- Reaganomics refers to the economic policies of Ronald Reagan, the 40th president of the United States of America. We're going to take a look at the economic policy that still affects your paycheck to this day. When Ronald Reagan was elected to be the 40th president of the United States in 1980, the nation's economy had been in a state of great inflation since 1965.
The decade leading up to Reagan's presidency was characterized by something called stagflation, where prices were rising even as unemployment remained high and economic growth was slow or stalled. This not only damaged the US economy, but economies around the world. Reagan's solution was an economic plan that became to be known by his supporters and critics alike as Reaganomics.
Reaganomics was heavily based on the trickle-down theory. This argues that if you lower costs for corporations by cutting their taxes, businesses use those savings to invest. The thinking was more money for corporations would mean more jobs and higher wages for workers and thus, increase spending.
But trickle down is a controversial idea. Opponents argue that when corporate taxes are cut, domestic social programs suffer. And most likely, only a small handful of rich individuals at the top become even richer.
Reaganomics wasn't just about tax cuts. The policy had three other central points-- deregulating businesses, turning government services over to private contractors, and decreasing spending on domestic social programs, including food stamps, Social Security, and disability insurance. During his presidency Reagan signed two tax bills into law, one in 1981 and the other in 1986.
As a combined result of the 1981 and 1986 bills, the top income tax rate was slashed from 70 to 28%, the lowest income tax rates for the rich since the 1920s. Reagan's policies were highly debated, and economists still argue about the pros and cons of Reaganomics in terms of both immediate and lasting effects. Proponents argue that by 1983, the nation's economy had started to recover from stagflation.
This led to a period of economic prosperity that continued through the rest of Reagan's presidency, though another recession soon followed after he left office. But critics argue that based on a normal economic cycle, the economy would have recovered from the recession on its own, without Reaganomics. Critics also point out that Reaganomics led to larger, not smaller, budget deficits and a larger national debt.
Many people say Reagan giving corporate tax cuts while cutting funding for domestic social programs was a policy that favored the rich and led to increased wealth inequality. While Republicans tend to reference Reaganomics as exemplary policies, Democrats almost always bring it up as an example of corporate greed that hurts the middle and working classes. Either way, it remains a defining part of Ronald Reagan's presidency and legacy.
