiment in world history — setting a new record for the longest peacetime expansion ever. The Reagan recovery lasted 92 months without a recession from November 1982 until July 1990, when the ill-conceived tax increases of the “1990 budget deal” killed it.

Reagan’s common sense solutions reduced inflation from almost 13% when he took office to 3.2% in 1983. Over his two terms in office, Reagan’s policies added nearly 20 million new jobs, reducing unemployment by over half from 10.8% in 1982 to 5.3% in 1989. The bottom 20% of earners also benefited. Their average household income grew by 12.2% from 1983 to 1989. The poverty rate, which had been increasing under Carter, declined every year under Reagan while the standard of living for all Americans rose by almost 20%.

Opponents who had argued that tax cuts would increase interest rates were proven wrong. The prime rate was cut by two-thirds, down to 8.2% in 1987 and then to 6.25% by 1992. New home mortgage rates also steadily declined, reaching 9.2% by 1988, and ultimately 8% by 1992. The stock market more than tripled in value from 1980 to 1990 — the largest decade-long increase in history.

As Steve Forbes wrote in Forbes magazine in 2008:

“Between the early 1980s and 2007 we lived in an economic Golden Age. Never before have so many people advanced so far economically in so short a period of time as they have during the last 25 years. Until the credit crisis, 70 million people a year [worldwide] were joining the middle class. The U.S. kicked off this long boom with the economic reforms of Ronald Reagan, particularly his enormous income tax cuts. We burst from the economic stagnation of the 1970s into a dynamic, innovative, high tech-oriented economy. Even in recent years the much maligned U.S. did well. Between year-end 2002 and year-end 2007 U.S. growth exceeded the entire size of China’s economy.”

[Steve Forbes, “How Capitalism Will Save Us,” Forbes, Nov. 10, 2008]

In other words, the growth in our economy from 2002 to 2007 was the equivalent of adding the entire economy of China to that of the U.S.

We believe that Ronald Reagan, were he here today, would advise implementing the same fiscal policies now to ignite a world-leading economic boom, just as they did in the 1980s.

[See Appendix II for Further Information]

Reducing Tax Rates

Ronald Reagan understood that economic activity is affected by the level of taxation, particularly by the level of marginal tax rates — the rate that applies to the last dollar earned. The tax rate determines how much the producer is allowed to keep out of what he or she produces. If tax rates are high the incentives for productive activity, such as savings, investment, work, business expansion, business creation, job creation, and entrepreneurship are reduced. The result is fewer jobs, lower wages, and slower economic growth, or even economic downturn.

In 1981, under President Reagan, the top income tax rate was brought from 70% down to 50%, with a 25% across-the-board cut in income tax rates for everyone in all the other tax brackets. The tax reform in 1986 subsequently reduced tax rates even further, leaving just two rates, 28% and 15%.

Reagan also understood that our tax code imposes multiple forms of taxation on capital income. First, a dollar that an American corporation earns is taxed at the corporate income tax rate, totaling roughly 40% on average now — counting federal and state corporate income taxes. If the remainder of that dollar is then paid to an investor in dividends, it is taxed a second time through the individual income tax code at the dividend rate — currently 15%. President Obama has proposed increasing the dividend tax rate from 15% to an astounding 43.4%. Applying Obama’s proposed rate to the 60 cents remaining after paying the corporate income tax would leave just 34 cents for the investor out of the original dollar earned. But, it gets even worse for investors under the tax code.

The capital gains tax is yet a third layer of taxation on capital income by levying a 15% tax on any gain in the value of capital over time. Finally, the death tax (the popular name for the estate tax) imposes a fourth tax on capital income, taking roughly half of whatever an investor is able to retain and leave to his children — which would leave the children with just 17 cents out of the original dollar the investor earned during his lifetime.

As Ronald Reagan put it:

“Any system that penalizes success and accomplishment is wrong. Any system that discourages work, discourages productivity, discourages economic progress, is wrong.

“If, on the other hand, you reduce tax rates and allow people to spend or save more of what they earn, they’ll be more industrious; they’ll have more incentive to work hard, and money they earn will add fuel to the great economic machine that energizes our national progress. The result: more prosperity for all — and more revenue for government.

“A few economists call this principle supply-side economics. I just call it common sense.”

