Unit 1.5 - The Reagan Presidency (Revised Flashcards)
What economic policy was Reagan inspired by?
- Supply-side theory.
What is Supply-side theory?
- Emerged in the late 1970s.
- Supply-siders argued that the economy wasn’t driven by consumer demand but by keeping up production and encouraging saving and investment.
- Believed restrains on production should be removed.
- They argued that the better-off wild benefit and the benefits would ‘trickle down’ to the very poorest.
What were Reagan’s main areas of focus for his economic policies?
- Cutting the Federal deficit.
- Tax reductions.
- Deregulation.
- Control of money supply.
What did Reagan do within 3 days of coming into Presidency?
- Sacked many White House staff members.
- Put a federal government hiring freeze in place.
- Told all departments there was a freeze in office furnishing and equipment.
- Cut their travel expenses by 15%.
What did Reagan use a series of Executive Orders to set up?
- Used a series of executive orders to set up new advisory groups which reported directly to him on how to cut ‘big government’.
- However, the financial savings were small and advisory groups don’t make any changes.
What was the aim to decrease the federal deficit to by 1986?
- It was 22% in 1981
- Reagan wanted to reduce it to 19% in 1986.
What did Reagan present to congress upon his first meeting with them in 1981?
- Reagan wanted to present his whole budget policy through to 1984 as a single bill.
- Also wanted to present a tax bill within the same session.
- His Council of Economic Advisors (CEA) had no time to follow the usual procedure meaning that Congress had to vote on the whole package of spending cuts.
What did it mean for the administration now that Congress had to vote on the whole package of spending cuts?
- The Administration would have approval for all its measures and control over the timetable up to 1984.
What bill did Reagan put in place in order to cut the federal deficit and what was the issue with this?
- Accompanied by a budget bill and a proposal for cuts on domestic spending.
- The issue was that the plan was so hastily put together that it had a number of errors.
What piece of legislation would accompany Reagan’s plan to reduce personal and business tax?
- 1981 Economic Recovery Tax Act (ERTA).
What did Reagan plan to remove in order to deregulate?
- Wanted to R
remove federal control in: industry, state and local government.
How did Reagan get his budget legislation (Omnibus Reconciliation Act) passed?
- Republican majority in House of Representatives meant Reagan only needed to win support of 26 Democrats.
- This made pushing through the budget and the tax easier.
- The senate passed the budget and it was sent to the House and was later passed after some revision.
What changes were made to the Omnibus Reconciliation Act by Congress?
- Cut the tax reduction for personal tax from 30% to 25%.
Why was getting the Tax legislation passed more of a challenge for Reagan?
- Democrats felt they had been manipulated over the budget and saw the tax bill as a fight over control of the house.
- Democrats made significant changes to the bill.
- White House offered tax concessions to some Democrats to try swing the vote.
- Democrats counter-offered incentives in areas they controlled.
- Process became an undignified scramble over concessions.
What did the 1981 Economic Recovery Tax Act (ERTA) establish?
- Cut marginal tax by 23% over 3 years.
- Highest tax band fell from 70% to 50%; lowest tax band fell from 14% to 11%
- Linked tax bands to inflation.
- Applied to all tax bands (Those paying the highest tax benefitted the most).
- Business tax rates were reduced and various business tax breaks were offered, skewed to favour small businesses.
What was the 1981 Omnibus Budget Reconciliation Act (ORA)?
- Proposes variety of tax cuts that will take $35 billion out of federal spending.
- Initial bill presented to the White House proposed $45 billion-worth cuts.
What did the 1982 Tax Equity and Financial Responsibility Act (TEFRA) make changes to?
- Makes changes to the budget in response to the economic situation.
What did the 1982 Tax Equity and Financial Responsibility Act (TEFRA) tighten up?
- Tightened up tax rules especially for businesses.
- Raised taxes on cigarettes and telephone service.
What did the 1986 Consolidated Omnibus Budget Reconciliation Act (COBRA) do to the budget?
- Revises the budget in many minor ways to save the federal government money.
Where did the 1986 Consolidated Omnibus Budget Reconciliation Act (COBRA) move the costs to?
- Moves costs to state or private bodies (the most significant change shifts responsibility for healthcare payments from federal gov to employer).
What was the 1986 Tax Reform Act?
- Revises the tax codes.
- Reduces the number of tax brackets.
- Supposed to close a lot of tax evasion loopholes and ease the pressure on poorer families.
What were the intentions behind Reagan’s tax cuts and control of the money supply?
- Stop inflation.
- Reduce unemployment.
- Increase personal wealth.
- Increase productivity.
- Encourage personal saving and investing.
- Encourage businesses and service providers to produce more.
- Wanted the federal deficit to fall.
Did Reagan’s policies stop inflation and unemployment?
NEGATIVES
- There was a conflict of interest between the FRB and the White House.
- Money supply being restricted too much runs the risk of deflation.
- Money supply restriction led to a sharp rise in inflation rates.
- Hurt industries that bought supplies on credit.
- Many businesses were badly hit.
- Reagan came into power in the middle of a recession.
Did Reagan’s policies stop inflation and unemployment?
POSITIVES
- Inflation began to fall.
- By 1986 inflation had never reached double figures again and spent most of its time at under 5%.
