1982: United States

THE PRESIDENCY

In many ways, President Ronald Reagan experienced disappointment and difficulty in his second year in office, as the U.S. economy suffered its most severe decline since the Great Depression of the 1930's. The president was faced with unemployment rates that soared to the highest levels in decades, as well as mushrooming business bankruptcies, declining automobile and steel production, and a housing industry that hovered on the brink of collapse. The economy understandably occupied most of Reagan's time this year—including lengthy conflicts with Congress on his proposed budget and on tax increases—but the president also had his share of troubles on the foreign front, with his advisers, and with his positions on controversial social issues.

Despite all his difficulties, Reagan hinted broadly in a June 30 news conference that he might run for reelection in 1984. But public opinion polls at times indicated that less than half of the voters thought the president was doing a good job.

Economic matters.

At the start of the year, a confident Reagan predicted that the economic slump that had become apparent in the second half of 1981 would soon be over. 'We'll work our way out of it and faster than expected,' the president said in a New York City speech on January 14, blaming the recession on previous administrations. In his State of the Union message to Congress on January 26, Reagan continued to speak optimistically. 'The program for economic recovery that is in place will pull the economy out of its slump and put us on the road to prosperity and stable growth by the latter half of this year,' he said.

The president devoted a large portion of his address to a 'new federalism' plan, under which the federal government would transfer to the states responsibility for food stamps and basic welfare as well as other social service programs in return for a federal takeover of medicaid, the health care system for the needy, in fiscal 1984. It turned out to be only the first of a number of overly optimistic Reagan predictions. Efforts to draft legislation on the transfer of responsibilities were suspended in the spring, and the economy continued to bedevil the administration throughout the year.

Budget.

Reagan submitted the fiscal 1983 budget—the first budget to be formulated entirely by his administration—on February 8. Projected deficits totaled nearly $250 billion from fiscal years 1983 through 1985, as the president's earlier promise of a balanced budget by the end of his term went by the boards. For 1983, the budget proposed an increase of some 18 percent in military spending (an area Reagan refused to consider cutting) and further tightening of spending on most domestic social programs. Overall, Reagan proposed spending of $757.6 billion and receipts of $666.1 billion, with a resulting deficit of $91.5 billion. Despite widespread criticism of the huge deficit projection, the president declared that his budget was a 'line drawn in the dirt,' and he refused to consider modifications urged by leading Republican senators and some of his allies in the business community. On the question of tax increases, he was adamant. As he said in his State of the Union address, 'Raising taxes won't balance the budget ... I will seek no tax increases this year, and I have no intention of retreating from our basic program of tax relief.'

Six months later, however, the president reversed course on taxes, much to the dismay of some of his conservative supporters in Congress and the U.S. Chamber of Commerce, which broke with him over the issue. Meanwhile, the recession deepened, and unemployment began to climb upward from the January level of 8.5 percent. By mid-March, the president was blaming television news reports for contributing to the nation's economic problems. 'Is it news that some fellow out in South Succotash someplace has just been laid off...?' Reagan asked, maintaining that 'downbeat' reporting could delay a recovery that he said was 'in the offing.' The president's contention that the media covered his press conferences inadequately and highlighted his misstatements led him to hold his March 31 news conference in prime time, for the first time ever, so that a greater portion of the public could watch. In addition, the president began delivering radio talks on Saturday afternoons to reach the public directly.

Through the spring, the White House and Congress remained locked in a stalemate over the budget, as Reagan mixed optimistic forecasts with declarations that he would not raise taxes to reduce the swelling budget deficits. The tide was turning, however, with Republicans playing a major role in persuading the president to alter his stand. The Senate Budget Committee, for instance, controlled by a GOP majority, voted to reject Reagan's spending and deficit estimates as a basis for action. Reagan's own Economic Policy Advisory Board warned on March 18 that the proposed deficits were too large and must be reduced; some of the advisers suggested postponing the scheduled July 1 tax cut to increase revenues.

With the president's blessing, White House officials joined with Republican and Democratic congressional leaders in a series of secret negotiations on a budget compromise in April. Known as the Gang of 17, the group focused on a tax increase as one way to reduce the flood of red ink. Publicly, however, Reagan continued his hard-line stance. Finally, the president met with his Democratic nemesis, House Speaker Thomas P. ('Tip') O'Neill, Jr., for a Capitol Hill summit meeting on the budget on April 28. They conferred for three hours without reaching an agreement, and each side blamed the other for the breakdown in the talks.

