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Reganomics

When Ronald Reagan entered the White House in 1981, he immediately put into effect a dramatic new economic policy that came to be known as “Reaganomics”. Republicans describe Reagan’s period as an “era of prosperity- a decade when America reasserted its economic and military might” (Moore 1). Democrats, on the other hand, would accuse Reaganomics of causing huge budget deficits, economic decline, and wider income gaps between the rich and poor. There is no denying that the deficit increased significantly from 1980 to 1988, but many other positive economic changes also occurred during that period. Although Reagan could not achieve all of his economic goals, the nation and its economy ultimately benefited from his policies.

Reaganomics had four main policy objectives: “(1) reduce the growth of government spending, (2) reduce the marginal tax rates on income from both labor and capital, (3) reduce regulation, and (4) reduce inflation by controlling the growth of the money supply” (Niskanen 1). The goal of these objectives was to increase savings, investment, and economic growth. Balancing the budget, restoring healthy financial markets, and reducing inflation and interest rates were also key

Not unlike the tax cuts Bush proposed this year, Reagan’s were accompanied with heavy criticism from the democrats. They believed that these tax cuts would cause the government’s balance sheet to suffer, the national debt to increase, and the gap between the rich and poor to become wider. It is a fact that the debt did double during the 1980’s, however it is not clear that the increase was a direct result of Reaganomics. “Real federal revenues grew at a faster pace after the Reagan tax cuts than after the Bush and Clinton tax hikes. From 1982 to 1989, they expanded by 24.1 percent” (Moore 5). Also, when Reagan began his term in 1981 federal revenues as a share of GDP were 20.2 percent. In 1984 they fell to 18.0 percent of GDP, and in 1989 rose back up to 19.2 percent. The lack of sizeable discrepancy “would suggest that Reagan tax cuts were a small contributing factor to the increase in the budget deficit over the course of the 1980’s” (Moore 5). The argument that Reagan’s tax cuts caused the rich to get richer and the poor to become poorer does not stand up to the facts. “From 1981 to 1989, every income quintile- from the richest to the poorest- gained income” (Moore 9) and the reason the wealthiest American’s income rise was more noticeable was because it happened at a faster pace. Data shows that 86 percent of households that were in the poorest income quintile in 1980 moved up to a higher income level by 1990. Also by that time the number of America