[“An American Life” by Ronald Reagan, p. 232]

These are the reasons we believe Reagan would today support eliminating the capital gains tax and the death tax, and allow a deduction for corporate dividends so they are not taxed by the corporate income tax. This would be part of Reagan’s “common sense” prescription for America’s ailing economy.

[See Appendix III for Further Information]

Reducing Federal Spending

Reagan understood Washington’s insatiable appetite for spending.

“We don’t have a trillion-dollar debt because we haven’t taxed enough; we have a trillion-dollar debt because we spend too much.”

[Remarks to the Nat’l Assn. of Realtors, March 28, 1992]

As a result, he favored passage of a Balanced Budget Amendment to the Constitution. Reagan wanted to:

“Balance the budget by bringing to heel a Federal establishment which has taken too much power from the States, too much liberty with the Constitution, and too much money from the people.”

[Remarks at a rally for a proposed Constitutional Amendment for a balanced federal budget, July 19, 1982]

Consistent with Reagan’s philosophy, a balanced budget amendment needs to include enforceable limitations on both total spending and taxes as a percent of GDP, to prevent Congress from using the amendment as a mandate to raise taxes to finance runaway spending.

“It is clear that we need a mechanism to control expenditures of Americans’ hard-earned money. To this end, I will send to the Congress a proposed constitutional amendment to require a super-majority vote in the Congress in order to increase the tax burden on our citizens. I urge the Congress to act expeditiously in approving this amendment and to send it to the States for ratification.”

[1988 Legislative and Administrative Message to Congress: A Union of Individuals, Jan. 25, 1988]

A supermajority voting requirement for raising taxes or exceeding spending limits, such as 60% of both the House and the Senate, would be one way. The late William Niskanen, who served on Reagan’s Council of Economic Advisors from 1981-1985 and was a founding member of the Carleson Center policy board, proposed such a Constitutional Amendment to Congress in January 1995. It ran just 125 words, "consistent with the crisp and majestic language of most of the Constitution” as recounted by Richard W. Rahn in memoriam in the Washington Times on November 1, 2011.

We feel certain President Reagan, if in office today, would place a high priority on cutting federal spending from the current 23-25% back to at least the long term historical average since World War II of 20% of GDP.

[See Appendix IV for Further Information]

Deregulation

Ronald Reagan would be a staunch opponent of President Obama’s reregulation onslaught and his massive increase in the size of government and the scope of its intrusion on American life.

“Government has an inborn tendency to grow. And, left to itself, it will grow beyond the control of the people. Only constant complaint by the people will inhibit its growth.”

[Address to the Comstock Club, Sacramento, Aug. 6, 1973]

Reagan recognized the need for reasonable regulation to protect public health and safety, and to prevent fraud and other abuses, but he firmly believed that to avoid unnecessary costs on business and society, government regulation must be held to a minimum.

“We’re going to try to take off the back of business a horde of unbelievable and unnecessary regulations that [government] bureaucracy over the years … has spawned. I believe in an old rule that [says] ‘If it ain’t broke don’t fix it.’ And government’s been trying to fix things too long that weren’t broke.”

[Remarks at Control Data Institute, Pittsburgh, Pa., Aug. 6, 1983]

In addition to limiting regulatory intrusion, Reagan also believed that, to the extent government regulation is necessary, it is more appropriately done through state and local governments — not by unelected bureaucrats in Washington D.C. with their one-size-fits-all solutions.

“We have found, in our country, that when people have the right to make decisions as close to home as possible, they usually make the right decisions.”

[Address to the International Committee of the Supreme Soviet of the U.S.S.R., Moscow, Sept. 17, 1990]

President Reagan’s first Executive Order, E.O. 12287 signed on January 28, 1981, deregulated crude oil and refined petroleum products, unleashing a massive, private expansion of the nation’s enormous energy reserves and enabling a plentiful supply of low-cost energy. Just two years later on Feb. 26, 1983, Reagan pointed out that:

“The economic realities of the marketplace have done more to bring down the price of oil than all those years of frenetic government regulating.”

