Running head: REAGANOMICS (ECONOMIC RECOVERY TAX ACT)
Reaganomics (Economic Recovery Tax Act)
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Reaganomics (Economic Recovery Tax Act)
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Most researchers and scholars in the field of economics have presented divergent views
on the effects of the Reagan tax cuts of 1981 and the Tax Reforms of 1986. Moreover, some
economists have also tried arguing that there exists no strong relationship between wealthy tax
cut policies and economic growth, citing the tax reforms of 1986 as having no important
macroeconomic effects. When Reagan signed the first major tax cut, the Economy Recovery Tax
Act of 1981, one of its key features being an up to twenty three percent cut on individual income
tax, that saw the marginal tax rate drop from 70% to 50%. According to relevant studies and data
from the Bureau of Economic Analysis, in the following years, there was creation of about 14
million jobs, the individual incomes also grew by up to 23% and during that period, the GDP
also grew by more than 3.5% as well. As per these numbers, one can be mistaken to think that,
the Tax Reforms, especially those of introducing tax cuts such as Reagan’s greatly help in
economic growth (Greenbert et al., 2016).
However, the bitter truth is that this is not usually the case, as discussed by New York
Times in their estimation of the reality of the impact of the Economic Recovery Tax Act. The
New York Times argues that even though the federal tax cuts would ensure the overhaul of cut
taxes for many Americans, creates more jobs and even might raise the GDP, these benefits
usually last for a short while and in the long run, the taxes are usually raised again (Fisher,
2017). Also, such a law that ensures tax cuts might bring with it the unintended effect of raising
the tax bite for states that have income tax. The New York Times further presents that most
people only talk about Reagans tax cuts, but fail to maintain the many raises that were in
between. For instance, the congress shortly raised the taxes after the Tax Reforms Act of 1981
was signed into law.
REAGANOMICS (ECONOMIC RECOVERY TAX ACT)
With the Economic Recovery Act of 1981, President Reagan was trying to steady the
economy of the United States, which had just come from a recession (Lewis, 2017). These tax
cuts that were signed by Reagan into law have been marked the largest tax reductions in the
history of the country. As a result, their effects on the economy were much felt than any other
time.
In conclusion, the United States tax policies have undergone several amendments of
reductions and sometimes raising the tax, ever since the Tax Reforms Act of 1981 was first
signed into law by Reagan. Today however, the economic growth has still slowed down and the
government is still working hard to implement more individual income taxes (Sullivan, 2016).
Nevertheless, most economists have proved that there exists no strong relationship between the
changes of top income tax rates and the economic growth.
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References
Fisher, T. (2017). How past income tax rate cuts on the wealthy affected the economy. Retrieved
from Politico: https://www.politico.com/interactives/2017/gop-tax-rate-cut-wealthy/
Greenbert, S., J. Olson, & S. J. Entin. (2016). Modeling the economic Effects of Past Tax Bills.
Retrieved from Tax Foundation: https://taxfoundation.org/modeling-economic-effectspast-tax-bills/
Lewis, N. (2017, November 8.) Did Ronald Reagan’s 1981 tax cut supercharge the economy?
Retrieved from The Washington Post: https://www.washingtonpost.com/news/factchecker/wp/2017/11/08/did-ronald-reagans-1981-tax-cut-supercharge-theeconomy/?utm_term=.ae4242632007
Sullivan, M. A. (2016). Economic Analysis: A GOP Tax Cut in 2017? Lessons from History.
Retrieved from Tax Analysts: http://www.taxanalysts.org/content/economic-analysisgop-tax-cut-2017-lessons-history
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