Even though Reagan's tax cut was passed before the recession of 1981 began, its impact wasn't even felt until 1983 when the recovery had already begun. A policy change that might have stimulated even more consumption, such as the passage of extended unemployment benefits, did not occur in 1981. 13 Lessons learned The experience of the 1981-83 recession contrasts sharply with the policy changes made in response to the 1975 recession. It also was not combined with significant expansion of transfer payments in the form of unemployment compensation, as Ford's tax cut was. Consumption is the main driving force that can get the economy out of a slump.
Investors are notoriously conservative.
Once they get spooked by a recession, they usually wait for consumption to rise again before committing to new investment projects. Investment as a percentage of GDP usually doesn't rise until long after a recovery is underway. The past tax cuts show that Ford's cut induced an investment recovery within one year, while the Reagan tax cut failed to induce any recovery for almost two. The parallels between President Bush's proposal and Reagan's earlier failure are indisputable. Like Reagan, Bush's plan was designed well before the current signs of economic slowdown.