[Radio address to the nation, Feb. 26, 1983]

Today, America has the resources to be the world’s number one oil producer, the world’s number one natural gas producer, the world’s number one coal producer, and the world’s number one producer of nuclear energy. The problem is that our own government has stood perversely in the way, preventing America from using her own resources to produce a reliable supply of low-cost energy. Reagan made unleashing the private sector to produce energy the central principle of his energy policy.

The day following his first executive order, Reagan signed his second, Executive Order 12288, which terminated the Wage and Price Regulatory Program that had been instituted by President Carter to control wages and prices by, among other things, denying federal contracts to private companies that did not abide by wage and price levels set by the federal government.

We believe if Ronald Reagan faced the current situation, he would find the most important and urgent deregulatory policy to be freeing the private sector to enable it to produce a plentiful supply of low-cost energy. That would reduce the cost foundation for the entire economy — effectively providing the equivalent of a major tax cut.

[See Appendix V for Further Information]

Privatization

Ronald Reagan believed strongly that the government should not compete with the private sector in providing goods and services to the federal government. He believed the private sector can produce better quality goods and services and deliver them at lower cost than government, and that privatizing many government services would improve America’s competitiveness.

“The Government should not compete with the private sector.—Traditionally, governments supply the type of needed services that would not be provided by the private marketplace. Over the years, however, the Federal Government has acquired many commercial-type operations. In most cases, it would be better for the Government to get out of the business and stop competing with the private sector, and in this budget I propose that we begin that process.”

[Message to the Congress Transmitting the Fiscal Year 1987 Budget, Feb. 5, 1986]

On November 19, 1987, President Reagan issued Executive Order 12615 to require the federal government to acquire needed commercial goods and services in the most economic and efficient manner by procuring them from private industry whenever possible.

[See Appendix VI for Further Information]

Socialized Medicine

For decades, Reagan was an ardent opponent of socialized medicine and he would favor the total repeal of Obamacare. He addressed the issue in 1961:

“...at the moment I would like to talk about another way [our government has invaded the precincts of private citizens] because this threat is with us and at the moment is more imminent. One of the traditional methods of imposing statism or socialism on a people has been by way of medicine. It is very easy to disguise a medical program as a humanitarian project. Most people are a little reluctant to oppose anything that suggests medical care for people who possibly can’t afford it.

Now, the American people if you put it to them about socialized medicine and gave them a chance to choose would unhesitatingly vote against it. We have an example of this. Under the Truman administration, it was proposed that we have a compulsory health insurance program for all people in the United States. And of course, the American people unhesitatingly rejected this.”

[Speech from the 1961 Operation Coffee Cup Campaign against Socialized Medicine, as proposed
by the Democrats, as part of a Long Play recording sent out by the American Medical Association]

[See Appendix VII for Further Information]

Stable Monetary Policy

The fourth component of Reagan’s economic recovery plan was stable monetary policy. We are certain he would oppose the Keynesian-inspired discretionary monetary policy now being used to guide the economy. The Federal Reserve’s easy money policies were at the root of the disastrous inflation/recession cycles of the 1970s and Reagan explicitly rejected them when he became President.

Instead, Reagan favored a stable dollar policy and required the Federal Reserve to conduct monetary policy on the basis of prices in real markets, including the most policy-sensitive prices, such as oil, gold, silver, copper and other precious commodities. His monetary policies were designed to avoid inflation and deflation, and cyclical bubbles and recessions by maintaining a stable, un-inflated value for the dollar. Reagan understood the true nature of inflation:

“When a business or an individual spends more than it makes, it goes bankrupt. When government does it, it sends you the bill. And when government does it for 40 years, the bill comes in two ways: higher taxes and inflation. Make no mistake about it, inflation is a tax and not by accident.”

[Remarks to the American Trucking Assn., San Francisco, Oct. 16, 1974]

In our view, Ronald Reagan would endorse a commitment to return to monetary policies required to restore a stable currency and healthy financial markets. In transmitting his economic recovery plan to Congress on February 18, 1981, shortly after taking office, President Reagan said:

“And, in cooperation with the Federal Reserve Board, a new commitment to a monetary policy that will restore a stable currency and healthy financial markets.”

[Message to the Congress Transmitting the Proposed Package on the Program for Economic Recovery February 18, 1981]

[See Appendix VIII for Further Information]

Federalism

Ronald Reagan revered the Founding Fathers’ belief in federalism. That uniquely American doctrine united 13 colonies into “these United States” by recognizing each state as its own sovereign government within a sovereign national government. In other words, the states were not meant to be mere sub-departments of the national government, but sovereign governments in their own right whose powers and sphere of authority could not be infringed on by the national government.

