Reagan's other prime economic contribution, in Shultz's view, was the 1986 Tax Reform Act, which sliced the top bracket income tax rate to 28 percent and banished many preferences and loopholes from the code. Although Stockman recalls Reagan staunchly defending tax subsidies, Shultz says that he underwent a conversion over the 1983 New Year's holiday. Shultz, by then secretary of state, was returning from a trip abroad when Reagan invited him to Palm Springs, Calif., where the president was visiting his long-time friend Walter Annenberg. "Bring your best thoughts along," Reagan said. Over the holiday, Shultz says, he convinced Reagan that cutting both tax preferences and marginal tax rates was "a real free lunch in a sense." Reagan told Shultz to tell Treasury Secretary Don Regan to tailor a plan to do just that.

The problem was paying for it all. Reagan continued to call the budget deficit a "clear and present danger to the basic health of our republic." But, says Anderson, "when it came down to a choice between deficits and national security or taxes, he said 'run the deficits.' " It was either an act of foolishness or an act of faith. Ultimately, Stockman forced his budget projections to show a surplus by resorting to "magic asterisks"—large, unspecified cuts in domestic spending. As he feared, the federal debt tripled to nearly $3 trillion by 1989. But, as Reagan trusted, recovery did come—though perhaps not as he envisioned. Neither investment nor productivity perked up as supply-siders predicted. The rise in federal spending, much of it defense dollars, sparked the economy.

At the same time, Reagan made a bold move to curb the power of labor unions—holding down inflation in the process. When federal air traffic controllers went on strike in the summer of 1981, Reagan simply fired them. Few labor economists now doubt the impact. "It was a watershed event," says Princeton labor economist Alan Krueger. He notes that while strikes had been declining, after 1981 "they plummeted and never recovered."

In the end, Reaganomics was a far more complex phenomenon than supply-side economics. Indeed, the man who coined the term, Herbert Stein, President Nixon's chief economic adviser, once wrote that it "could be interpreted to mean economics supplied to meet the demand of politicians to rationalize what they intended to do." As such, it left a permanent mark on the political debate: Now Democrats salute balanced budgets, says Shultz, while "the Fed's biggest critics are on the Wall Street Journal editorial page." It's an ironic twist like so many others in Reagan's life, just as he somehow managed to make the American presidency seem stronger at a time when a gunman's bullet made it more vulnerable: The day after the shooting, Reagan's popularity soared to almost 75 percent approval.

"The public responded with sympathy to his brush with danger," longtime aide Michael Deaver wrote in his autobiography. "But it was his refusal to dwell on it, the zest and humor with which he went about his recovery that I believe gave Reagan what amounted to carte blanche in his first term—his so-called Teflon coating. It was, at bottom, respect and affection for a 70-year-old man who thought nearly dying was no big deal. Living was."

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