While Bidenomics is a bad idea, according to voters at least, Trump’s economic model for 2018-19 was dynamic, because it was based almost exclusively on Reaganomics or, as I like to call it: incentive-based economy, aka supply-side economics.
Ronald Reagan was not always an economic conservative, but it is his political evolution that made him so. Jack Kemp, a former vice-presidential candidate and audacious New York congressman who died in 2009, converted him to a supply-side economy. Kemp, and by extension Reagan, influenced a new economic theory that was prominent in the 1980s. This theory influenced not only Donald Trump but also Bill Clinton to a lesser degree.
Trump’s economic policy, like Reagan’s, emphasized incentives for business, lower corporate and individual tax rates, as well as fewer regulations, to promote economic growth and prosperity. Good stuff, all. It is evident from verifiable statistics collected by the Office of Management and Budget and Bureau of Labor Statistics during the Reagan era that an incentive-based economy provides a path to prosperity for the United States. Today, despite Trump’s economic success only a few years ago, an economic growth elixir that promotes growth is urgently needed.
Trump has been blatant in his boasting about his economic record. However, his economic program is based heavily on Reagan’s policies and they have similar results. Reaganomics was built around reducing marginal tax rates, both for individuals and small businesses. It is clear from the data that the tax cuts implemented by President Reagan in the 1980s were beneficial to the economy and his foreign policy.
During Reagan’s presidency, the top tax rate was lowered from a crippling 70 percent to an incredibly reasonable and morally sound 28 percent. The reduction of confiscatory taxes allowed individuals and businesses to spend, save, and invest more. This increase in economic activity, led to an expansion of the economy, as well as creating nearly 20 million jobs and new small businesses. Minority-owned and women-owned companies were also included.
Reaganomics also stressed the importance of reducing regulations for businesses, which allowed the U.S. to innovate and thrive. The BLS data shows the positive effects deregulation had in the 1980s. Deregulation in industries like telecommunications or transportation, for example, led to increased efficiency and competition. The result was lower consumer prices and a stronger and more efficient economy. Deregulation also allowed businesses to better allocate their resources, which in turn created new opportunities for economic expansion to accommodate more emerging industries.
In the 1980s, the marginal tax rate was lowered. This led to an economic expansion lasting 92 months. It is the longest economic expansion in American history and the longest during peacetime. The total federal revenue grew significantly. It more than doubled from 1980 to 1990, going from $517 billion up to $1 trillion. This represents a 28 percent increase in revenues adjusted for inflation. As a percentage, the federal revenue decreased from 18,9 percent to 18 percent despite the reduction of rates. Individual income tax receipts increased as well, from slightly over $244 billion to almost $467 billion. This represents a 25% increase when adjusted for inflation.
Reaganomics was closer to Niagara Falls than “trickle-down economics”, as Joe Biden, the Democratic Party, and others have called it. The term, however, dates from the 1930s. Reagan’s policies led to growth that spurred investment in equipment and plants, but also a higher level of productivity. This helped reduce inflation and set the stage for an economic growth trajectory lasting 92 months. Reagan’s counter-intuitive tax policies indeed laid the foundation for the Internet economy which benefited President Clinton’s strong economy.
The growth in employment and the unemployment rate during Reagan’s tenure as president provide further evidence of Reagan’s economic success. The Gipper created 19.4 million jobs during his tenure in office, the majority of which were jobs for head-of-households. The unemployment rate fell from 9.6 percent to 5.4 percent by the end of his tenure, improving the quality of life for millions of families.
Incentives-based economics encourages greater economic autonomy and freedom for individuals. Reduced taxes and compliance with red and green paper allow businesses and individuals to retain more of their income after tax and pursue entrepreneurial endeavors.
Finally, economic policies modeled after those of President Reagan promise to lead us on a more prosperous path than we have today. It is important to note that this approach does not work for everyone. Fiscal restraint, sound monetary policies, and a highly-skilled labor force are also important factors in fostering economic growth over the long term. Supply-side economics or incentive-based economy can provide a solid basis for economic growth in America. This was demonstrated so clearly in the 1980s, 1990s, and during Trump’s tenure, particularly between 2018 and 2019, before the overreaction of COVID led to the misguided decision that the U.S. economic system would be shut down.