{"id":257,"date":"2025-05-15T16:20:29","date_gmt":"2025-05-15T20:20:29","guid":{"rendered":"https:\/\/courses.bowdoin.edu\/economics-1102-spring-2025\/?p=257"},"modified":"2025-05-21T16:04:45","modified_gmt":"2025-05-21T20:04:45","slug":"reaganomics-tax-cuts-and-income-inequality","status":"publish","type":"post","link":"https:\/\/courses.bowdoin.edu\/economics-1102-spring-2025\/us-policy\/reaganomics-tax-cuts-and-income-inequality\/","title":{"rendered":"Reaganomics, Tax Cuts, and Income Inequality"},"content":{"rendered":"

By Aidan Aybar and Haley McGill<\/strong><\/h2>\n

Ronald Reagan was elected as the 40th President of the United States in 1980 and served from 1981-1989. He was a member of the Republican party, he enacted many conservative policies during his two terms, including a set of economic policies that came to be known as “Reaganomics”.\u00a0<\/span><\/p>\n

Reagan focused on \u201csupply side\u201d economics and the idea that tax cuts would expand the economy and increase federal government revenue (Reagan Library). The 1970\u2019s were a period of economic stagnation and inflation. During this time, \u201cthe inflation rate peaked at just over 13 percent, and prime interest rates rose as high as 21-and-a-half percent\u201d (Gramm). When Reagan took office, he sought to improve the economy and took a different approach to solve the problem.\u00a0<\/span><\/p>\n

To do this, Reagan took several steps during his first year. Reaganmoics included policies such as \u201cengineer[ing] the passage of $39 billion in budget cuts into law\u201d, \u201c25 percent tax cut spread over three years for individuals\u201d, and \u201cfaster write-offs for capital investment for business\u201d (Reagan Library).<\/span><\/p>\n

The tax cuts had significant impacts on the economy and functioned as an expansionary policy. Inflation dropped from 13.5% in 1980 to 5.1% in 1982 and a recession set in with unemployment levels of over 10% in October of 1982 (Reagan Library). For the remainder of Reagan\u2019s two terms, there was record economic growth and low unemployment rates along with \u201crecord annual deficit and a ballooning national debt\u201d (Reagan Library).\u00a0<\/span><\/p>\n

In 2017, Donald Trump \u201csigned into law the biggest tax overhaul since the Tax Reform Act of 1986\u201d (Gale et al). These tax cuts are expiring soon, but the current administration is in favor of extending them. Over the past 40 years, \u201cincome inequality has increased sharply\u201d (Tax Policy Center). Income taxes can help mitigate income inequality as \u201chigh-income households pay a larger share of their income in total federal taxes than low-income households\u201d (Tax Policy Center). Therefore, it is important to investigate the historical impacts of Reagan\u2019s tax cuts on inequality as the current administration seeks to enact similar economic policies.<\/span><\/p>\n

<\/p>\n

Data Analysis:<\/b><\/p>\n

Figure 1 shows the Gini coefficient calculated using household income over time in the United States using data from the US Census Bureau. The Gini coefficient is a measure of inequality of resource (e.g., income) distribution in a population, with values closer to 0 meaning a more equal distribution of income (i.e., everyone has the same income) and values closer to 1 meaning a more unequal distribution (the richest have a greater share of income). Prior to these major tax cuts, the Gini coefficient hovered around 0.33 with minimal fluctuation.\u00a0<\/span><\/p>\n

We see a break from this trend in 1981, in the year that the first Regan tax cut was implemented. The Gini coefficient increases and continues to trend upwards throughout the remainder of the time captured in the data set. Though there was a slight dip after the second Reagan tax cut, the upward trend continued in the coming years. This graph thus demonstrates that the time after the Reagan tax cuts was associated with rising income inequality.<\/span><\/p>\n

Figure 2 depicts the 90\/10 ratios for income for men and women in the United States over time. This measurement captures the difference in income for individuals at the 90th percentile of income vs individuals at the 10th percentile. The higher the 90\/10 ratio, the higher the income of the richest individuals in relation to some of the poorest.\u00a0<\/span><\/p>\n

The data for men and women is separated as the average income for each group is significantly different \u2013 the general income levels for women being lower than those of men. The data for each demographic follows a nearly identical trend here, showing that income inequality follows very similar trajectories for men and women. The story this graph tells is very similar to that which is told by the Gini coefficient graph. Prior to the tax cuts, there was some fluctuation, but general steadiness for this measure. However, once again, the beginning of the tax cuts corresponds with a significant upward trend in the 90\/10 Ratio.\u00a0<\/span><\/p>\n

