President Reagan’s supply-side economic policies, often called Reaganomics, set out to grow the economy by cutting taxes and deregulating some industries. Supply-side economics depended on the idea that corporations and wealthy individuals would reinvest the money they saved by paying lower taxes to build businesses, create jobs, boost profits, and spur economic growth. In Reagan’s first year in office, he engineered a three-stage 25 percent income tax reduction. In the Tax Reform Act of 1986, the top marginal rate (the tax paid by the highest income earners) was lowered to 28 percent.
Deregulation
Deregulation, or the removal of government regulations on some industries, would, it was hoped, lower costs and boost profits for employers while lowering prices for consumers. During Reagans’ first term, the trucking and telephone industries were deregulated, and clean air standards for cars were lowered.
Reagan often said that “Government is not the solution to our problem, government is the problem,” and memorably quipped: “The nine most terrifying words in the English language are: I’m from the Government, and I’m here to help.” In practice, however, Reagan was more moderate than his language let on. He cut taxes when possible, but aggregate tax receipts during his presidency remained similar to those of his more liberal predecessors.
Although Democrats blocked many of his efforts to limit government expenditures through cuts to social welfare programs, Reagan succeeded in making cuts to spending on food stamps, low-income housing, and school lunch programs. He also reduced the percentage of federal expenditures on education and promoted the transfer of some federal control and expenditures to state government.