The Hon. Donald Regan
Secretary of the Treasury Washington, D.C.
Dear Mr. Secretary:
I see that in time-honored political tradition, President Reagan puts the onus for today's troubled economy on the accumulated mistakes of Jimmy Carter and others of his predecessors in the Oval Office.
In addition, the president and his key aides also protest--in response to critics--that his radical economic program, centering on an enormous "supply-side" tax cut, hasn't been in place long enough yet to revive the economy. You, for example, recently noted that "the first and smallest round of tax cuts has been in effect less than 90 days" and that "truly significant cuts" don't begin until summer.
You said that "to say our policies aren't working is like saying, while the opening kickoff is still in the air, that the Redskins are behind. . . . Wait until the marketplace really catches those tax incentives and starts to run, before passing judgment on which way the game is going."
With due respect, Mr. Secretary, this dubious analogy is somewhere between disingenuous and deliberately misleading. The essence of the supposed magic of Reaganomics lay in the daring concept of an entirely new approach that would immediately create a business turnaround. There would be a surge of anticipatory confidence and faith in the Reagan program. This was the highly publicized "expectational" effect of Reaganomics--and it never happened.
In any event, more of the Reagan tax program has been in place longer than you suggest. The super-generous reductions in business depreciation schedules were made effective retroactively to Jan. 1, 1981. And a reduction in the capital gains tax to a maximum of 20 percent was made effective as of June 10, 1981.
But there has been no business expansion surge, and the Commerce Department doesn't forecast one for 1982. And instead of boom on Wall Street, there has been the Reagan bear market, although you will remember that, drawing on your Wall Street experience, you had said at the start of the administration that a slash in the capital gains tax was the one thing for which the stock-trading community had been praying for years.
Of course, these tax reductions will accumulate and should be much more meaningful in later years. But the fact is that favorable tax writeoffs are on the books, available now--yet many businesses are staying highly liquid, not anxious to take investment risks even with the new tax incentives.
Jack Albertine, president of the American Business Conference Inc. (an association of growth-oriented companies that, as you know, urgently want Reagan to succeed), tells of one medium-sized high-technology firm that is keeping $80 million in a money market fund. "Why are they not using the money to expand their business?" I asked him. "Because (first) they want to see the strength of the recovery," Albertine responded. And businessmen generally do not see a meaningful recovery from recession before 1983, despite your predictions of an upswing within the next few months.
It's not surprising to me that the Reagan administration, having failed to produce the resurgent economy that it predicted with confidence a year ago, would now trot out whatever excuses it can find. Your political opposite numbers have done the same thing. But I admit I am surprised how well the White House has been able to get its propaganda line across, despite the recession.
For example, a nationwide report in The Post last Sunday demonstrates that many presumably representative citizens believe the intended cures of Reaganomics "haven't got under way yet." The typical citizen seems to be waiting--indeed hoping--that the program will eventually work.
Yet, the truth of the matter is that none of you last year said--"Hey, wait a while before passing judgment on our program." All your speeches and testimony indicated a belief that Reaganomics would turn the economy around quickly. But it didn't.
Instead of adding jobs, the economy stalled. Federal budget deficits seem irreducible, making it certain that your boss will go down in history as the man who presided over the nation's record red-ink total.
I detect more of a sense of reality now--a confessional that if the program is to succeed, it will take some time. That expectational stuff was and is for the birds. It's not a case of the kickoff being in the air, Mr. Secretary. Let me give you a baseball analogy: your situation is more like that of the old Brooklyn Dodgers, who promised the fans a pennant, usually had a losing season, and then begged: "Wait till next year!"