Introduction
Reaganomics is a term widely used to refer to the economic policies of President Ronald Regan. Critics have labeled the policy as trickle-down economics. “Reagan presented the idea of investing in the top echelon of the society, or cutting taxes to corporations, will be of economic benefit to all, allowing corporations to make more money, ignite new growth and therefore employ more workers.” (Krugman, 2008)
To achieve the economic policy change Reagan’s 1981 plan had four major 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.”(Krugman, 2008). “The policy objectives outlined were never achieved to the maximum and thus led to more harm than good, at least as it is claimed by critics.” (Krugman, 2008). This article seeks to describe the social, economic, and political composition of Reaganomics and the decade of corporate greed and how it affected the political climate of the 1980s.
Origin of Reaganomics
Ronald Reagan was elected in 1980 as the 40th president of the united states. The Reaganomics concept stemmed from his election campaigns; to reduce tax rates and to have a downsized government. This was captured in a policy Framework during his first year in office. “The policy objectives were; to reduce government spending, reduce marginal tax on income from labor and capital, reduce government regulation of the economy and control the money supply to reduce inflation.”(Troy, 2005).
Implementation
The Reaganomics plan was implemented gradually throughout President Reagan’s Term. “In January 1981, Reagan lifted remaining petroleum price allocation controls and lowered the Oil windfalls profit tax, thus helping end the energy crisis of 1979.”(Niskanen, 1988). Corporate taxes were cut significantly, personal tax brackets were also cut. The top echelon of the society went from paying about 70% in taxes to approx 28%. Cuts were mainly levied against Social programs such as education.
Economic Benefits and achievements
The income tax was rates were successfully dropped, for instance, from 70% to 28% in 7 years. “Increase in the payroll taxes was achieved”(Troy, 2005). “The United States GDP recovered marginally after the recession witnessed in 1982 at an annual growth of 3.4%” (Troy, 2005).
Despite unemployment rising to over 10.7% in 1982, this dropped for the rest of Reagan’s term. (Troy, 2005). The annual inflation rates dropped significantly, “federal spending declined from 4% during the Cater administration,” despite a record peacetime increase in defense spending (Krugman, 2008).
A significant increase in employment by up to 16 million jobs was realized. “The oil windfall profits tax was subsequently ended in 1988 due to the 1980’s oil glut.”(Krugman, 2008). Under Reagan, many major industries such as “airlines banking and railroads were deregulated.”(Niskanen, 1988).
The American economy did better than any other pre- or post- Reagan years. Median family income grew by $4,000, during Reagan Era and afterward decreased by $1500. Interest Rates, Inflation, and Unemployment decreased faster than pre- and post-Reagan years. Productivity Rate increased, declined and then stayed the same.
Challenges and Criticism
The reduction of the taxes for the top echelon created tax favoritism perception. This led to the “Tax reform act in 1986 which sought to broaden the tax base and reduce the perceived tax favoritism.”( Niskanen, 2005). The policies were described as “ Trickle-down economics” due to the large cuts in tax rates for the upper class. (Troy, 2005). “Tax rates for people in the lower-income class rose, creating an impression that Reaganomics was not of benefit to them.”(Krugman, 2008). The US trade deficit expansion “contributed to savings and loan crisis.”(Troy, 2005). The “US debt during Reagan’s presidency rose from $700 billion to over $3 trillion due to different forms of economic crisis hitting the country and due to compensation for much lower tax on high-income brackets taxpayers.” (Krugman, 2008). Reaganomics seemed to reduce people’s ability to save money
Many analysts believe that Reaganomics removed regulation mechanisms applied to industries, and thus augmented corporate greed. Reagan left three Adverse legacies. First, the increase in the federal debt, secondly, the failure to address the savings and loan problem and lastly increase in the US imports subject to some form of trade restraint increased from 12% in 1980 to 23% in 1988. (Troy, 2005).
Political and social implications
Reaganomics had a wide-ranging impact on American society. The reduction of corporate tax sparked new growth momentum that transformed the cautious “American consumer through new technologies, ideologies, and bureaucracies, along with revolutions in economics, marketing, advertising, and conceptions of leisure” (Niskanen, 1988). This defined Reagan’s Political success, critics have labeled Reagan’s vision as more of an image-making exercise.
The increase in the “Governments debt from $700 billion to $ 3trillion was the greatest disappointment of Reagan’s presidency” and has been used by his critics to discredit Reaganomics. (Troy, 2005). “Some viewed Reagan’s Policies as disadvantageous the to the dispossessed, in general, and to black Americans” (Troy, 2005).
Some other analysts believe Reaganomics worked well for the disadvantaged as it stressed American “Values such as hard work, thrift, independence, and freedom of choice.” (Niskanen, 1988). In the end, many began to view the “world from Reagan’s perspective and thus the 1980’s decade is considered as a boom of time values by many.” (Krugman, 2008).
References
- Krugman, P. (2008). The conscience of a Liberal: Reaganomics.
- Niskanen, W. (1988). Reaganomics.
- Troy, G. (2005). How Ronald Reagan Invented the 1980’s.