With the bipartisan approach blocked, the Senate Budget Committee, under Senator Pete Domenici (R, N.M.), began to push for a revised budget plan that called for substantial tax increases. Shortly before the May 7 Labor Department announcement that the April unemployment rate had hit a post-World War II high of 9.4 percent, Reagan publicly endorsed the committee's plan to raise taxes by $95 billion over three years. Defense spending would rise by $22 billion less than Reagan had proposed in his original budget. 'It's imperative that we enact a federal budget that will bring down the deficit and bring down interest rates,' the president said in justification for his switch in policy.

The five-month budget struggle finally ended on June 23, when the Senate voted to adopt a $769.8 billion spending plan calling for fiscal 1983 tax increases of $20.9 billion. (The House adopted the budget bill the day before.) Even so, the projected 1983 deficit rose to $103.9 billion as the economic outlook darkened, signaling lower growth and reduced revenues from taxes in coming months. Despite the plunge in home sales that had resulted from high interest rates, the president vetoed a June 23 congressional attempt to establish a $3 billion program to subsidize home buyers' mortgage payments. The House failed to override the president's veto.

Tax increase.

The proposed tax increase ran into stiff opposition from conservative Republicans led by Representative Jack Kemp (R, N.Y.), who charged that Reagan had abandoned his supply-side economic policy by seeking to raise taxes after having pushed through a massive three-year tax cut in 1981. Alarmed by the prospect of defeat, Reagan postponed a planned August vacation at his California ranch to lead the fight for the measure he once had scorned. The president was well aware that the tax increase bill threatened Republican Party unity, but he believed it was needed. At the same time, he argued that it did not represent any basic reversal of policy on the part of his administration.

With the help of Democrats led by Speaker O'Neill, Reagan won the tax increase battle. On August 19, the House approved a bill calling for tax increases of $98.3 billion over three years; the vote was 226 to 207, with 103 Republicans joining 123 Democrats in favor of the measure. In the Senate, which approved the bill soon after, the vote was 52 to 47, with a number of liberal Democrats, including Edward M. Kennedy of Massachusetts, voting with the president. On Wall Street, the response was enthusiastic to passage of the bill and the drop in interest rates earlier in the week, including a reduction in the prime lending rate to 13.5 percent. The Dow Jones Industrial average climbed 81.24 points in that week alone.

Other issues.

Until that point, though, the recession had dragged without relief into its second year. The 10 percent tax cut and 7.4 percent cost-of-living increase in social security benefits, both effective July 1, failed to ignite an economic upturn, as Reagan and his advisers had predicted. The president conceded on July 28 that recovery would be 'tough, slow work.' He insisted throughout the year, however, that his basic policy had not failed and deserved more time to work. He also took credit for a sharp drop in the inflation rate, which fell from double-digit levels in 1980 to about a 5 percent annual rate by late summer 1982.

The brief era of good feelings between Reagan and Democratic leaders that followed congressional approval of the tax increase ended in late August when the president vetoed a $14.1 billion supplemental appropriations bill, contending that it would 'bust the budget by nearly a billion dollars.' The measure, which had been adopted with strong Republican support, included funds for jobs for the elderly, college grants for low-income students, and education funds for poor children. Much to Reagan's surprise, the House overrode his veto, 301-117, on September 9, and the Senate followed suit the following day by a vote of 60 to 30—exactly the two-thirds majority required to enact the bill without the president's signature. It was the first time that Congress had overridden a Reagan veto of a major bill, perhaps signaling the end of one of the longest presidential honeymoons in history. 'I'm not angry,' Reagan said. 'I'm just terribly, terribly hurt.'

He was also disturbed by House action the next month on a proposed constitutional amendment to require a balanced budget. Although he had supported the largest budget deficits in history, Reagan went to Capitol Hill in July and September to endorse the amendment. It passed the Senate on August 4 by a vote of 69 to 31, but was defeated, 236-187, in the House on October 1. Reagan described his reaction as one of 'deep, burning anger,' and analysts characterized the vote—as well as Congress's overriding the supplemental appropriations veto—as an indication that the president's power over the legislature was waning.