\"\"<\/p>\n

Figure 1<\/p>\n

\"\"<\/p>\n

Figure 2<\/p>\n

Conclusion:<\/b><\/p>\n

After a decade of economic stagnation and inflation, Ronald Reagan took office and began implementing \u201cReaganomics\u201d to address these issues. By implementing tax cuts and other supply-side economics methods, Reagan sought to improve the economy. These measurements of income inequality in the United States suggest that Reagan\u2019s tax cuts which theoretically sought to improve the state of the economy for all Americans actually exacerbated and accelerated income inequality in the United States. Though most would agree that there is a place for some income inequality, it seems clear that policies emphasizing tax cuts for the rich do not fulfill their promise to poorer Americans. Given this, as politicians make policy considerations today, if their goal is to reduce the stark inequality which exists, this data suggests that tax cuts for the rich are not the solution.<\/span><\/p>\n

Bibliography:<\/b><\/p>\n

Arthur F. Jones Jr., Daniel H. Weinberg<\/span>. \u201cThe Changing Shape of the Nation\u2019s Income\u00a0<\/span>Distribution: 1947-1998.\u201d U.S. Census Bureau, June 2000, <\/span>https:\/\/www.census.gov\/data\/tables\/time-series\/demo\/income-poverty\/p60-204.html<\/span><\/a>\u00a0<\/span>Accessed 25 Apr. 2025<\/span><\/p>\n

Gale, William G., et al. \u201cEffects of the Tax Cuts and Jobs Act: A Preliminary Analysis.\u201d\u00a0<\/span>Brookings Institution, 9 June 2021, <\/span>https:\/\/www.brookings.edu\/articles\/effects-of-the-tax-cuts-and-jobs-act-a-preliminary-ana<\/span>lysis\/.<\/span><\/p>\n

Roberts, Edwin J. \u201cReaganomics and the American Character.\u201d Imprimis, Hillsdale College, vol.\u00a0<\/span>10, no. 4, Apr. 1981, https:\/\/imprimis.hillsdale.edu\/reaganomics-and-the-american-character\/.<\/span><\/p>\n

Ronald Reagan Presidential Library and Museum. \u201cThe Reagan Presidency.\u201d National Archives\u00a0<\/span>and Records Administration,<\/span> https:\/\/www.reaganlibrary.gov\/reagans\/reagan-administration\/reagan-presidency. Accessed 24 Apr. 2025.<\/span><\/p>\n

Tax Policy Center. “How Do Taxes Affect Income Inequality?” <\/span>Tax Policy Center<\/span><\/i>, 2023,<\/span>\u00a0 <\/span><\/a>https:\/\/taxpolicycenter.org\/briefing-book\/how-do-taxes-affect-income-inequality<\/span><\/a>.<\/span><\/p>\n

U.S. Department of Commerce. \u201cGeographic Inequality Is on the Rise in the U.S.\u201d U.S.\u00a0<\/span>Department of Commerce, 26 June 2023,<\/span>\u00a0 <\/span><\/a>https:\/\/www.commerce.gov\/news\/blog\/2023\/06\/geographic-inequality-rise-us<\/span><\/a>.<\/span><\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

By Aidan Aybar and Haley McGill Ronald Reagan was elected as the 40th President of the United States in 1980 and served from 1981-1989. He was a member of the Republican party, he enacted many conservative policies during his two terms, including a set of economic policies that came to be known as “Reaganomics”.\u00a0 Reagan […]<\/p>\n","protected":false},"author":1575,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6],"tags":[],"class_list":["post-257","post","type-post","status-publish","format-standard","hentry","category-us-policy"],"_links":{"self":[{"href":"https:\/\/courses.bowdoin.edu\/economics-1102-spring-2025\/wp-json\/wp\/v2\/posts\/257","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/courses.bowdoin.edu\/economics-1102-spring-2025\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/courses.bowdoin.edu\/economics-1102-spring-2025\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/courses.bowdoin.edu\/economics-1102-spring-2025\/wp-json\/wp\/v2\/users\/1575"}],"replies":[{"embeddable":true,"href":"https:\/\/courses.bowdoin.edu\/economics-1102-spring-2025\/wp-json\/wp\/v2\/comments?post=257"}],"version-history":[{"count":0,"href":"https:\/\/courses.bowdoin.edu\/economics-1102-spring-2025\/wp-json\/wp\/v2\/posts\/257\/revisions"}],"wp:attachment":[{"href":"https:\/\/courses.bowdoin.edu\/economics-1102-spring-2025\/wp-json\/wp\/v2\/media?parent=257"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/courses.bowdoin.edu\/economics-1102-spring-2025\/wp-json\/wp\/v2\/categories?post=257"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/courses.bowdoin.edu\/economics-1102-spring-2025\/wp-json\/wp\/v2\/tags?post=257"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}