reaganomics

Reagan’s core values

individualism/hard work/laissez faire. Felt the government was too liberal

what did Reagan think about unions

anti union, felt it restricted business. membership of unions fell under his administration because he portrayed it to be ‘un-american’

strikers in 1981

13,000 air traffic went on strike - declared it illegal because they worked for the federal government and he threatened to sack them. He did when they didn’t return

Reagan on big corporations

keen on the monetization of certain areas of industry, didn’t believe in taxing too much - reduced businesses tax and top rate personal tax was reduced from 70% - 25%

expansion of new industries

car manufacturing and computing, old industries such as farming and mining massively suffered

financial crashes

1987 + 1990 because financial speculation on the stock market was encouraged

supply side economics

control government spending, reduce government involvement and cut taxes

what did reagan do when he first got into office

sacked many White House staff members, put a freeze on hiring new people, froze any new purchases of new office equipment + cut travel expenses by 15%

set up new advisory groups to find out where else he could cut expenditure

4 key parts of reaganomics

• cutting federal deficit

• personal and business tax reductions

• deregulation

• control of money supply

cutting federal deficit

spending cuts would amount to $74b, plan put together so quickly that there were many errors in the finances he proposed

personal and business tax reductions

accompanied by the economic recovery tax act 1981

economic recovery tax act 1981

introduced a major tax cut, which was designed to encourage economic growth + allowed people to set up untaxed retirement accounts - mainly benefited the wealthy

deregulation

planning on removing federal control of industry, state and local government

control of money supply

he wanted to keep inflation down while the economy expanded. wanted to apply spending cuts to Johnson’s Great Society reforms (repair highways/clean slums/initiatives for education/housing/families with dependent children)

did reagan’s budget pass

budget passed, tax bills passed, but senate wanted to reduce tax to 30% instead of 25% - offered enough concessions to Democrats to get 25%

1981 housing

set up a commission to look at housing, how to save money on federal housing schemes

1981 tax cuts

proposed a number of tax cuts that would reduce £35b of government spending

Reagan inflation

wanted to stop inflation - put pressure on a group called the Federal Reserve Board to restrict money supply - led to a sharp rise in interest rates and impacted many businesses

unemployment rates under Reagan

9.6% 1983 - 5% 1988

how did productivity increase

increased every year - people were saving and investing more + a lot of the deregulation led to increased competition

failures of Reagan (3)

• reagan spent huge sums of money on the “star wars” program to defeat Russians in Cold War

• defense spending went up from 23% - 28% (massively increasing national debt)

• increase in big companies (conglomerates) buying struggling businesses - led to an issue in terms of standards of physical and financial safety

banking restrictions 1983

restrictions lifted meaning banks could offer higher savings rates to customers - many savings and loans companies began to offer too high rates + began to fail

savings and loans collapse

1987, companies lost $10b

trade

buying power of $ reduced - foreign imports became cheaper and increased - US companies lost business, especially textiles where between 1980 + 1985, 250 workshops closed and 300,000 workers lost their jobs

problems 1981 - 2

total national debt was $1t - response was to introduce the Tax Equity and Fiscal Responsibility Bill (1982). many americans lost their jobs

tax equity and fiscal responsibility bill

1982 - reversed some of the 1981 tax concessions to businesses and increased taxes on cigarettes and airplane tickets

how much money was spent on defense between 1981 + 1984

$1.5t

Tax Reform Act

1986

• reduced the number of tax brackets from 14 to 2

• reduced tax rates - the highest tax rate went down from 50% to 28%

• exempted millions of low income families from tax payment

what was the national debt in 1986

$2t