Foreign policy.

The gloomy economic scene tended to overshadow other developments during the year. When 1982 began, though, the president's national security adviser, Richard V. Allen, was dominating the headlines. Controversy arose in late 1981 over reports that Allen had accepted $1,000 from Japanese journalists who had been granted an interview with the president's wife, Nancy. He resigned on January 4 and was replaced by Deputy Secretary of State William P. Clark, one of the president's California associates.

Foreign policy formulation was also briefly shaken on June 25, when controversial Secretary of State Alexander M. Haig, Jr., resigned. His action ended a long period of discord between the department and the White House. George P. Shultz, a cabinet member in the Nixon administration, succeeded Haig as chief foreign policy adviser; he received unanimous Senate confirmation and took over the State Department without a hitch.

Expertise in foreign relations was sorely needed as the Middle East erupted at midyear. After Israel invaded Lebanon in June to strike at Palestine Liberation Organization forces there, Reagan instructed special envoy Philip Habib to negotiate a PLO withdrawal. But the fighting dragged on, and in August, following particularly heavy Israeli bombing of civilian areas of West Beirut, the president protested in a telephone call to Prime Minister Menachem Begin. When an agreement to end the crisis was reached, Reagan dispatched U.S. Marines to oversee, with the aid of French and Italian forces, the evacuation of PLO members.

On September 1, the date the last PLO guerrillas withdrew from Lebanon, Reagan called for a 'fresh start' in the Middle East. In a major shift of U.S. emphasis announced in a televised address, Reagan proposed Jordanian supervision of Palestinian self-government in the Israeli-controlled West Bank and Gaza Strip, thus stopping short of advocating an independent Palestinian state. He also urged a halt to Israeli settlements in these areas. Israel promptly rejected the plan (which showed the influence of George Shultz).

Reagan's plan temporarily faded into the background as events worsened. On September 14, Bashir Gemayel, Lebanon's president-elect, was assassinated, and Israeli forces immediately entered West Beirut, reportedly to prevent possible guerrilla gains in a period of turmoil. Days later, however, reports came of a massacre by Lebanese Christians of Palestinians in refugee camps in an area controlled by Israeli troops. By the end of the month, U.S. Marines, under Reagan's orders, had returned to Lebanon, along with French and Italian troops, as a peacekeeping force. In the ensuing weeks, Reagan met at the White House with Lebanon's new president and with an Arab League delegation, as the administration renewed efforts to gain the withdrawal of all foreign troops from Lebanon and to achieve an overall Middle East peace settlement.

Reagan continued a hard-line approach in relations with the Soviet Union, but he took a more conciliatory line with China. Since late 1981, the United States had promised a gradual reduction in arms sales to Taiwan if China continued to use only peaceful means to try to reunite the island with the mainland. U.S. backers of Taiwan complained that Reagan was turning his back on an old ally. Reagan did continue arms sales to Taiwan this year to show his support for that nation. However, in a joint communiqué issued with China in August, the United States agreed not to increase arms sales to Taiwan.

Reagan's statement at a March 31 news conference that the Soviet Union had a 'definite margin of superiority' over the United States in strategic arms drew criticism from some members of the U.S. Senate. The statement came as political sentiment seemed to be growing in favor of a mutual Soviet and U.S. freeze in nuclear weapons stockpiles. In early April, Reagan announced that he would address the United Nations disarmament conference in New York City in June, and he invited Soviet leader Leonid Brezhnev to do so as well and to join him in an informal meeting. Reagan did address the UN—for the first time—on June 17, but Brezhnev did not appear.

In a major speech delivered at his alma mater, Eureka College in Illinois, Reagan on May 9 proposed a significant reduction in the number of nuclear warheads held by both the Soviet Union and the United States. The proposal paved the way for Strategic Arms Reduction Talks, or START, which opened in Geneva in late June and replaced the Strategic Arms Limitation Talks, or SALT. However, in July it was announced that Reagan would not seek renewed negotiations on a comprehensive nuclear test ban.

