Ronald Reagan's Economic Policies
Levi D. Hensiek
Florida State College of Jacksonville
Ronald Reagan's Economic Policies
On January 20, 1980, Ronald Reagan took office as the president of the United States of America. In his inaugural address, he called on Americans to “Begin an era of national renewal.” and reiterated his campaign phrase “government is not the solution to our problem, government is the problem.” (Ronald Reagan Presidential Library, 2005). Before Reagan took office, the debt, un-employment, and interest rates were out of control largely in part of previous administrations excessive spending; Reagan, promised to cut spending and shrink the government in response to previous administrations short comings. In the following paragraphs I will discuss the theory and application of Ronald Reagan’s economic policies; additionally, I will discuss the pros’ and cons’ of his economic policies and what did and did not work.
Reagan’s economic polices were labeled reaganomics by the media; contrarily, Vice President Bush coined the term voodoo economics. The idea behind reaganonomics was loosely based on supply-side economics and a trickle down theory; these ideas would be accomplished with wide-spread tax cuts; specifically on corporations, who in turn, in theory, would pass the savings on to the consumer i.e. “trickle down”. In addition his economic philosophy was to cut social spending, increase defense spending, and deregulate the domestic market. Although widely popular, still to this day, there are positives and negatives associated with Reagan’s economic principals.
Ronald Reagan’s economics were based on sound economic theories; unfortunately, he failed to execute a majority of his plans. His policy included: Cutting government spending, balancing the budget, tax cuts, closing tax loopholes, and deregulation of the government. First I will discuss government spending; ideology aside, the numbers do not lie. In 1980, the final year of the Carter administration, the federal government spent $591 billion. In 1986, the last recorded year of the Reagan administration, the federal government spent $990 billion, an increase of 68%. This, emphatically, is not reducing government spending. (Congressional Budget Office, 2011); on the flip side, most savvy economic minds tell you to use the percentage of the Gross Domestic Product (GDP) to calculate spending cost; however I have problem with that theory because if the government creates more money or causes inflation, the GDP will rise, in turn, we would be praising the government on artificially cutting spending. Second, Reagan promised to cut taxes; this is true, taxes were cut for higher tax brackets; however, for the middle class, taxes actually raised; additionally, Reagan raised taxes three times over the course of his administration. The tax increases were two fold; first, tax payers were subject to "bracket creep," a term for inflation raising a tax payer into higher tax brackets, so that you pay more and proportionately higher taxes regardless of the tax rate schedule having officially remained the same. Second was the increase in social security taxes; lead by Alan Greenspan, social security taxes more than doubled under Reagan’s watch, taxes went from 157.8 billion to 334.3 billion over an eight year period; however, it should be mentioned that social security saw a surplus for the first time in five years (Congressional Budget Office, 2011). To summarize the negative aspects of Reagan’s economic policy, it should be noted that the biggest concern I have with his eight years in office, he never actually balanced the budget; although, there is much debate over whether or not President Clinton’s success in a balanced budget was a hangover effect of reaganomics; statistically, the debt went from about 711 billion dollars to a staggering 2.2 trillion dollars (Congressional Budget Office, 2011) this was mostly due to a military build up during the