“The more government we can keep at the local levels, in local hands, the better off we are and the more freedom we will have…Traditionally, we’ve been able to adapt well to change and to meet our challenges, because we could reach across a vast continent for ideas and experience. In the recent past, as the Federal Government has pushed each city, county, and State to be more like every other, we’ve begun to lose one of our greatest strengths — our diversity as a people. If we’re to renew our country, we must stop trying to homogenize America. I believe the extent of the problems that we face today is in direct proportion to the extent to which we have allowed the Federal Government to mushroom out of control. Ignoring careful checks and balances, Federal bureaucrats now dictate where a community will build a bridge or lay a sewer system. We’ve lost the sense of which problems require national solutions and which are best handled at the local level.”

[Remarks at the National Assn. of Counties Convention, Baltimore, July 13, 1982]

“When our administration came to office, we took it as one of our chief aims to reawaken the federalist impulse and approach the Constitution with a new fidelity — in short, to restore the power to the states.”

[Remarks to the National Conference of State Legislators on Jan. 29, 1988]

Reagan’s concern that federalism had been eviscerated as a constitutional and political principle prompted him to establish a Working Group on Federalism within the White House Domestic Policy Council in 1985. Its task was to develop strategies for ensuring that federal laws and regulations were rooted in the basic principles of constitutional federalism — in order to restore a proper balance between the national government and the states. In November, 1986, the Working Group submitted to the President its report analyzing the status of federalism in America and recommended reforms to restore a proper balance between federal and state authority.

The report asserted that the Constitution’s grant of authority to the national government extends to a few enumerated powers only and that all other powers are reserved to the states. The Working Group invoked the wisdom of James Madison in Federalist Paper No. 45 in support of that principle:

“The powers delegated by the proposed Constitution to the Federal Government are few and defined. Those which are to remain in the State Governments are numerous and indefinite. The former will be exercised principally on external objects, as war, peace, negotiation, and foreign commerce; … The powers reserved to the several states will extend to all the objects, which, in the ordinary course of affairs, concern the lives, liberties, and properties of the people; and the internal order, improvement, and prosperity of the State.”

[“The Status of Federalism in America,” a report of the Working Group on Federalism

of the Domestic Policy Council, Nov. 1986, Executive Summary, pp. 1-2]

The report determined that Congress — through its boundless power to condition the receipt of federal money on a state’s conformity to national policy priorities — had increased the size and extended the reach of the national government far beyond the scope of the national powers enumerated and fairly implied in the Constitution.

It further concluded that the Supreme Court was the dominant force in the decline of federalism — through its interpretations of the Constitution — by ratifying actions of Congress or the Executive Branch — essentially “amending” the Constitution through its interpretations to place limitations on the states which are not expressed in the Constitution itself.

The result was a gradual erosion in the states’ control over their own subordinate political units and a major expansion in the practical powers of the national government to dictate not only state budget priorities, but the provisions of state laws and constitutions.

To reverse the erosion in the authority granted the states by the Constitution, the Working Group, in 1986, recommended building on President Reagan’s “Statement of Federalism Principles” by requiring that policy promulgated at the national level adhere to specific criteria including:

  • Requiring the Executive Branch and Congress to identify the constitutional and/or statutory authority that supports any action that would limit the discretion or authority of the states.
  • Allowing such federal action only when the constitutional authority for it is clear and the action will address a problem of national scope.
  • Prohibiting the federal government from intervening in matters properly within the constitutional powers reserved to the states.
  • Granting, with respect to national policies (programs) administered by the states, the maximum administrative flexibility to the states as possible — and refraining from setting uniform national standards — to encourage the states to develop their own approaches to the implementation of national programs.

In response to the Working Group’s report, President Reagan issued Executive Order 12612 on Oct. 26, 1987, in order to:

“...restore the division of governmental responsibilities between the national government and the States that was intended by the framers of the Constitution to ensure that the principles of federalism established by the framers guide the Executive departments and agencies in the formulation and implementation of policies….”

