c


Vp In the early 1980s, the American economy suffered a deep recession, and business bankruptcies
increased by 50 percent in 1982, Interest rates rose during that year while exports decreased.

J 


Vp xmployment during the 1980s declined rapidly in the initial part of the decade. However,
following the recession, employment grew rapidly. While job growth was surging, the benefits
and wages of the jobs declined. Jobs themselves tended to be low-paying, and part-time or
temporary employment. This ushered in the era of less-skilled workers as job quality declined.

c  


Vp      

|p The central theme of Reagan's national agenda, however, was his belief that the federal
government had become too big and intrusive. In the early 1980s, while he was cutting
taxes, Reagan was also slashing social programs. Reagan also undertook a campaign
throughout his tenure to reduce or eliminate government regulations affecting the
consumer, the workplace, and the environment. At the same time, however, he feared
that the United States had neglected its military in the wake of the Vietnam War, so he
successfully pushed for big increases in defense spending.

Vp c  



|p Reagan (1981-1989) based his economic program on the theory of supply-side
economics, which advocated reducing tax rates so people could keep more of what they
earned. The theory was that lower tax rates would induce people to work harder and
longer, and that this in turn would lead to more saving and investment, resulting in
more production and stimulating overall economic growth. While the Reagan-inspired
tax cuts served mainly to benefit wealthier Americans, the economic theory behind the
cuts argued that benefits would extend to lower-income people as well because higher
investment would lead new job opportunities and higher wages.
Vp     c  




|p Reduce Government spending.
|p Reduce Income Tax and Capital Gains Tax.
|p Reduce Government regulation.
|p Control the money supply to reduce inflation.
Vp General
|p The tax cut was the largest in history and was expected to jump start the economy.
However, after the bills passed in the summer of 1981, the country fell into the worst
recession since the Great Depression.
Vp ºros
|p Inflation averaged 12.5 percent when Reagan entered office, was reduced to 4.4
percent when he left.
|p Interest rates fell six points.
|p xight million new jobs were created as unemployment fell.
 |p An eight percent growth in private wealth.
|p In no year following the tax cuts did revenues decline. They increased in fact in almost a
straight progression from pre-Reagan years.
|p The average annual growth rate of real gross domestic product (GDº) from 1981 to 1989
was 3.2 percent per year, compared with 2.8 percent from 1974 to 1981 and 2.1 percent
from 1989 to 1995. The 3.2 percent growth rate for the Reagan years includes the
recession of the early 1980s, which was a side effect of reversing Carter's high-inflation
policies, and the seven expansion years, 1983-89. During the economic expansion alone,
the economy grew by a robust annual rate of 3.8 percent. By the end of the Reagan
years, the American economy was almost one-third larger than it was when they began.
|p When Reagan took office in 1981, the unemployment rate was 7.6 percent. In the
recession of 1981-82, that rate peaked at 9.7 percent, but it fell continuously for the
next seven years. When Reagan left office, the unemployment rate was 5.5 percent.
|p Real median family income grew by $4,000 during the Reagan period after experiencing
no growth in the pre-Reagan years; it experienced a loss of almost $1,500 in the post-
Reagan years.
Vp Cons
|p According to the 0
 

 
   0
 for 1996, the number of people
(white, black, and Hispanic) below the poverty level increased in almost every year
between 1981 (31.8 million) and 1992 (39.3 million).
|p We were $994 billion in debt in fiscal 1981, when Carter left off, and $2,867 billion when
Reagan leaves office in fiscal 1989. The rough number is 2.85 times as much in 1989 as
in 1981. No, it's not quite tripled, but very close.
|p The trade deficit quadrupled.
p However, the primary reason the deficit grew during the Reagan years was the
Cold War military buildup.
|p The 1986 Tax Reform Act is widely considered to be the best piece of American tax
legislation since the adoption of the income tax. It is the opposite of Reaganomics. Over
its first five years, it closed more than $500 billion in loopholes and tax shelters. As a
result:
p Xajor U.S. corporations that previously had paid little or nothing in income
taxes due to loopholes were put back on the tax rolls, and corporate taxes were
increased overall by a net of more $100 billion over five years.
p A huge wasteful tax-shelter industry for high-income individuals was shut down.
p Tax rates on capital gains income were raised to the same level as on other
income.
p Xillions of moderate-income working families got tax relief through a major
expansion of the earned-income tax credit.
p Taxes on most families (on average, all but the best-off tenth) were reduced.
(The table shows the tax changes by income group.)
p The income tax was substantially simplified for most filers.
|p Allied in support of the 1986 reforms were a vast array of public interest groups, labor
unions and citizens groups around the country. The act was also highly praised by most
economists, because it leveled the playing field for businesses and investments, and
made our economy more efficient and productive. Unsuccessfully opposing the 1986
Tax Reform Act were low- and no-tax corporations, recalcitrant supply-siders and tax-
shelter promoters. (Opponents included, for example, Newt Gingrich, Bill Archer and
 billionaire Donald Trump, who continues to criticize the act for cracking down on
abusive real-estate tax shelters.)
|p The savings rate did not rise in the 1980s, as supply-side advocates had predicted. In
fact, in the 1980s the personal savings rate fell from 8 percent to 6.5 percent