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 one-time 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 65 to 67. 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. 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% in 1983 and 5.8% the following year. Unemployment dropped to 7.5% in 1984. Meanwhile, the “harsh medicine” of high interest rates helped lower inflation to 3.5%.

While campaigning for reelection in 1984, Reagan pointed to the improving economy as evidence that it was “morning again in America.” His personal popularity soared. Most conservatives ignored the debt increase and tax hikes of the previous two years. Reagan’s Democratic opponent in 1984 was Walter Mondale, Jimmy Carter’s vice president and a staunch ally of organized labor. In the Democratic primaries Mondale had faced civil rights activist Jesse Jackson and Colorado Senator Gary Hart, who rose to prominence in 1972 as George McGovern’s campaign manager and took office two years later as one of the “Watergate babies.” Jackson offered a thoroughly progressive program but won only two states. Hart’s platform—economically moderate but socially liberal—inverted the political formula of Mondale’s New Deal liberalism. Throughout the primaries, Hart contrasted his “new ideas” with Mondale’s “old-fashioned” labor-liberalism. Mondale eventually secured his party’s nomination but suffered a crushing defeat in the general election. Reagan captured 49 of 50 states, winning 58.8% of the popular vote.

Mondale’s loss demoralized Democrats. The future of their party belonged to post-New Deal liberals like Hart and to the constituency that supported him in the primaries: upwardly mobile professionals and suburbanites. In February 1985, a group of moderates and centrists formed the Democratic Leadership Council (DLC) as a vehicle for distancing the party from organizing labor and 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. The formation of the DLC illustrated the degree to which to the New Right had transformed American politics.

Reagan entered his second term with a much stronger mandate than in 1981, but the GOP makeover of Washington, DC stalled, especially after Democrats regained control of the Senate in 1986. Democratic opposition prevented Reagan from eliminating means-tested social welfare programs; however, 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% to 34% and reduced the highest marginal rate from 50% to 28%, while also simplifying the tax code and eliminating numerous loopholes. Both parties—as well as the White House—claimed credit for the bargain, but it made virtually no net change to federal revenues. In 1986, Reagan also signed into law the Immigration Reform and Control Act. American policymakers 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 were granted 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. 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 arch-conservative 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. African Americans read the nomination as another signal of the conservative movement’s hostility to their social, economic, and political aspirations.