Reaganomics was an economic plan designed and implemented by President Ronald Reagan that aimed to stimulate the then-inert American economy through supply-side economics. It was a conservative approach to dealing with the 1980s recession, whereby the President believed that revamping the United States tax code would leave Americans with more money to spend, which in turn, would lead to economic growth.
Taxes Were Cut
Tax rates were cut drastically, which in turn, stimulated consumer demand. Reagan ensured tax brackets were indexed for inflation and by his last year in office, the income tax rates were down to 28% for people earning more than $18,550, and anyone making less paid no taxes at all.
Growth in Spending Was Reduced
There was a significant reduction in government spending, coming in at less than President Carter’s 4% annual increase. While there was increased expenditure in the Defense sector, Reagan did not cut Medicare payments or Social Security at all.
Regulations Were “Somewhat” Reduced
Federal Reserve Chairman Paul Volcker began steadily raising the Fed funds rate in 1979 by using contractionary monetary policy and by December 1980, it was at a historical 20%. Although inflation was tamed, these rates also choked off economic growth, which ultimately triggered the recession of 1981-1982.
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