Reagan's approval ratings fell after his first year in office, salvaged in part from his survival of an assassination attempt in 1981. When the economy initially failed to recover from Reagan's policies, his re-election was far from certain. But in 1983 the United States began to emerge from the recession, and Reagan's approval ratings began to trend upward. In the 1984 Democratic presidential primaries former Vice President Walter Mondale ultimately won his party's nomination. Mondale's selection of Congresswoman Geraldine Ferraro as his running mate elevated the campaign's profile, with Ferraro becoming the first female major party vice presidential nominee in U.S. history. Mondale campaigned by attacking a number of Reagan's policies, including on the environment, Social Security, nuclear arms, civil rights, and other issues. He portrayed the Reagan administration as beholding to the wealthy. He also criticized the federal debt which had grown under Reagan, despite the president portraying himself as a fiscal conservative.
Reagan campaigned as an incumbent. As the campaign went on, some in the media began to question Reagan's ability to perform the duties of his office, especially after his weak performance in the first presidential debate, in which he appeared confused and forgetful at times. Rumors began to circulate that he had Alzheimer's disease. But Reagan was able to deal with this issue with a better performance in the second debate. When confronted about his age by the moderator, he quipped, "I will not make age an issue of this campaign. I am not going to exploit, for political purposes, my opponent's youth and inexperience." The remark was met with applause and laughter, and from Mondale himself had to chuckle.
With this issue put to rest, and an improving economy, polling numbers consistently showed Reagan strongly in the lead, one that Mondale was unable to surmount. Reagan won re-election, winning 49 of 50 states. Mondale carried only his home state of Minnesota and the District of Columbia. Reagan won a record 525 electoral votes, and received 59% of the popular vote to Mondale's 41%. Reagan's support improved among white Southern voters, Catholic voters, voters between the ages of eighteen and twenty-nine, and voters over the age of sixty.
Making meaningful legislative change was a challenge for Reagan, without an ability to control Congress. In 1985, Reagan made simplification of the tax code the focus of his second term domestic agenda. Working with Democratic Speaker of the House Tip O'Neill, who also favored tax reform, Reagan was able to get the Tax Reform Act of 1986 passed. The act simplified the tax code by reducing the number of tax brackets to four and slashed a number of tax deductions. The top rate was dropped to 28%, but capital gains taxes were increased on those with the highest incomes from 20% to 28%. As a result, six million lower income Americans fell off the income tax roll. The net result was that overall tax revenue remained at about 19% of gross national product.
Going into the mid-terms, Reagan was still personally popular and he had a 67% approval rating. He campaigned diligently for congressional Republicans, but despite his best efforts, he was unable to overcome what is known as the "six year itch" (the phenomenon in which the President's party loses seats in the mid-terms in the sixth year of the presidency). Reagan's efforts likely cut the losses that his party might otherwise have experienced. Republicans only lost 4 seats and Democrats gained 5, but at the end of the day the Democrats retained a strong hold on the House, with 258 seats to 177 for the Republicans.
Senate Republicans faced a difficult time that year. They had to defend 22 of the 34 seats up for election. Republican losses in the Senate occurred in the South and in the farm states. The Republicans lost 8 seats, all of which were picked up by the Democrats and as a result, the party lost control of the Senate. After the mid-terms, the standings were 55 to 45 for the Democrats. The loss of the Senate effectively closed the door on the possibility of further major conservative legislation during the Reagan administration.