page_title: Ronald Reagan
section_title: "Reaganomics" and the economy
hierarchical_section_title: Ronald Reagan / Presidency (1981–1989) / First term / "Reaganomics" and the economy
context_page_description: Ronald Wilson Reagan was an American politician who served as the 40th president of the United States from 1981 to 1989 and became a highly influential voice of modern conservatism. Prior to his presidency, he was a Hollywood actor and union leader before serving as the 33rd governor of California from 1967 to 1975.
  Reagan was raised in a low-income family in small towns of northern Illinois. He graduated from Eureka College in 1932 and worked as a radio sports commentator. After moving to California in 1937, he found work as an actor and starred in a few major productions. As president of the Screen Actors Guild, Reagan worked to root out communist influence. In the 1950s, he moved into television and was a motivational speaker at General Electric factories. In 1964, his speech "A Time for Choosing" earned him national attention as a new conservative spokesman. Building a network of supporters, Reagan was elected governor of California in 1966. As governor, he raised taxes, turned a state budget deficit to a surplus, challenged the protesters at UC Berkeley, and ordered in National Guard troops during a period of protest movements.
context_section_description: During Jimmy Carter's last year in office (1980), inflation averaged 12.5 percent, compared with 4.4 percent during Reagan's last year in office (1988). During Reagan's administration, the unemployment rate declined from 7.5 percent to 5.4 percent, with the rate reaching highs of 10.8 percent in 1982 and 10.4 percent in 1983, averaging 7.5 percent over the eight years, and real GDP growth averaged 3.4 percent with a high of 8.6 percent in 1983, while nominal GDP growth averaged 7.4 percent, and peaked at 12.2 percent in 1982.
  Reagan implemented policies based on supply-side economics, advocating a laissez-faire philosophy and free-market fiscal policy, seeking to stimulate the economy with large, across-the-board tax cuts. He also supported returning the United States to some sort of gold standard and successfully urged Congress to establish the U.S. Gold Commission to study how one could be implemented. Citing the economic theories of Arthur Laffer, Reagan promoted the proposed tax cuts as potentially stimulating the economy enough to expand the tax base, offsetting the revenue loss due to reduced rates of taxation, a theory that entered political discussion as the Laffer curve. Reaganomics was the subject of debate with supporters pointing to improvements in certain key economic indicators as evidence of success, and critics pointing to large increases in federal budget deficits and the national debt. His policy of "peace through strength" resulted in a record peacetime defense buildup including a 40 percent real increase in defense spending between 1981 and 1985.
  During Reagan's presidency, federal income tax rates were lowered significantly with the signing of the Economic Recovery Tax Act of 1981, which lowered the top marginal tax bracket from 70 percent to 50 percent over three years (as part of a "5–10–10" plan), and the lowest bracket from 14 percent to 11 percent. Other tax increases passed by Congress and signed by Reagan ensured however that tax revenues over his two terms were 18.2 percent of GDP as compared to 18.1 percent over the 40 years of 1970–2010. The 1981 tax act also required that exemptions and brackets be indexed for inflation starting in 1985.
  Conversely, Congress passed and Reagan signed into law tax increases of some nature in every year from 1981 to 1987 to continue funding such government programs as Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Social Security, and the Deficit Reduction Act of 1984 (DEFRA). TEFRA was the "largest peacetime tax increase in American history." Gross domestic product (GDP) growth recovered strongly after the early 1980s recession ended in 1982, and grew during his eight years in office at an annual rate of 7.9 percent per year, with a high of 12.2 percent growth in 1981. Unemployment peaked at 10.8 percent monthly rate in December 1982—higher than any time since the Great Depression—then dropped during the rest of Reagan's presidency. Sixteen million new jobs were created, while inflation significantly decreased. The Tax Reform Act of 1986, another bipartisan effort championed by Reagan, simplified the tax code by reducing the number of tax brackets to four and slashing several tax breaks. The top rate was dropped to 28 percent, but capital gains taxes were increased on those with the highest incomes from 20 percent to 28 percent. The increase of the lowest tax bracket from 11 percent to 15 percent was more than offset by the expansion of personal exemption, standard deduction, and earned income tax credit. The net result was the removal of six million poor Americans from the income tax roll and a reduction of income tax liability at all income levels.
  The net effect of all Reagan-era tax bills was a 1 percent decrease in government revenues when compared to Treasury Department revenue estimates from the Administration's first post-enactment January budgets. However, federal income tax receipts increased from 1980 to 1989, rising from $308.7 billion to $549 billion or an average annual rate of 8.2 percent (2.5 percent attributed to higher Social Sec
caption: Reagan addresses Congress on the Program for Economic Recovery, April 28, 1981 (a few weeks after surviving an assassination attempt)