Reaganomics


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REAGANOMICS: The Four Pillars of Reagan's Economic Policy

1. Reduce Government Spending 2. Reduce Income and Capital Gains Marginal Tax Rates, 3. Reduce Government Regulation 4. Control the Money Supply to Reduce Inflation

EFFECT of Reaganomics Reagan significantly reduced the maximum tax rate, which affected the very wealthy, and lowered the top marginal tax rate from 70% to 50%; in 1986 he further reduced the rate to 28%. This change in the composition of tax revenue, towards payroll and new investment, and away from higher earners and capital gains on existing investments.

Reagan increased public expenditure, primarily the Department of Defense, which rose (in constant 2000 dollars) from $267.1 billion in 1980 (4.9% of GDP and 22.7% of public expenditure) to $393.1 billion in 1988 (5.8% of GDP and 27.3% of public expenditure).

The budget deficit and federal debt increased considerably: debt grew from 33.3% of GDP in 1980 to 51.9% at the end of 1988. In order to cover new federal budget deficits, the United States borrowed heavily both domestically and abroad, raising the national from $997 billion to $2.85 trillion, and the United States moved from being the world's largest international creditor to the world's largest debtor nation.

Ended STAGFLATION What you need to know?
 * Indicator || 1980 || 1988 ||
 * GDP growth || -.3% || 4% ||
 * Unemployment || 9% || 5.5% ||
 * Inflation || 18% || 3.5% ||
 * Poverty Rate || 11% || 15% ||
 * National Debt || $997Billion || $2.85Trillion ||

1. Define fiscal policy.

2. What are the primary sources of government revenue?

3. What are the primary components of the federal government's budget?

4. How does progressive income tax work?

5. How does payroll tax work?

6. Compute and compare the effective tax rate of given households.

7. What is Stagflation?