Richard Nixon focused on the economic matters in his initial six months of his tenure with the advice of former president Richard Nixon. The concept of Reaganomics was associated with the supply-oriented economic theorem which formed the basis of the economic policies of Reagan. (Reaganomics Debate: Did Reaganomics improve the Economy?) "The consistent and distinct theme of this program, in Ronald Reagan's words was that only by reducing the growth of government can we increase the growth of the economy" (The Future of Reaganomics) The Program for Economic Recovery introduced by Reagan during 1981 had four major goals such as abatement in the government expenditure, a decline in the marginal tax rates on capital and labor incomes, reduction in economic control and reduction in rate of inflation regulating the growth in the supply of money. Such variations in the policies consequently were anticipated to enhance the saving and investment and enhance the economic growth, resulted in balanced budget, restoration of strengthened financial markets, and a declining rate of inflation and interest. (Reaganomics)
It is applied on the faith that the economy was under pressure of higher rates of taxation. With more and more monetary resources flowing into taxation the private individuals as well as the corporations find it difficult to divert the resources towards stimulating growth. The plan warranted huge reduction in taxation to encourage investments. This resulted in the trickle down of the economic growth towards the laborers. The Reaganomics also involved the budgetary reductions so as to offset the loss of public revenue through tax reductions. This model is implemented by Reagan in his budgetary policy of 1981. The legislations were made for reduction in government expenditure by $40 billion and announced a strategy for tax reduction over the three years on both individual and corporate income. The tax reduction is considered to be the largest in the history and was intended to make the economy leap ahead. (Reaganomics Debate: Did Reaganomics improve the Economy?)
A sustained growth of the economy with enhanced growth and declining rate of inflation was advocated with its recovery from the stagflation and the maladies of U.S. economy from 1973 to 1980 through these economic strategies. The enhancement in economic productivity and growth was even considered the highest. The per hour production in the business sector almost seem to be freeze during the period of Carter enhanced at the rate of 1.4% in the periods of Reagan. The productivity appeared to have increased at the rate of 3.8% per annum in the manufacturing sector which is considered to be a record during the time of peace. The Banks were permitted to advance credit in a broader set of assets with reduction in the scope of antitrust laws. The variations in the federal tax code were visualized to be considerable. The individual income tax rate had been declined from the then 70% to 28%. The same was the case with the corporate taxation rates which was declined from 48% to 34%. (Reaganomics: www.econlib.org)
Indexing for inflation was made in the individual tax brackets. More significant is the major retreat with regard to the treatment of business income for taxation purposes. Encouragements to the investment were effected with approval of a complex package in this regard during 1981 with the provision of its progressive reduction in each of the subsequent years by 1985. The scope of taxation of the business income was widened considerably during 1986 with reduction in the tax discrimination among the types of investment however, enhancing the average effective tax rate on new investment. A check in the growth of supply of money attempted by the Federal Reserve during later part of 1979 was patronized by Reagan that resulted in sever recession during 1982 and a substantial reduction in the inflation and interest rates. A decrease in the rate of unemployment from 7.0% during 1980 to 5.4% in 1988 was noticed. The rate of inflation also decreased from 10.4% to 4.2% during the said period. Lack of secular trade-off between the rate of unemployment and the rate of inflation has been ensured by a combination of conditions. Integration of other conditions was also noticed. There is a steady increase in the rate of organization of new businesses, however, the failure of the banks was considered the highest during the period ever since the thirties. There is a steady increase in the interest rates however, there is about more than doubling of the inflation adjusted prices of common stocks. (Reaganomics: www.econlib.org)
The critics attacked Reaganomics on the grounds that the period of Reagan witnessed the worst ever recession since the Great Depression of the Thirties. The public debt at the end of Carter regime were estimated to be about $994 billion in 1981 while this was $2,867 billion at the end of Reagan regime in 1989. This is broadly about 2.85 times more in 1989 in comparison to that of 1981. Reagan extended a tax relief to the wealthy. Critics argue that it is worthwhile to probe into the extending of a tax relief to the wealthy by Reagan. (Reaganomics Debate: Did Reaganomics improve the Economy?) Thus the taxation cut are considered to be a major element in the economic recovery program of Reagan. His members in his administration have charged his view as simple and immature. However, Reagan was considered rigid. The underlying principle of the Reaganomics is that more people will work with a reduced tax that will result in more income in the economy with improvement in the standard of living of everybody.
Irrespective of a reduction in the income tax to the tune of 25%, Reagan confronted a deepening recession during 1982 with growing unemployment and destitute. (Reaganomics: The Reagan Years) "Although tax rates were reduced more than anticipated, some of this reduction was financed by shifting taxes to the future (via the deficit) or by increasing the taxes on new investment." (Reaganomics: www.econlib.org) This indicates the failure of Reagan in attaining some of the earlier objectives of his earlier programs. A complete variation in the budgetary allocations were made considerably from the discretionary domestic expenditure to the sectors of defense, entitlements, and interest payments, however, the federal budget portions of the national output has reduced to a small extent. (Reaganomics: www.econlib.org)
The liberalization of market and reducing the supports of the government is viewed in terms of deregulation. The government as well as the proponents of the Reaganomics was emphasizing much on its deregulation aspect. A close look at the record however, reveals quite a different outlook. First was the most remarkable illustration of deregulation. The conclusion of price controls in respect of oil and gasoline combined with rationing, the liberalization of the trucks and airlines actually were introduced during the carter administration however, and the credit goes to Reagan for its effective implementation. Simultaneously, there existed committed deregulations those were never been effected to, the commitment for abolition of natural gas controls and of the Department of Energy are grouped under this category. Above all, actually there is no deregulation but an enhanced regulation. (The Myths of Reaganomics)
Ronald Regan was of the view that the regulations and paperwork were the real obstacles to the prosperity and growth. (Reaganomics: The Reagan Years) Exertion of influence on the domestic economy by the Regan administration even in terms of its own objectives wound have no positive impact on international economic affairs. As is anticipated, its international economic policy is considered to be exactly the reverse of the underlying patronize to the free trade and free markets. In the first instance, contrary to the pronouncements of Adam Smith and Bastiat, the Regan Administration is never claimed to be the most belligerent and nationalistic ever since Herbert Hoover. There is a persistent increase in the Tariffs and import quotas and…