President Reagan had inherited an economy with high inflation and unemployment from the previous president so the implementation of Reaganomics in the 1980’s was necessary to boost the economy, bring down inflation, and accomplish his goal of helping business to grow as economic growth resulted from the tax cuts (Its Remarkable 1). Reagan inherited problems such as high interest rates, inflation, and unemployment, and oil shortages. President Reagan’s economic program of the 1980’s worked better than the previous program because of his use of a theory called supply-side economics. Supply-side economics is an economic theory that uses tax cuts to increase the incentive to work and produce goods and services in order to improve the unsuccessful economy by putting people back to work and giving them money to spend (Supply-side 1). The four objectives of Reagan’s 1981 Program for Economic Recovery were: to reduce the growth of government spending, to reduce the marginal tax rates on income from both labor and capital, to reduce regulation, and to reduce inflation by controlling the growth of the money supply. Ronald Reagan said, “Only by reducing the growth of government can we increase the growth of the economy” (Reaganomics 1). The failing economy Reagan had inherited from the previous president caused him to implement the Reaganomics program in the 1980’s because it was necessary to boost the economy, bring down inflation, and accomplish his goal of helping business to grow (Its Remarkable 1).
Economic growth resulted from the tax cuts of the 1980’s because they were a better solution than the plan previously being used. Reagan advocated a reduction in taxes and in government spending because it allowed more money to remain in the hands of the citizens. There was a boost in the economy once the citizens began to spend their money on goods and services. By using their money to invest in business, the economy began to expand. Even though the tax cuts resulted in reduced government revenues, the economic growth that followed increased taxable income causing the government revenues to grow once again. The Economic Recovery Tax Act cut taxes, mainly for the upper-income taxpayers and large corporations, twenty-five percent during a three-year period. Most of the poor were exempted from paying individual income tax (Reaganomics 1). The wealthy were the ones who invested their saved tax money into business, thereby producing economic growth. By reducing taxes in the 1980’s, President Reagan was able to allow citizens to keep more of the money they earned and spend it in ways that boosted the economy of the United States because the money circulated rather than being saved (Reagan 1).
Cuts in spending for certain government social programs were a better solution to improve the economy than expanding those programs by raising taxes. Spending was cut in programs such as job training, college loans, food and medical programs, payments for the disabled, child daycare centers, and centers for the elderly. President Reagan made the right decision in cutting government funding for these programs because they made individuals dependent on government support. However, he did exempt some programs from the reductions. Social Security and Medicare were allowed their usual budget because many Americans thought of them as “an essential safety net against extreme poverty or personal misfortune” (Reagan 2). The cuts in spending for the government programs that were not essential for American life, such as job training and child daycare centers, put more money back into the economy.
Government restrictions on businesses in previous administrations wasted the time and money needed for the businesses to comply. The money they saved was used to invest in new areas. The Garn-Saint Germain Depository Institutions Act helped savings and loan institutions by giving them the opportunity to make riskier investments. The deregulation process further included the diminish of environmental and safety standards. These standards caused hardships for American businesses. Mining and timber industries were now allowed to harvest the resources on public lands. The lessening of restrictions allowed businesses to save money, which they then put into new investments to help the economy grow (Reagan 2). President Reagan was able to bring down inflation rates from 10.4% in 1981 to 3.7% in 1987 through his programs aimed at improving the economy (The National Experience 924).
Tax cuts, deregulations, and the relaxing for environmental and safety standards produced significant economic growth. A five-year increase in the stock market developed once investors discovered they could make profits by financing high-risk business deals. Billion-dollar mergers and takeovers improved the stock market even more, increasing the ability of the rich to get even richer. The 1980’s were a prosperous time in the United States, especially for the wealthy since they benefited most from Reagan’s tax cuts (Reagan 2). Americans gained a better attitude toward themselves, their society, and their future (Its Remarkable 2)
Works Cited
Its Remarkable Results. Murray Weidenbaum. http://search.csmonitor.com/durable/1997/12/18/opin/opin.2.html. (24 April 2004), 9:54 a.m.
NationMaster. Reaganomics. http://www.nationmaster.com/encyclopedia/Reaganomics. (22 April 2004), 9:43 a.m.
Reaganomics. William A. Niskanen. http://www.econlib.org/library/Enc/Reaganomics.html (24 April 2004), 10:38 a.m.
“Reagan, Ronald,” Microsoft Encarta Encyclopedia 2000. 1993-1999 Microsoft Corporation.
Supply-side economics. Yahoo. http://education.yahoo.com/reference/encyclopedia/ entry?id=45742 (24 April 2004), 10:45 a.m.
