Economics After Reaganomics

August 21, 1987

Report Outline
Special Focus

Overview

People used to laugh at the Laffer Curve. Seven years ago, this curve on an economic graph was the symbol of an iconoclastic theory known as “supply-side economics.” Its advocates argued that a cut in federal taxes would not increase the budget deficit and worsen inflation but rather would stimulate new investment and productivity and actually bring in more tax revenue.

People still laughed when Ronald Reagan, as a presidential candidate in 1980, made supply-side economics the central tenet of his economic platform. George Bush, running against Reagan for the Republican nomination, called it “voodoo economics.” But in 1981, with Reagan in the White House after a landslide election, Congress approved his proposed tax cut and made supply-side economics national policy.

Over the next two years the country suffered the worst recession since the 1930s, but since then has enjoyed a long period of economic growth that continues today. The tax cut, just as supply-siders predicted, did not lead to worse inflation and was followed by increases in investment. Contrary to their predictions, however, the tax cut also led to enormous increases in the federal budget deficit—from $60 billion before Reagan took office to $208 billion in 1983.

ISSUE TRACKER for Related Reports
Reaganomics
Aug. 12, 1988  Reagan's Economic Legacy
Aug. 21, 1987  Economics After Reaganomics
Jan. 08, 1982  Reaganomics on Trial
BROWSE RELATED TOPICS:
Economic Analyses, Forecasts, and Statistics
Federal Taxes
Inflation