Reagan Presidency -The Four Pillars of Reaganomics
REDUCE FEDERAL TAXES
One principle of Reaganomics was to institute the economic theory of side-supply economics. This theory predicted that by cutting taxes, businesses would gain more capital, hire more workers, and produce more goods. Essentially, it was trickle-down economics, where money would "trickle" down from capital gains to the everyday worker.
Cuts in the federal income tax also stood as an important pillar in Reagan's economic changes. Income tax brackets were simplified. Tax reductions for the highest tax brackets dropped from 70% in Reagan's first year, to 28% by 1986. The wealthy benefited from this reduction the most; however, the theory was more Americans would have more money to spend.
REDUCE GOVERNMENT REGULATIONS
THE FOUR PILLARS OF REAGANOMICS
RESTRICT THE MONEY SUPPLY / INFLATION
VALUE OF MONEY
INFLATION OF VALUE
Reagan initiated heavy deregulation of federal spending. Reagan took aim at programs that had grown in the early 1900s and during FDR's New Deal programs. He believed Americans could prosper through individual effort, not government aid. He let states control federal aid. Reagan referred to this as the "New Federalism".
To reduce inflation, Reagan restricted the money supply while the Federal Reserve raised interest prices to counteract inflation. As a result, recession ensued between 1981-82. Inflation cooled, however, and confidence began to be restored amongst investors and consumers alike. Yet, defense spending and low tax revenues increased the federal deficit.