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The book’s central indictment is that President Clinton, in submitting his welfare, budget, and tax bills from 1995-1997, “signaled surrender: the Reagan revolution was going to achieve its major goals.” The Reagan neoliberal program of small government, tax cuts, deregulation, free trade, and monetarist financial policies was more than just consolidated. In signing the Welfare Reform Bill of 1996 and the subsequent 1997 budget compromise, Clinton broke the back of the New Deal. The government commitment, however modest and poorly implemented, to protect the poor against the worst ravages of the market was thus ended. A central redistributional bargain crumbled as well: the top 20 percent of income earners in the United States would gain after-tax relief, while the bottom 20 percent of Americans would further suffer the marginalization of deepening poverty. The bulk of the text is devoted to a compelling examination of the neoliberal “revolution in economic policy” against postwar Keynesian demand management and welfare policies. Meeropol emphasizes the policy continuity between Reagan and Clinton over the chimerical differences of presidential campaigns.
Meeropol’s story of the right-wing ascendancy begins in 1979 when Federal Reserve Chairman Paul Volcker began one part of the economic counterrevolution against the New Deal. Volcker imposed the stringent monetarist anti-inflation policies that persisted into the 1990s. Formally, the Federal Reserve simply moved from the so-called targeting of interest rates according to aggregate demand conditions, to concentrate on controlling the aggregate movements of the money supply and letting the markets determine the rates. As a consequence of the tightening of money supply growth the prime rate rose to 12.5 percent by 1981, with the Fed fund rate eventually peaking at 19.1 percent. Rather than oppose such monetary policies, as administrations had done so often in the past, Reagan supported the Fed’s stance. According to Meeropol, monetary policy was now safely in the hands of neoliberal ideologues and financial interests.
Reagan’s tax and budgetary policies put in place the other part. In contrast to the sentiments of the New Deal, Reagan propounded that “the most important cause of our economic problems has been the government itself.” The cure prescribed combined tax cuts to increase market incentives and cuts in overall government spending (with the crucial exemption of the military). The Budget and Reconciliation Act of 1981 began a long series of program cuts, and expanded means testing of entitlements, while introducing across-the-board tax cuts that favored the redistribution of income to the rich. The key measure, whose legacy continues to this day in a process of competitive taxation pressures between jurisdictions, was the Recovery Tax Act of 1981. It cut personal income tax brackets, particularly in the highest brackets, and accelerated capital depreciation, substantively “shifting the burden away from capital income.” Meeropol details other measures of the neoliberal counter-revolution of Reagan’s first term: tax bracket indexation, deregulation of monopolistic industries, reversal of equal employment initiatives, reduction of welfare benefits, and cuts to food stamps and other welfare supports.
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