The executive order required the Executive Branch to be guided by the principles of federalism, recognizing that:

“(a) Federalism is rooted in the knowledge that our political liberties are best assured by limiting the size and scope of the national government.

(b) The people of the States created the national government when they delegated to it those enumerated governmental powers relating to matters beyond the competence of the individual States. All other sovereign powers, save those expressly prohibited the States by the Constitution, are reserved to the States or to the people.

(c) The constitutional relationship among sovereign governments, State and national, is formalized in and protected by the Tenth Amendment to the Constitution.

(d) The people of the States are free, subject only to restrictions in the Constitution itself or in constitutionally authorized Acts of Congress, to define the moral, political, and legal character of their lives.

(e) In most areas of governmental concern, the States uniquely possess the constitutional authority, the resources, and the competence to discern the sentiments of the people and to govern accordingly. In Thomas Jefferson’s words, the States are “the most competent administrations for our domestic concerns and the surest bulwarks against anti-republican tendencies.”

(f) The nature of our constitutional system encourages a healthy diversity in the public policies adopted by the people of the several States according to their own conditions, needs, and desires. In the search for enlightened public policy, individual States and communities are free to experiment with a variety of approaches to public issues.

(g) Acts of the national government—whether legislative, executive, or judicial in nature—that exceed the enumerated powers of that government under the Constitution violate the principle of federalism established by the Framers.

(h) Policies of the national government should recognize the responsibility of—and should encourage opportunities for—individuals, families, neighborhoods, local governments, and private associations to achieve their personal, social, and economic objectives through cooperative effort.

(i) In the absence of clear constitutional or statutory authority, the presumption of sovereignty should rest with the individual States. Uncertainties regarding the legitimate authority of the national government should be resolved against regulation at the national level.”

[Reagan Executive Order 12612, issued Oct. 26, 1987, pp. 1-2]

Finally, the executive order mandated that federal departments and agencies only be allowed to take federal action limiting the policymaking discretion of the states when such action is necessitated by a problem of national scope and the constitutional authority for the federal action is clear.

[See Appendix IX for Further Information]

[Click here for the "The Status of Federalism in America" Working Group Report]

Welfare Reform

Ronald Reagan recognized that the expansion of the welfare state was the greatest threat to federalism and fighting it was a driving force throughout his political career. California in 1971 was heading toward bankruptcy because of the massive growth in welfare spending. As Governor, Reagan discovered he was greatly hampered by federal welfare rules and policies. But, working with his welfare reform champion Robert B. Carleson, Reagan was still able to achieve great savings for the state’s taxpayers and better serve the poor by focusing assistance to those most truly in need. As a result of the tremendous savings generated by removing the non-needy from the welfare rolls, Ronald Reagan was able to deliver the first benefit increase to California’s most needy citizens in over a decade and a half. As Reagan expressed his concerns on the subject at the time:

“Welfare needs a purpose: to provide for the needy, of course, but more than that, to salvage these, our fellow citizens, to make them self-sustaining and, as quickly as possible, independent of welfare. There has been something terribly wrong with a program that grows ever larger even when prosperity for everyone else is increasing. We should measure welfare’s success by how many people leave welfare, not by how many are added.”

[Remarks at Governor’s Conference on Medicaid, San Francisco, 1968]

In testifying as Governor before the Senate Finance Committee in 1972, Reagan said:

“… I consider the welfare problem the gravest domestic issue our Nation faces …. I believe that:

  • States are better equipped than the federal government to administer effective welfare reforms if they are given broad authority to utilize administrative and policy discretion.
  • A system of a guaranteed income, whatever it may be called, would not be an effective reform of welfare, but would tend to create an even greater human problem.
  • A limit should be set on the gross income a family can receive and still remain eligible for welfare benefits.
  • For all those who are employable, a requirement be adopted that work in the community be performed as a condition of eligibility for welfare benefits without additional compensation.
  • The greatest single problem in welfare today is the breakdown of family responsibility. Strong provision should be made to insure maximum support from responsible absent parents.
  • A simplified system of pensions should be established for the needy aged, blind, and the totally and permanently disabled.”