Reagan continued to seek ways to punish the Soviet Union for its occupation of Afghanistan and its support of martial law in Poland. In a move that angered U.S. allies in Europe as much as the Soviets, he decided on June 18 to impose sanctions against foreign firms using U.S. goods or technology to supply equipment for the Soviets' natural gas pipeline from Siberia to Western Europe; an embargo on exports of such material from the United States had been imposed in December 1981. The sanctions, coming shortly after the seven-nation economic summit conference at Versailles, France, were defied by France, West Germany, Italy, and Great Britain. In light of his pipeline policy, the Europeans were even more annoyed when Reagan continued U.S. grain sales to the Soviet Union. On the advice of Secretary of State Shultz, Reagan ended both the embargo and the sanctions in November.

In another foreign policy move, the president proposed a Caribbean Basin Initiative to provide trade and investment incentives and an additional $350 million in economic aid for the area, which Reagan said was vital to U.S. strategic and commercial interests. The funds were approved by Congress as part of the $14.1 billion supplemental appropriations bill.

Social issues.

Throughout 1981 and much of 1982, many of Reagan's conservative supporters were discouraged by the president's concentration on economic matters rather than on so-called social issues, which encompass such controversial areas as abortion and school prayer. Although Reagan did address these issues this year, little progress was made on the legislative level.

Reagan aroused controversy in January when the Justice and Treasury departments announced that tax-exempt status would be accorded to nonprofit institutions regardless of their racial policies. Following severe criticism, the White House announced that Reagan would ask for specific legislation to outlaw exemptions for schools with racially discriminatory admission policies.

The president also ran into problems regarding civil rights when objections were raised about his nominees for two high government posts. In February, the names of the two men—William M. Bell, nominated to head the Equal Employment Opportunity Commission, and the Reverend Sam B. Hart, nominated as a member of the Civil Rights Commission—were withdrawn. The president was also criticized for initially opposing the extension of the Voting Rights Act, which he signed in late June.

In April, Reagan called for legislation that would allow parents to claim tax credits for tuition payments to private schools. Opposed by some as an unconstitutional government support of religion (since most private schools are church affiliated), the bill that was drafted remained locked in committee late in the year.

In another area, the president on May 6 announced his support for a constitutional amendment allowing voluntary prayer in public schools. (Organized prayer has been prohibited in public schools since 1962, following a Supreme Court ruling.) Reagan sent his proposal to Congress later in the month. While he continued to prefer such an approach, he offered no opposition to a measure sponsored in the Senate by Jesse Helms (R, N.C.) in September, despite Justice Department doubts about its constitutionality. The Helms bill, attached as a rider to legislation on raising the national debt ceiling, would bar the Supreme Court from ruling on the constitutionality of school prayer. The Senate voted to shelve the measure.

Also attached as an amendment to the debt limit bill was another Helms measure that would ban federal financing for abortion unless the mother's life was in danger. Reagan, who had long opposed abortion, backed the proposal. On September 15, the Senate voted to table the measure, effectively killing it.

Elections.

The November elections were widely regarded as a test of Reagan's policies and, at least, were bound to have an impact on his ability to win future support for his programs in Congress. The president stumped in 13 states, defending his economic program and urging voters to 'stay the course' and elect Republican candidates. In the elections, the GOP suffered substantial setbacks in the House but managed to hold on to a majority in the Senate.

A few days after the election, Secretary of Energy James B. Edwards left the cabinet to become president of a South Carolina medical college; Reagan nominated Under Secretary of the Interior Donald P. Hodel to replace him. Reagan also persuaded his close friend Senator Paul Laxalt (R, Nev.) to become the new chairman of the Republican National Committee.

CONGRESS

The search for a compromise with the economic course charted in President Ronald Reagan's first year dominated most of the second session of the 97th Congress. That search was conducted, nevertheless, generally on the president's terms, which included a continuation of the administration's massive military spending program, cutbacks in most other federal programs and services, and insistence on the full three-year, 25 percent cut in individual income tax rates enacted in 1981. The nationwide recession, with accompanying unemployment that reached 10.4 percent in October, lingered during the year despite Republican predictions that an upturn was on the way. The recession and such other economic concerns as mounting budget deficits helped to table a plan for a 'new federalism,' proposed by the president in his State of the Union address, that involved transferring many federal welfare programs to the states in exchange for a federal takeover of medicaid.

