Reaganomics Flashcards
What are the four pillars?
Reduce Federal Income and Capital Gains Taxes
Reduce Federal Spending
Reduce Government Regulation
Tighten the Money Supply to Reduce Inflation
What Pillar does ERTA affect and what was it?
Pillar 1: Reducing Tax
August 1981 - Cut income tax by 23% over a three year period
Rich got richer poor got poorer
Business taxes were slashed in order to reinvigorate trade, Tax breaks were offered to new businesses in the hope of getting the market going - trickle down theory.
Pros And Cons of Tax Cuts
Pros:
Gives individuals and businesses more money each month
Allows for reinvestment which could create more jobs
Gives people more spending power which helps businesses
Cons:
Significantly impacts the amount of Federal Income
Government can’t provide Welfare
Flat rate tax cuts will always benefit the rich more
What is TEFRA?
Sep 1982
Actually raised taxes just a year after the massive cuts (against Pillar 1)
Income tax and business rates remained low, but taxes on cigarettes and telephones were increased heavily
Closed a large amount of tax loopholes and havens that businesses had been exploiting and ensured they paid the correct amount. Served to counter some of the positives of ERTA
What was the Tax Reform Act?
Oct 1986
Second of the major tax cuts, this act aimed to simplify tax in America by reducing the amount of bands
Top band was cut again from 50% to 38% again favouring the rich.
The number of tax brackets was reduced from 15 to 4
Led to 6 million of the poorest Americans becoming exempt from tax altogether
The act provided low income Housing Tax credits to assist the poor
Closed more tax loopholes - particularly those fraudulently claiming child benefits
What was ORA?
August 1981
Affected reduction of spending and regulation
Cut more taxes and government spending
Saved the country $35 billion
Scrapped things like Student bursaries and Social Security benefits
De regulated industry significantly
Repealed the more costly elements of Medicare
Same day as ERTA
Pros and Cons of De regulation
Pros:
Gives businesses the power to make more profit due to lesser restrictions and regs
Allow for more profit which could create more jobs
Could lead to lower prices in good and services
Cons:
Can lead to exploitation of workers due to the removal of workers rights (and it does James?????)
Long hours and low pay left many below poverty line
Rich get richer. No guarantee of re investment
Big companies dominate
Environmental hazards
Some examples of De regulation (not really a flash card just revision)
Jan 1981 - A week after he is inaugurated Reagan de regulates oil and fuel prices which significantly lowers the cost to consumers and businesses.
Wages and prices de regulated - this removes most governmental taxes on goods and allows for businesses to pay below the minimum wage in some cases
Oct 1982 - Garn St German Act comes into force and de regulates the savings and loan industry. This allows them more freedom to take risks with investments and give out loans/mortgages with less restriction. This led to saving and loan crash in 1987 which needed a huge government bailout!
August 1988 - Foreign Trade and Competitiveness Act comes into force which opens up further trade and investment with overseas nations. The brings in the some much needed investment to America but at the expense of revenue as much of the profits wee not reinvested into the USA.
What is Cobra?
April 1986
Pillar 2 - reducing federal spending
Shifted many former government responsibilities to the private sector.
Expectation of businesses to provide some form of medical insurance or aid for workers
Cuts Federal Spending but potentially weakens the concept of supply side economics
