32 2 Notes The Reagan Revolution Reaganomics Guides

32. 2 Notes The Reagan Revolution

Reaganomics Guides the Economy • Supply side economics: assumption that if taxes are reduced, people will work more and have more money to spend causing the economy to grow. • When companies get more cash, they should hire new workers and expand their businesses. • It also says that income tax cuts give workers more incentive to work, increasing the supply of labor. • That's why it's sometimes called trickle-down economics. • The economic growth that supposed to happen will expand the tax base. According to supply-side economics, this will replace the government revenue lost from the tax cuts.

• Reaganomics promised to reduce the government's influence on the economy. • That policy was dramatically different from the status quo. Prior presidents Johnson and Nixon expanded the government's role. • Reagan pledged to make cuts in four areas: – The growth of government spending. – Both income taxes and capital gains taxes. – Regulations on businesses. – The expansion of the money supply.

New Policies to Boost the Economy • Economic Recovery Act 1981 • historic package of tax and budget reductions that set the tone for his administration’s overall economic policy. • Reduced taxes by 25% over three years. • Richest Americans received the largest tax cuts. • (wealthy would use money to invest) • Cut 40 bil from federal budgets, most from social programs. • Deregulations removal of govt control of industry.

Recession and Recovery • Unemployment rose to more than 10 %. ( 1980 -82). • 1983 - economy turned around • Working poor increased. • Immigrants poured into country for low paying jobs.

Problems With Budget Deficits • Budget deficit: shortfall between the amount of money spent and the amount taken in by the govt, to skyrocket from about 79 to 221 billion in 1986 • National debt: amt of money the federal govt owes to owners of govt bond rose.

• Gramm Rudman. Hollings Act 1985: response to budget deficits. • Sought to balance the budget by 1990 by allowing automatic cuts in federal spending if the deficit exceeded a certain amount.

• Savings and Loan or S & L Crisis • About 1, 000 Savings and loan banks failed, some because of fraudulent behavior and others because they made to many risky loans.