history: usa - reagan - reaganomics

Similarities between Reagan's policies to those of 1920s republican gov

- Reduction of "big gov"
- Anti-union
- Allowed for the creation of big businesses which could then monopolise areas of industry
- Tax reductions - both reduced top-level personal tax rates from 70% to 25% and made business tax concessions
- New industries flourished (car and technology) while farming and mining suffered
- Created economies where wealth was concentrated at the top
- Encouraged financial speculation and had stock market crashes as a result of this
- Rugged individualism

Reagan's beliefs

- Christian
- Opposed homosexuality and abortion
- Believed in traditional family values and prayer in schools

Supply-side economic theory

- Argued that the economy was not driven by consumer demand but by keeping up production and encouraging saving and investment.
- Believed restraints on production should be removed
- Money would trickle down from rich to the poor

Reagan's budget plan

- Wanted to present his whole budget policy through to 1984 as a single bill and present another tax bill
- Congress had to vote on the whole package of spending cuts

4 key areas of Reagan's Program for Economic Recovery

- Cutting federal deficit
- Personal and business tax reductions
- Deregulation
- Planned control of money supply

Cutting federal deficit

- Accompanied by a budget bill and a proposal for cuts on domestic spending
- Budget bill aimed to reduce federal deficit from 22% of GNP in 1981 to 19% in 1986

Personal and business tax reductions

Accompanied by the Economic Recovery Tax Act of 1981

Deregulation

The lifting of government restrictions on business, industry, and professional activities

Planned control of money supply

Keep inflation down while expanding the economy

How many democrats were in the HoR in 1981

26

What one change did the Senate pass the tax reduction with?

30% to 25%

Democrat reaction to the tax reduction bill in the HoR

They felt they had been manipulated over the budget and saw the tax bill as a fight over control of the HoR

President's Economic Advisory Board

- 1981
- Economic experts from outside gov. to advise the president

Economic Recovery Tax Act (ERTA)

- 1981
- Cuts marginal income tax by 23% over three years
- Links tax bands to inflation and offers other incentives

Omnibus Budget Reconciliation Act (OBRA)

- 1981
- Proposes a variety of tax cuts that will take $35 billion out of federal spending
- Initial bill had proposed $45 billion-worth of tax cuts

Tax Equity and Financial Responsibility Act (TEFRA)

- 1982
- Makes changes to the budget in response to the economic situation, tightening up tax rules

Consolidated Omnibus Budget Reconciliation Act (COBRA)

- 1986
- Revises the budget to save the federal gov. money and to move costs to state or private bodies
- Most significant change shifts responsibility for healthcare payments from federal gov. to the employer

Tax Reform Act

- 1986
- Revises tax codes
- Reduces number of tax brackets
- Aims to close a lot of tax evasion loopholes and ease the pressure on poorer families

Impact of his policies on unemployment

Unemployment rates went from 7.1% in 1980 to 9.6% in 1983. Then from 1983 unemployment rate fell to 5.2%. (But people unable to work not included in the data, e.g. mentally ill)

Impact of his policies on inflation

Inflation which had been 13.5% in 1980, began to fall to 3.5% in 1988 (with a recession in 1981 and 1982)

Impact of his policies on personal wealth

- Tax cuts made many rich people richer
- Poorest did not benefit - tax cuts for rich were the largest therefore they benefited the most

Did the policies reduce the deficit?

- No
- In 1980, federal deficit was $59 billion; paying it off cost 9% if federal spending
- In 1983, federal deficit was $208 billion, taking nearly 14% of federal spending in loan interest payments
- USA became a borrowing nation
- Defence spending rose from 23% to 28% of federal spending from 1980 to 1987

How much money did the rich have by the mid 1990s

Richest 1% had 40% of the nation's wealth

Reagan's legacy

- Taxes had been cut, but in 1988 Americans only paid marginally less of their taxation than in 1980
- Failed to reduce gov. intervention in economy
- Large budget deficits
- Proportion of Americans living below the poverty line fell from 13% in 1980 to 12.8% in 1989

how much did GNP expand by from 1982 to 1989

30%