Reaganomics is criticized for causing huge budget deficits by cutting taxes while increasing military spending, tripling the national debt, increasing income inequality (benefiting the rich more), deregulating industries (contributing to the S&L crisis and later financial instability), slowing wage growth for typical workers, and leading to cuts in social programs that harmed the poor. Critics argue the promised "trickle-down" didn't fully materialize, as corporations used savings for stock buybacks instead of investment, and the economy saw mixed results, with growth occurring alongside rising inequality and debt.
Interest rates, inflation, and unemployment fell faster under Reagan than they did immediately before or after his presidency. The only economic variable that was lower during period than in both the pre- and post-Reagan years was the savings rate, which fell rapidly in the 1980s.
Though the standard of living rose, its growth was no faster than during 1950-1980. Income inequality increased. The rate of poverty at the end of Reagan's term was the same as in 1980. Cutbacks in income transfers during the Reagan years helped increase both poverty and inequality.
In a 2020 research paper, economists David Hope and Julian Limberg analyzed data spanning 50 years from 18 countries, and found that tax cuts for the rich increased inequality in the short and medium term, and had no significant effect on real GDP per capita or employment in the short and medium term.
Ronald Reagan's presidency faced criticism for escalating the national debt and deficits, widening economic inequality through "Reaganomics," overseeing major financial scandals (like Savings & Loan), worsening the HIV/AIDS crisis due to slow response, intensifying the War on Drugs with disproportionate impact on minorities, and involvement in controversies like the Iran-Contra affair, which involved illegal arms-for-hostages deals. His policies also led to significant cuts in social programs, affecting the poor, and foreign policy actions supporting controversial regimes.
Meanwhile, the tax rate reduction reduced the tax payments of middle class and poor taxpayers. The net effect was a marked shift in the tax burden toward the top 1 percent amounting to about 10 percentage points. Lower top marginal tax rates had encouraged these taxpayers to generate more taxable income.
Criticisms of Thatcherite Economics
The belief in free markets and individual wealth creation undermined the fabric of society encouraging selfishness and an increase in inequality. Thatcherite beliefs include a support for a form of 'trickle down economics' The idea if the rich get richer everyone benefits.
Trickle-down theory is an economic concept suggesting that benefits provided to the wealthy or businesses will eventually "trickle down" to the lower classes in the form of job creation, investment, and economic growth.
In accordance with Reagan's less-government intervention views, many domestic government programs were cut or experienced periods of reduced funding during his presidency. These included Social Security, Medicaid, Food Stamps, and federal education programs.
The Numbers Tell the Story
The combination of tax cuts and deregulation was a catalyst for economic growth and job creation. Several industries experienced expansion, including finance, technology, and manufacturing. During this expansion, business had more capital and flexibility, which led to job creation.
In 1980 Ronald Reagan was elected and promised to cut the top marginal tax rate. This he did, and the top marginal tax rate was lowered over his 8 years in office from 73% to 28% on incomes over just $29,750 - the lowest this rate had been since 1925.
President Reagan signed major bipartisan Social Security reforms in 1983, primarily to address funding shortfalls, which included making some benefits taxable, gradually raising the full retirement age to 67, and accelerating payroll tax increases; he also signed legislation restoring minimum benefits and increasing penalties for misuse of Social Security numbers.
The primary objective of the Act was to lower taxes on higher income earners to encourage more economic growth and investment that would benefit everyone in the nation. This is why Reaganomics and supply economic theories are often referred to as “trickle down economics.”
Trickle-down economics suggests that tax cuts for the wealthy and corporations will eventually benefit everyone by boosting economic growth. Critics argue that trickle-down policies can increase income inequality and do not guarantee benefits to lower-income earners.
For example, the wealth tax could discourage risky investments, such as angel investing and entrepreneurship. In our capitalistic system, such investments are believed to help facilitate job growth and innovation, and a wealth tax could have the opposite effect.
Multiple other analyses have found that higher debt and deficits lead to upward pressure on interest rates. Paying for the cost of extending and expanding tax cuts will directly lead to lower interest rates than extension without offsets. Lower interest rates mean lower borrowing costs throughout the economy.
Walter Anderson, an entrepreneur and billionaire, was convicted of the largest tax evasion case in American history. At the time of his conviction, he owed the United States government nearly a quarter of a billion dollars in back taxes. Perhaps the most notorious tax evasion scandal of all is that of Al Capone.
Scandals of the Reagan administration
In that speech, Reagan referred to the Soviet Union as an "evil empire" and as "the focus of evil in the modern world".