First, increasing spending while cutting taxes is not libertarian. If the government spends more than it takes in, it will have to print or borrow the money to make up the difference. If the government prints the money, then taxpayers suffer an "inflation tax" that may be even more destructive than an ordinary tax. If the government borrows the money, then future citizens will have to repay the loans through future taxes or inflation (unless the government repudiates the debt). And, of course, all government spending siphons resources from the private sector, which, in turn, results in fewer consumer goods produced, which makes society worse off.
Second, Reagan did not effectively cut taxes. Reagan did sign a tax cut in 1981, which went mostly to the wealthy minority, but this cut was immediately offset by an increase in Social Security taxes and by the effects of "bracket creep," as inflation pushed people into higher tax brackets. (Also, rather than take the libertarian step of eliminating mandatory social security, Reagan "saved" it by forcing working people to pay more.) After that, Reagan continued to effectively raise taxes by "closing loopholes" over the course of his presidency. No wonder, then, that government revenues increased from $517 billion in 1981 to $1.031 trillion in 1989 – not what one would expect under a libertarian regime committed to cutting government.
What about deregulation? The major deregulations for which Reagan is sometimes credited – oil and gas industry deregulation, airline deregulation, trucking deregulation – were in fact enacted under the Carter Administration, which was perhaps more libertarian than the Reagan Administration, if results count. Carter’s deregulation conveniently took effect just in time for Reagan to take credit. But as Murray Rothbard put it, "The Gipper deregulated nothing, abolished nothing. Instead of keeping his pledge to abolish the departments of Energy and Education, he strengthened them and even wound up his years in office adding a new Cabinet post, the Secretary of Veterans Affairs."
Reagan and the Libertarian Movement
So the Reagan years were bad for liberty – and they were also bad in many respects for the libertarian movement. Anti-government sentiment had grown during the 1970s as a result of various factors, including Vietnam, Watergate, and disastrous economic policies. Reagan tapped into this anti-government sentiment and then used his position not to advance liberty but to restore respect for government and prompt a resurgence of militarism and flag-waving nationalism