Effect of Reagan's Economic Policies Flashcards
What is the name of the economic theory that influenced Reagan’s economic policies and what does the theory believe
Supply-side theory: The idea that keeping up production and encouraging saving and investing drove the economy, and therefore restraints on production like government regulation and taxes should be removed.
How would supply-side theory theoretically help both the rich and the poor
The rich would get far richer and the wealth would trickle down
What did Reagan order within 3 days of becoming President and what was the effect of this
Reduced spending in the White House by sacking employees, reducing travel expenses and implemented a freeze on office furnishing and equipment. He also set up advisory groups to investigate how to reduce ‘big government’
This did not save much money at all but it made Reagan look like an active President and won him popularity
What are the four parts of Reaganomics
- Cutting the federal deficit by reducing domestic spending
- Personal and business tax reductions
- Deregulation in industry, state and local government
- Planned control of the money supply
What was the name of the economic strategy that Reagan presented to Congress to implement Reaganomics
the Program for Economic Recovery
Where did the cuts in domestic spending proposed by Reagan in 1981 come from
Lyndon B Johnson’s ‘Great Society’ Reforms
What did the Program for Economic Recovery bill propose the federal deficit should be reduced to from 1981 to 1986
22% of GNP to 19%
What mistake had been made in Reagan’s proposed budget in 1981
It was written too quickly so there were several errors and a footnote showed the plan included $74 billion of ‘yet unidentified’ cuts
Name one specific welfare program that Reagan cut funding of
the Aid to Families with Dependent Children programme
When was Reagan’s budget passed after some revision and what was the act called
13th August 1981 - Omnibus Reconciliation Act (ORA)
When was Reagan’s tax bill passed and what was it called
13th August 1981 - the Economic Recovery Tax Act (ERTA)
What changes did ERTA make
- Cut marginal income tax by 23% and linked tax bands to inflation
- Allowed all working taxpayers to set up untaxed IRAs (Independent Retirement Accounts)
- Business tax rates were reduced and business tax breaks were offered
Who did ERTA benefit the most
Rich people and businesses
What was the Tax Equity and Financial Responsibility Act (TEFRA) and when was it passed
3rd September 1982 - Tightened up tax rules, especially for businesses, and temporarily raised taxes on cigarettes and the telephone service
Why was TEFRA passed
To increase revenue and close tax loopholes
What was the Consolidated Omnibus Reconciliation Act (COBRA) and when was it passed
7th April 1986 - Revised ORA in many minor ways to save the federal government money and to move costs to private or state bodies, for example making the responsibility for healthcare costs the employer instead of the government
What was the Tax Reform Act and when was it passed
22nd October 1986 - Reduced the number of tax brackets, closed many tax evasion loopholes and eased pressure on poorer families
What was the unemployment rate in the following years:
1980
1983
1988
1980 - 7.1%
1983 - 9.6%
1988 - 5.5%
Why may unemployment statistics not truly reflect the real experience of unemployment in the USA
Many people were in part time or temporary work and many people were considered ‘unemployable’ and these people were not counted in the statistics
Inflation rate in the USA in the following years
1980
1983
1988
1980 - 13.5%
1983 - 3.2%
1988 - 4.1% (Little change from 1983 onwards)
How many billionaires in the USA in 1980 vs 1987
1980 -13
1987 - 44
What was the deficit in 1980 vs 1988 and does this show Reagan was successful or not at reducing spending
1980 - $74 billion
1988 - $155 billion
Unsuccesful
In 1983, what % of federal spending was in loan interest payments
14%
Why did the deficit increase in relation to supply-side theory
The rising productivity and investment did not make up for the revenue lost in tax cuts
What was the pattern of the defence budget in the 1960s and 1970s and then under Reagan
1960s/70s: Reduced defence budget and increased human resources and welfare spending
Reagan: Changed this and reduced welfare and human spending for a rise in the defence budget
What % of federal spending was human resources and defence spending in 1980 vs 1987
1980: Human Resources - 28%, Defence 23%
1987: Human Resources - 22%, Defence 28%
How did the following 2 Presidents adapt or not adapt to Reagan’s economic policies?
1988-92, George HW Bush: Promised to continue Reagan’s policies but its long term effects led to a recession. This made him break his promise of no taxes raised which got him voted out of office
1992-1996, Bill Clinton: Despite being a democrat, did not revert Reagan’s policies fully as the public supported low taxes, instead chose to keep no tariffs and an economic focus whilst still investing in welfare
