Reaganomics

By: EconomyWatch   Date: 22 December 2010

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The term Reaganomics – term 1 basically implies various economic policies that had been adopted by the 40th president of United States of America, Ronald Reagan during his first term from 1981 to 1985.

Features of Reaganomics – Term 1
The basic features of Reaganomics – term 1 were cuts in social programs and significant amount of deficit spending on US military. Roots of the concept of Reaganomics lay in couple of promises Reagan had made in his electoral campaign. He had promised to reduce the size of US government and also reduce rates of taxation.

Income Tax Deductions and Deficit Spending in Reaganomics – Term 1
Ronald Reagan lowered income tax rates at that time to a significant extent. The rate of reduction was directly proportional to the amount of income. Reagan also increased levels of deficit spending to its highest, in terms of Gross Domestic Product, after Second World War. All this was done when rate of inflation in USA was pretty high.

Debates regarding Reaganomics – Term 1
Much of the debate regarding Reaganomics – term 1 has centered on possible sources of Reagan's economic policies. Some experts are of the opinion that Reaganomics was influenced by government stimulus that was supported by Keynesian theorists and some opine that they may have been from the free market.

Changes in Petroleum Prices
On 28th of January, 1981Reagan lifted existing prices of petroleum products as well as allocation controls. In August that year he lessened the Oil Windfall profits tax. This assisted in solving of energy crisis of 1979. In 1988 Reagan also did away with Oil Windfall profits tax. This happened when there was a surplus of crude oil in USA.

Tax Reform Act 1986
As per Tax Reform Act 1986, Reagan set out to achieve two broad aims – he tried to make the tax base broader and also do away with any partiality in US tax structure. This followed a certain procedure. The process was initiated with the proposals by Democrats Dick Gephardt and Bill Bradley in 1983. This was succeeded by the plan prepared by US treasury as per Reagan's instructions.

The act was a bipartisan one and attempted to be revenue-neutral. It lowered the top marginal rate and also, to a certain extent, removed various loopholes in US tax system. It also did away with exceptions and preferences. This meant that effective taxes could be imposed on areas that had been previously provided with tax related favors.

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