[Testimony of Gov. Ronald Reagan to the U.S. Senate Finance Committee, Feb. 1, 1972, pp. 1-2]

However, overbearing federal bureaucracy and restrictions prevented Reagan and Carleson from achieving their goal of requiring work from able-bodied recipients in return for welfare assistance. So-called “workfare” requirements would allow beneficiaries to “earn” their benefits from the taxpayers and eliminate incentives for those not truly in need to game the system and deplete resources available to help those with nowhere else to turn. Reagan explained the rationale when he became President and continued his push for the principle of welfare recipients "earning" their benefits:

“Many people today are economically trapped in welfare. They’d like nothing better than to be out in the workaday world with the rest of us. Independence and self-sufficiency is what they want. They aren’t lazy or unwilling to work; they just don’t know how to free themselves from the Welfare security blanket.”

[Remarks to the National Alliance of Business, October 5, 1981]

Their experience in California led Reagan and Carleson to advocate policies at the national level to provide states with finite federal funding in exchange for maximum flexibility in using the money for state welfare programs — a concept commonly referred to as block granting. As President-elect, Reagan personally approved the block grant concept, with his signature “RR OK” initials, as part of his transition team’s action documents submitted to him by Bob Carleson, acting as Reagan’s Health and Human Services transition head. As Reagan argued to Congress in 1986:

“Many services can be provided better by State and local governments. Over the years, the Federal Government has preempted many functions that properly ought to be operated at the State or local level. This budget contemplates an end to unwarranted Federal intrusion into the State and local sphere and restoration of a more balanced, constitutionally appropriate, federalism with more clearly delineated roles for the various levels of government. Examples include new consolidations of restrictive small categorical grant programs into block grants for transportation and environmental protection, at reduced Federal costs. Continued funding is maintained for existing block grants for social services, health, education, job training, and community development.”

[Message to the Congress Transmitting the Fiscal Year 1987 Budget, Feb. 5, 1986]

Years after Reagan left office, in 1996, the block grant concept was finally enacted into federal law. For the first time in history, a Great Society program, Aid to Families with Dependent Children (AFDC), was repealed. It was replaced with the Temporary Assistance to Needy Families (TANF) program. Under TANF, federal welfare cash assistance is now provided in the form of finite block grants to fund state programs based on mandatory work requirements for able-bodied welfare recipients. The former AFDC program depended on a federal matching formula that encouraged states to increase welfare rolls and spend more money in both good times and bad.

Replacing the federal matching formula arrangement with finite block grants was the key to the overwhelming success of the 1996 Welfare Reform. Under the block grant, federal funding does not increase when a state spends more on welfare or increases the state’s welfare rolls. If a state’s program costs increase, the state must pay the extra costs itself. But, if the program costs less, the state gets to keep the savings in order to provide enhanced services for the state’s truly needy.

Incentives matter. Allowing states to keep their welfare savings provides an economic motive for welfare offices to become employment centers instead of mere welfare intake bureaus measuring their success by how much welfare rolls grow.

Touching on the perverse incentive that motivated the welfare establishment, Reagan as President in 1982 observed:

“The war on poverty created a great new upper-middle class of bureaucrats that found they had a fine career as long as they could keep enough needy people there to justify their existence.”

[Remarks at a Kansas Republican Party luncheon, Topeka, Sept. 9, 1982]

The welfare establishment solidly opposed the 1996 reform under the leadership of Sen. Daniel Patrick Moynihan (D-NY), the Urban Institute, and others who predicted that the reforms would produce a “race to the bottom” among the states, and that within a year a million children would be starving and on the streets.

But contrary to the "establishment" predictions, the reform was remarkably successful, exceeding even the hopes of its most ardent supporters. America’s welfare rolls were reduced by two-thirds nationwide, even more in states that pushed work more aggressively.

As many commentators have noted, including Ron Haskins at the Brookings Institution, by 2006, the number of families receiving cash welfare was the lowest it had been since 1969; the percentage of children on welfare was lower than it had been since 1966; and the percentage of children on AFDC/TANF was reduced from 14.1% in 1994 to 4.7% in 2006. A true American success story.

As a result, in real dollars, by 2006, total federal and state spending on TANF was down 31% from AFDC spending in 1995, and down by more than half of what it would have been under prior budget projections. At the same time, because of the increased work by former welfare dependents, child poverty declined every year, falling to levels not seen since 1978, as Haskins further reported:

“… [B]y 2000 the poverty rate of black children was the lowest it had ever been. The percentage of families in deep poverty, defined as half the poverty level…also declined until 2000, falling about 35% during the period.”

