Chapter 3. The 1980s
Trouble On The Oil Front, Then A Short Span Of Economic Improvement …
In the 1980s, economic improvement in the US followed President Ronald Reagan’s tax cuts and Paul Volcker’s defeat of runaway inflation. These achievements led to a fairly solid economy that lasted for a few years.
By 1980, it was generally understood that price controls and minimum wage increases were not the answer. Thus, adjustments were made soon after President Reagan took office in 1981. Reagan quickly abolished what remained of oil and gas price controls. Tax reductions were soon introduced and the US economy rapidly expanded.
Reagan Years (1981-1989) …
President Ronald Reagan, as a result of the 1979 Iran oil incident and Carter’s minimum …show more content…
Governments, in peace time, have always had a hard time spending money as economically affective as the private sector. This is one of the reasons why Central Planning that is found in Socialist countries always fails.
This Supply Side approach (which involved the Laffer Curve) became very successful and was eventually referred to as Reaganomics. The Laffer Curve, a key component of the Supply Side approach, was a theory developed and promoted by Arthur Laffer. The theory focused on what happens when the tax rate approaches an unbearable high level. At certain high level the government starts actually receiving less total tax revenue. This unbearable level forces or encourages corporations and individuals to work less and/or actively seek additional tax avoidance …show more content…
For example, tax a one time $10,000 activity at 50% and the government acquires $5,000. But, by lowering the tax rate to 25%, this may encourage the $10,000 activity to occur 5 times. In this case, the government acquires $12,500 in taxes (25% of $10,000 is $2500, $2500 times 5 equals $12,500). Gradually, Reagan’s lower tax rates helped grow the economy and increased the total tax revenue. In fact, the total tax revenue increased by more than 103% from 1981 through 1989. The problem, however, was government spending.
President Reagan continued the process of eliminating Nixon’s price controls. These price controls interfered with the ability of the market to rebalance and lower inflation. Controls were also removed from oil, gas, cable television, long-distance phone service, interstate bus service, and ocean shipping. Reagan, in 1988, also repealed Carter’s 1980 “Windfall Profit Tax”. This tax had increased US’s dependence on foreign
Trouble On The Oil Front, Then A Short Span Of Economic Improvement …
In the 1980s, economic improvement in the US followed President Ronald Reagan’s tax cuts and Paul Volcker’s defeat of runaway inflation. These achievements led to a fairly solid economy that lasted for a few years.
By 1980, it was generally understood that price controls and minimum wage increases were not the answer. Thus, adjustments were made soon after President Reagan took office in 1981. Reagan quickly abolished what remained of oil and gas price controls. Tax reductions were soon introduced and the US economy rapidly expanded.
Reagan Years (1981-1989) …
President Ronald Reagan, as a result of the 1979 Iran oil incident and Carter’s minimum …show more content…
Governments, in peace time, have always had a hard time spending money as economically affective as the private sector. This is one of the reasons why Central Planning that is found in Socialist countries always fails.
This Supply Side approach (which involved the Laffer Curve) became very successful and was eventually referred to as Reaganomics. The Laffer Curve, a key component of the Supply Side approach, was a theory developed and promoted by Arthur Laffer. The theory focused on what happens when the tax rate approaches an unbearable high level. At certain high level the government starts actually receiving less total tax revenue. This unbearable level forces or encourages corporations and individuals to work less and/or actively seek additional tax avoidance …show more content…
For example, tax a one time $10,000 activity at 50% and the government acquires $5,000. But, by lowering the tax rate to 25%, this may encourage the $10,000 activity to occur 5 times. In this case, the government acquires $12,500 in taxes (25% of $10,000 is $2500, $2500 times 5 equals $12,500). Gradually, Reagan’s lower tax rates helped grow the economy and increased the total tax revenue. In fact, the total tax revenue increased by more than 103% from 1981 through 1989. The problem, however, was government spending.
President Reagan continued the process of eliminating Nixon’s price controls. These price controls interfered with the ability of the market to rebalance and lower inflation. Controls were also removed from oil, gas, cable television, long-distance phone service, interstate bus service, and ocean shipping. Reagan, in 1988, also repealed Carter’s 1980 “Windfall Profit Tax”. This tax had increased US’s dependence on foreign