The Pros And Cons Of Supply-Side Economics

3. In 1981, Regan convinced Congress to reduce the top tax rate from 70 percent to 50 percent and to index tax brackets to take inflation into account, five years later, the Tax Reform Act reduced the rate on the wealthiest Americans by a mere 28 percent (Foner 1051). Reagan also appointed conservative heads of regulatory agencies, who cut back on environmental protection and workplace safety rules about which business had complained for years (Foner 1051). Reagan’s economic program, was collectively known as “supply side economics” by proponents and “trickle-down economics” by critics, relied on high interest rates to curb inflation and lower tax rates, especially for businesses and high income Americans, to stimulate private investment. The policy assumed that cutting taxes would inspire Americans from all income levels to work harder, since they would keep more of the funds that they earned. Everyone would benefit from increased business profits, and because of a booming economy, the government receipts would increase in spite of the lower tax rates (Foner 1051). The opposite economic theory was the principle of progressivity. This was the idea that the wealthy should pay a higher percentage of their income in taxes than any other citizens. This was also one of the ways that twentieth-century societies attempted to address the unequal distribution of

A long period economic expansion, however, followed the downturn of 1981-1982. As companies continued to downsize their workforces, shifter production overseas, and took advantage of new technologies such as satellite communications, they became more profitable. At the same token, the rate of inflation, a mere 13.5 percent at the beginning of 1981, declined significantly to 3.5 percent in 1988, mainly because a portion of expanded oil production that was responsible for decreasing prices succeeded the shortages of the 1970s (Foner