Reagan nimbly adjusted to the political setbacks of 1982. Following the rejection of his social security proposals, Reagan appointed a bipartisan panel to consider changes to the program. In early 1983, the commission recommended a onetime delay in cost-of-living increases, a new requirement that government employees pay into the system, and a gradual increase in the retirement age from sixty-five to sixty-seven. The commission also proposed raising state and federal payroll taxes, with the new revenue poured into a trust fund that would transform social security from a pay-as-you-go system to one with significant reserves.45 Congress quickly passed the recommendations into law, allowing Reagan to take credit for strengthening a program cherished by most Americans. The president also benefited from an economic rebound. Real disposable income rose 2.5 percent in 1983 and 5.8 percent the following year.46 Unemployment dropped to 7.5 percent in 1984.47 Meanwhile, the “harsh medicine” of high interest rates helped reduce inflation to 3.5 percent.48 While campaigning for reelection in 1984, Reagan pointed to the improving economy as evidence that it was “morning again in America.”49 His personal popularity soared. Most conservatives ignored the debt increase and tax hikes of the previous two years and rallied around the president.
The Democratic Party, on other hand, stood at an ideological crossroads in 1984. The favorite to win the party’s nomination was Walter Mondale, a staunch ally of organized labor and the civil rights movement as a senator during the 1960s and 1970s. He later served as Jimmy Carter’s vice president. Mondale’s chief rivals were civil rights activist Jesse Jackson and Colorado senator Gary Hart, one of the young Democrats elected to Congress in 1974 following Nixon’s downfall. Hart and other “Watergate babies” still identified themselves as liberals but rejected their party’s faith in activist government and embraced market-based approaches to policy issues. In so doing, they conceded significant political ground to supply-siders and conservative opponents of the welfare state. Many Democrats, however, were not prepared to abandon their New Deal heritage, and so the ideological tension within the party played out in the 1984 primary campaign. Jackson offered a largely progressive program but won only two states. Hart’s platform—economically moderate but socially liberal—inverted the political formula of Mondale’s New Deal–style liberalism. Throughout the primaries, Hart contrasted his “new ideas” with Mondale’s “old-fashioned” politics. Mondale eventually secured his party’s nomination but suffered a crushing defeat in the general election. Reagan captured forty-nine of fifty states, winning 58.8 percent of the popular vote.50
Mondale’s loss seemed to confirm that the new breed of moderate Democrats better understood the mood of the American people. The future of the party belonged to post–New Deal liberals like Hart and to the constituency that supported him in the primaries: upwardly mobile, white professionals and suburbanites. In February 1985, a group of centrists formed the Democratic Leadership Council (DLC) as a vehicle for distancing the party from organized labor and Keynesian economics while cultivating the business community. Jesse Jackson dismissed the DLC as “Democrats for the Leisure Class,” but the organization included many of the party’s future leaders, including Arkansas governor Bill Clinton.51The formation of the DLC illustrated the degree to which to the New Right had transformed American politics: New Democrats looked a lot like old Republicans.
Reagan entered his second term with a much stronger mandate than in 1981, but the Grand Old Party (GOP) makeover of Washington, D.C., stalled. The Democrats regained control of the Senate in 1986, and Democratic opposition prevented Reagan from eliminating means-tested social welfare programs, although Congress failed to increase benefit levels for welfare programs or raise the minimum wage, decreasing the real value of those benefits. Democrats and Republicans occasionally fashioned legislative compromises, as with the Tax Reform Act of 1986. The bill lowered the top corporate tax rate from 46 percent to 34 percent and reduced the highest marginal income tax rate from 50 percent to 28 percent, while also simplifying the tax code and eliminating numerous loopholes.52 The steep cuts to the corporate and individual rates certainly benefited wealthy individuals, but the legislation made virtually no net change to federal revenues. In 1986, Reagan also signed into law the Immigration Reform and Control Act. American policy makers hoped to do two things: deal with the millions of undocumented immigrants already in the United States while simultaneously choking off future unsanctioned migration. The former goal was achieved (nearly three million undocumented workers received legal status) but the latter proved elusive.
One of Reagan’s most far-reaching victories occurred through judicial appointments. He named 368 district and federal appeals court judges during his two terms.53 Observers noted that almost all of the appointees were white men. (Seven were African American, fifteen were Latino, and two were Asian American.) Reagan also appointed three Supreme Court justices: Sandra Day O’Connor, who to the dismay of the religious right turned out to be a moderate; Anthony Kennedy, a solidly conservative Catholic who occasionally sided with the court’s liberal wing; and archconservative Antonin Scalia. The New Right’s transformation of the judiciary had limits. In 1987, Reagan nominated Robert Bork to fill a vacancy on the Supreme Court. Bork, a federal judge and former Yale University law professor, was a staunch conservative. He had opposed the 1964 Civil Rights Act, affirmative action, and the Roe v. Wade decision. After acrimonious confirmation hearings, the Senate rejected Bork’s nomination by a vote of 58–42.54