[Ron Haskins, “Work Over Welfare: The Inside Story of the 1996 Welfare Reform Law,” (Wash. D.C.: Brookings Institution, 2006)]

With such astounding success, it is regrettable that the 1996 law reformed only one welfare program. Reagan, however, at the same time he had approved the block grant concept for the AFDC program as President-elect, also approved applying the concept specifically to federal nutrition programs and supported extending the block grant concept to all federal means-tested welfare programs.

The federal government now sponsors so many means-tested welfare programs — including Medicaid, low-income health and child care programs, Food Stamps and other food nutrition programs, low-income housing programs, employment and training programs, and social services programs among others — that the federal General Accounting Office testified before Congress, in May 2011, that the GAO could not identify all existing welfare programs in the various federal departments and agencies, or how much they cost in total. The GAO also testified that they could not give a specific number or even “hazard a guess” as to what percentage of those programs are actually accomplishing the purposes for which they were created.

The total current cost of federal means-tested welfare programs over the ten-year period 2009 to 2018 has been estimated as being $10.3 trillion. The Heritage Foundation also determined that in 2008 total welfare spending in America (including the cost of the welfare bureaucracy) likely amounted to $16,800 per poor person, or $50,400 per poor family of three. Today, the median per family income for all three-member families in America is $61,400 — only slightly more than the cost to the taxpayers for the government to provide welfare benefits to families of the same size.

Reagan clearly supported the idea that the states should be in charge of their welfare programs long before passage of the Welfare Reform Act in 1996.

“We see the momentum of federalism in the move in States across our country to reform welfare. In my State of the Union Address, I said that some years ago the Federal Government declared a War on Poverty and poverty won. Instead of providing a ladder out of poverty, welfare became a net of dependency that held millions back. Instead of hope, we've too often bred despair and futility.”

[Remarks to State and Local Republican Officials on Federalism and Aid to the Nicaraguan Democratic Resistance, March 22, 1988]

We firmly believe Ronald Reagan would support block-granting the remaining welfare programs to the states to improve the lives of America’s poor as well as the fiscal health of the nation — in accordance with his belief in restoring state control over welfare policy consistent with the federalism principles in the Constitution. As Reagan famously said:

“We should measure welfare’s success by how many people leave welfare, not by how many more are added.”

[Testimony of Gov. Ronald Reagan to the U.S. Senate Finance Committee, Feb. 1, 1972, p. 5]

[See Appendix X for Further Information]

Conclusion

The economic, fiscal, and constitutional crisis confronting our country today is eerily similar to the one America faced when Reagan campaigned against President Jimmy Carter in 1980. As Reagan summed it up after his Presidency in his autobiography:

“It was a rebellion of ordinary people. A generation of middle-class Americans who had worked hard to make something of their lives was growing mistrustful of a government that took an average of thirty-seven cents of every dollar they earned and still plunged deeper into debt every day.

“There was a growing sense of helplessness and frustration across the country over a government that was becoming a separate force of its own, a master of the people, not the other way around.

“People were growing resentful of bureaucrats whose first mission in life seemed to be protecting their own jobs by keeping expensive programs alive long after the usefulness had expired. They were losing

respect for politicians who kept voting for open-ended welfare programs riddled with fraud and inefficiency that kept generation after generation of families dependent on the dole. And they were growing mistrustful of the self-appointed intellectual elite back in Washington who claimed to know better than the people of America and their communities.”

[“An American Life” by Ronald Reagan, p. 232]

Ronald Reagan’s fiscal and governmental prescription for American renewal and recovery worked in the 1980s and launched more than 25 years of economic prosperity. The same prescription can work magic again in 2012, because it is based on the timeless wisdom of our Founding Fathers.

We have arrived at a transcendent moment in our history and Americans must choose a path. Will we take the easy path and let government take care of us and make more and more of our decisions for us? Or, will we take the difficult path - the path that Ronald Reagan chose - and fight to remain a free market society and a liberty-loving people? Thirty-one years ago, Ronald Reagan showed us how to do it. Now it's up to us to have the resolve to do it again.