Reagan Revolution through President Obama

Reagan Revolution through President Obama

One of Reagan's first major policy initiatives was to attempt to end the economic malaise that had afflicted the U.S. economy for much of the previous decade. Reagan supported economic policies known as supply-side economics, which were based on the assumption that if the economic "suppliers"—businesses and the wealthy—had a lighter tax burden, they would use their newfound savings to create jobs. Additionally, supply-side supporters said, cutting taxes in general would enable more people to amass greater wealth (Stuckey, 1990).

Reagan thus promoted a massive, across-the-board tax cut shortly after entering office. Because tax rates on those in the top tax brackets had historically been very high—the top tax bracket having paid 70% since the 1960s, and more than 90% prior to that—the cuts significantly benefited the wealthy. Reagan's tax cuts reduced the top rate to 50%. To pay for the tax cuts, the law reduced government services, particularly spending on programs for the poor.

In the decade before Reagan became president, the biggest threat to the economy had been inflation. In 1979, Carter had appointed Paul Volcker as the new chairman of the Federal Reserve—the central bank of the U.S., more commonly known as the Fed. The Fed has a strong influence on the interest rates banks charge each other and the public for short-term loans. When those rates are low, it is easy for individuals and companies to borrow money, which tends to prompt people to spend money, helping the economy grow. Low interest rates and a thriving economy, however, can cause an increase in inflation; the more money that is in circulation, the less that money is worth, and prices rise. Raising interest rates, meanwhile, can slow the growth of inflation but make it harder to obtain loans, thereby slowing the economy. ...