How Did Ronald Reagan's Economic Policies Affect The Economy

Ronald Reagan's economic policies proved controversial during his eight year tenure as U.S President (1981-89). Current economic historians still rigorously debate the rationale and impact of Reaganomics. Reagan inherited a struggling economy and embarked upon radical solutions to turn around American economic decline. Important measures included a reduction in business regulation and increased government control of monetary funds in order to control inflation. Although Reagan’s economic policy resulted in short-term success, which included the lowering of inflation and unemployment, his decisions to reduce income tax for the wealthy and government spending on social programmes, while increasing defense expenditures, polarized American public

While the President vigorously promoted Friedman’s economic ideology, he departed on one key point, namely Reagan’s policy of the “trickle down theory.” Reagan believed that if he lowered income tax for the wealthy, wealth would “trickle down” to the rest of society through increased elite consumption and job creation. Additionally, part of Reagan's justification for reducing income tax for the wealthy came from the Laffer Curve, a hypothetical diagram on the effect of taxation rates on taxation revenue. The curve stated that if taxes surpass a certain point, there will be less revenue due to potential wealth creators lacking incentive to work hard or even work at all. Reagan was certainly influenced by this theory, but it is likely not the only reason he lowered income tax for the wealthy. Ronald Reagan’s election cost a profound $57.7 million dollars (Cox, 2012), and would not have been possible without his wealthy backers. Reagan owed a lot of favours to the wealthy elite who funded his campaign, and lowering income tax for the rich was the result. In reality “trickle down” did not occur. Reagan cut the overall income tax throughout America by an average of 23%, however the income tax for the wealthiest America was cut from 70% to 28% (Sahadi, 2010). It is estimated that the top 1% of Americans gained $10 trillion from Reagan’s tax cuts, at the expense of the bottom 99% (JMH, 2011). In essence, Reagan gave more money to the wealthy, while reducing funding for important social programs and education for those in