Ronald Reagan Economic Analysis

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Despite its reputation as a dismal science, economics can largely shape and predict the prosperity a country can bring to its citizens. A country’s economy affects nearly every citizen, and the fluctuation of the United State’s economy throughout history has shaped historical time periods. America was formed because the mercantilist policies of colonial america; those policies later morphed into the laissez faire economics that ended with The Great Depression. The Great Depression spurred a period of Keynesian economic policies; however, the dominance of Keynesian economics on twentieth century America ebbed with the election of Ronald Reagan (“The U.S. Economy: A Brief History”). Reagan threaded free market principles and classical economics …show more content…
Later becoming a staple republican platform, Reagan proposed massive tax cuts for the American populace, and advocated extreme tax reform. With the legislative branch, Reagan passed the Economic Recovery Tax Act of 1981. The primary goal of the act was to curb the high income tax rates. Before the passage of the tax act, tax rates for the highest, or wealthiest, taxpayers were seventy percent, while tax rates on the lowest income tax bracket were fourteen percent. The most striking part of Reagan’s Economic Recovery Tax Act was the dramatic slash of tax rates for Americans in the highest tax bracket, from seventy percent to fifty. While the tax cuts to the highest income bracket are the most notable at first glance, income taxes for all Americans were reduced; the lowest income tax bracket received a tax cut from fourteen percent to eleven percent (“H.R. 4242- Economic Recovery Tax Act of 1981”). As well as lowering taxes in all income brackets, the tax act slashed estate tax rates. The Economic Recovery Act of 1981 also created a ten percent tax deduction on income from working couples. Unlike many modern bills, the tax act actually had massive bipartisan congressional and public support (“H.R. 4242- Economic Recovery Tax Act of …show more content…
This means that despite the fact that the federal government collected a smaller percentage of income, they actually collected more money. Before implementation of the first tax act, the federal government collected 244 billion in income taxes in 1980, and after the implementation, the federal government collected 446 billion in income taxes in 1989 (Frenze). However, as a percentage of GDP, revenues declined from eighteen point nine to eighteen percent (Sperry). The decline in tax revenue as a percentage of GDP is not as damnatory as it may appear, because though tax revenue as a percentage of GDP decreased, absolute tax revenue still increased. The meaning of this discrepancy is that the tax cuts still stimulated the economy enough to increase absolute tax revenue despite the revenue being lower as a percentage of GDP. The increase in absolute tax revenue may seem arbitrary to some, as most citizens in favor of tax cuts care more about the economic growth they provide than how much more money they provide the government. Yet the increase in absolute tax revenue contrasting the decrease in tax revenue as a percentage of GDP shows the astronomical growth the U.S. economy
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