In an election year, Congress took the politically dangerous step of approving a massive tax increase. The measure, drafted initially without White House backing and passed with bipartisan support, reflected in part a desperate attempt to reduce the budget deficit. For the first time, conservative GOP House members broke with the president, ending the remarkable Republican Party unity that had prevailed since Reagan took office.

Action on the annual appropriations bills—through which Congress had to follow up its overall spending directives by funding specific programs—fell behind schedule, and the president asked members to return November 29, after the election recess, for a lame-duck session to deal with the appropriations morass. In the weeks before the recess, Congress handed Reagan the first major legislative defeats of his presidency. These included enactment, over his veto, of a $14.1 billion supplemental funding bill, which the president had called a 'budget buster'; rejection of measures supported by the president and conservatives that would have, in effect, sharply restricted abortions and encouraged voluntary prayer in the public schools; and defeat of one of the president's key 1980 campaign planks—a constitutional amendment requiring annual balanced federal budgets.

Budget and spending.

The adoption of a budget and the authorization of spending involves four laborious legislative procedures: a budget resolution, setting overall goals for outlays and receipts; reconciliation, the determination of ways to increase receipts or cut spending by definite amounts to meet the budget goals; the adoption of revenue measures, or tax bills; and the approval of appropriations.

Budget resolution.

After much posturing, Congress accepted the bulk of President Reagan's fiscal 1983 spending plan, based on cutbacks in many welfare and benefit programs and an acceleration in spending on defense. The budget resolution's projected deficit of $103.9 billion was the highest ever contemplated. (The nonpartisan Congressional Budget Office projected the deficit even higher, at $116.4 billion.) For this and other reasons, none of the parties involved were enthusiastic about the resolution, which had taken five months to fashion.

The president's original budget request ($757.6 billion) was too high even for most Republicans to stomach: the proposed deficit reduction measures ($55.9 billion, largely from spending cutbacks), military budget ($221.1 billion, an increase of $33.6 billion over the previous year), and deficit ($91.5 billion as originally projected) were all considered too drastic. As a result, Congress spent the spring trying to find a formula for social program cutbacks, defense increases, and a deficit level that could win majority support. The key roadblock was the House, where eight alternative budgets were rejected in May. In June, Republicans finally regained enough party discipline and support from the so-called boll weevils—Democrats who had voted consistently with the GOP in 1981—to eke out a 220-207 victory on a budget resolution, after defeating a Democratic plan, 225-202. Only 15 Republicans voted against the Republican version, while 46 Democrats joined the Republicans. The necessary support was achieved by cutting the deficit below the symbolically important $100 billion level. The Senate had passed a different version in May, with a higher deficit, by a 49-43 vote. The budget compromise, imposing a spending ceiling of $769.8 billion and setting the deficit at $103.9 billion, narrowly survived a final House vote (210-208).

Budget reconciliation.

The next step in the budget process, known as reconciliation, involved compliance by legislative committees with the approved spending ceiling; this entailed making painful program cutbacks to achieve savings in projected outlays. President Reagan had used the reconciliation process to great advantage in 1981 to achieve savings totaling $35.2 billion in domestic programs. The goal was less ambitious this year, and the savings achieved for fiscal 1983 came to only about $7 billion, in two reconciliation measures. But spending cutbacks, difficult for lawmakers under ordinary circumstances, were even more risky in an election year. Components of the $7 billion savings included tightened eligibility standards in the medicare and medicaid programs (saving, respectively, $2.8 billion and $275 million) and reductions in benefits under the Aid to Families With Dependent Children ($85 million) and the Supplemental Security Income ($116 million) programs. In a major break with past practices, Congress also limited inflation adjustments for certain federal retirees. Other steep cuts were made in dairy price supports, food stamps, veterans' benefits, and the Federal Housing Administration's home loan programs. Spared any cuts were the social security system and, as a result of heavy lobbying, the guaranteed student loan program.

Tax increase.

The second reconciliation bill also was the vehicle for a $98.3 billion increase in taxes over three years (1983-1985). The president had been reluctant to commit himself to a tax increase, especially in an election year and so soon after having won in 1981 the biggest tax cut in U.S. history. However, by spring, when the size of the impending deficit was beginning to unfold, Reagan was pressured by the leadership of both parties to back a general tax increase unrelated to the 1981 tax cut. Negotiations on the specifics of the increase lasted most of the summer, and Congress cleared the measure August 19.