Pros And Cons Of Reaganomics

Trickle-down economics and supply-side policies fall under an umbrella term known as ‘Reaganomics.’ Reaganomics is a term used to refer to the policies and theories of Ronald Reagan, the 40th President of the United States of America. These theories and policies hold the belief that a decrease in taxes would drive economic growth. As Reagan began his first term in office, the country went through several years of high inflation and high unemployment. To combat this, Reagan proposed a set of policies to reduce inflation and stimulate economic and job growth with one of them being reducing taxes for individuals, businesses and investments (Kenton, 2022). The theory of cutting taxes leading to economic growth is linked to the Laffer Curve, a concept created by Arthur Laffer that suggests tax cuts lead to growth over time which can replace lost revenue, as the more prosperous overall economy provides a larger tax base for the government. However, Laffer mentioned that the maximum

A free market economy had long been in favour before the Great Depression and Roosevelt’s policies. During the same time, he had also gained support and attracted members from the supply-side economics movement which was created as an opposition to Keynesian economics. This had produced some of the strongest supporters for Reagan during his terms in office. There was a lot of debate from the supporters of Reagan, who believed that the tax cut policies would easily be able to cover any increases in federal debt. The belief of this was influenced by the Laffer curve model. Arthur Laffer’s model shows that excessive tax rates can actually reduce tax revenue as producers are less incentivised to produce more goods and services; the model also shows that if tax rates are too low or below the optimum level for the economy, there could be a direct reduction in tax