Reaganomics Essay Research Paper ReaganomicsOn February 23

Reaganomics Essay, Research Paper

Reaganomics

On February 23, 1977, Congressman John Rousselot, a Republican from California, rose to his feet on the floor of the House of Representatives and said in a booming voice: Mr. Chairman, I offer an amendment as a substitute for the amendment in the nature of a substitute. It was a historic date, for that arcane legislative language marked the origin of Reaganomics (Roberts 7). Reaganomics has become somewhat of a political code for economist around the world. Why is the economy in such good shape is what the public is asking. The answer would be Reaganomics, a jumble of economic libertarianism, supply-side economics, and tax theory (Schwartzberg 303) devised by Arthur Laffer, was the actual beginning of the economic recovery enjoyed by Americans in the last two decades that Democrats have wrongfully been bragging about.

Throughout the 1980 presidential campaign, Republican candidate Ronald Reagan attacked the incumbent, Jimmy Carter, for the performance of the economy. He railed against the $40 billion deficit the Carter administration was running and promised to balance the budget if elected (Schwartzberg 303). Reagan offered new ideas to ease the stress on the businesses and on the public of America. Using a combination of his ideas and plans by a Arthur Laffer, a former University of Southern California economics professor (Walsh 222), Reagan got the public interested in what he had to say about helping the economy. Laffer believed that cutting tax rates would in turn increase the tax revenues. His Laffer Curve became a central tenet of supply-side economics (Walsh 222), which simply stated that:

At a 0 percent tax rate a government will receive no revenue, and at a 100 percent tax rate a government will receive no revenue, because no one will work if all wages go to the government. Therefore, there must be some tax rate between 0 and 100 percent that maximizes tax revenues (Bondi 1782).

The term supply-side economics was introduced, Because businesses and workers could keep a larger portion of their incomes, they would supply increased effort to productive endeavors; hence the term supply-side economics (Bondi 1782). Such measures as tax cuts and benefit cuts to the unemployed are basic supply-side tactics, with the intention of increasing the incentive to work and produce goods and services (Source 6 35741). Supply side theory suggested that steep tax cuts would lead to increased investments that would help build the economy, resulting in a larger tax base that would more than offset revenues lost by the tax cuts (Magill 67). Reagan, being very intrigued by this, made this the basis for his presidential campaign. Many compared it to the trickle down theory, which gave the idea that, tax breaks for the rich would eventually trickle down to the less fortunate (Magill 67). Reagan s proposals of balancing the budget, cutting taxes, and reducing the governments spending tempted most voters and helped lead to his election a s president.

The objective of the program, in the words of Ronald Reagan, was to Put the nation on a fundamentally different course a course leading to less inflation, more growth, and a brighter future for all of our citizens (Hulten 1). Reagan started on all his hopes for the country immediately after his election as the new president. His plan could be broken down into four central ideas, reduction in the rate of growth in federal spending, relief from the burden of government regulations, commitment to a policy of stable money growth, and broad reduction in personal and business income taxes (Hulten 1). Reagan began to construct a panel of experts such as, Norman B Ture, who was appointed Under Secretary of the treasury for Tax and Economic Affairs (Source 5 16). Ture also developed much of the technical analysis behind supply-side economics (Source 5 16). With the help of this panel Reagan began to put together what would become the largest tax cut in U.S. history (Source 4 162). The Economic Recovery Tax Act of 1981, called for immediate and large cuts income taxes. Reagan pressed for 30 percent tax cuts, but soon he got opposition. The Treasury department proposed a time of three years with a 10 percent cut every year. Reagan pushed and finally with that the rates of taxes for the highest income level were lessened form 50 percent to 33 percent. It was seen that more capital in the hands of the private sector will trickle down to the rest of the population (Source 6 35741). Reagan hoped that the tax cut would encourage savings, stimulate investment, generate productivity, and accelerate real economic growth (Roberts 22). After the triumph of the passing of the bill the president said, We have made a new beginning, if not a revolution (Source 4 162).

It is known that, Not since the first six moths of Franklin Roosevelt s Administration has a new President done so much of such Magnitude so quickly to change the economic direction of the nation (Source 4 162). In the start:

Real GNP rose 3.6 percent in 1983, the first year that the full tax cut went into effect, and 6.8 percent in 1984. The rate of inflation, which was in the high teens during the Carter years, fell to 3.2 percent in 1983 and 4.3 percent in 1984. The unemployment dropped from 7.1 Percent in 1980 to 5.5 percent by the end of Reagan s term (Bondi 1784).

Most of the effects of