Reaganomics - How it worked, why it was successful

January 24, 2018

One of the cornerstones of President Ronald Reagan’s presidency, like your Reagan email, bears the name of the leader: Reaganomics.

        The president came into office when the country was stagnating economically and, at the end of his two terms, he was able to set the country on a financially forward path that has continued to impact Americans three decades later.

        So what exactly is Reaganomics? The plan was founded on two primary principles:

Supply-side: Reagan knew that the country could get on the right economic path by decreasing the role that the federal government played in the domestic market and lowering taxes. This economic approach puts more money in the pocket of consumers, as well as helps create jobs.

Trickle-down economics: Going hand-in-hand with supply-side is the idea that reducing tax rates for corporations and the wealthiest will encourage more business investment, which ultimately “trickles down” into the working class.

        Those theories led Reagan to institute a number of economic changes, including:

Tax cuts: Reagan slashed tax rates for the wealthiest citizens from 70% to 28%, and from 48% to 38% for corporations.

More military spending: Throughout his tenure, Reagan increased military spending by 43%. Reagan also invested heavily in innovative technologies, many of which were designed to revamp and revolutionize the military.

Less social spending: Dissatisfaction with the heavy investment in social-welfare programs was a major issue during Reagan’s campaign, and he made good on his pledges to reduce such spending once he was elected. Within his first year in office, Reagan cut out $25 million in spending on social programs and, throughout his time in office, reduced expenditures on welfare, food stamps and state-funded health care.

Less government involvement: Reagan made strides to deregulate spending on industries like oil, natural gas and telecommunications.

        Reagan’s plan revolutionized American spending — and to great effect. By the time he left office, tax revenue had nearly doubled, from about $500 billion to more than $900 billion; his tax cuts are largely credited with ending the recession the country had been in when Reagan took the presidency. Inflation was tamed, unemployment rates reduced and the gross national product rose.

        After Reagan left office, the country saw one of its most economically prosperous times ever, and it is Reaganomics that is credited with building a strong foundation to make that growth possible.

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