Full notes(pdf) from textbook for Unit 1F: In Search of the American Dream- Topic 5 : The Impact of the Reagan Presidency, 1981-96
Revision Notes Edexcel AS/A Level
American Dream
1.5- The Impact of the Reagan presidency, 1981-96
Introduction:
- Reagan came to power promising change and to lead, not just to crisis manage
- He wanted a shift from the “Great Society” policies of liberalism
- Vowed that his domestic policies would fix the economy, lower tasex and reduce “big
government”
Reaganism and Reaganomics- a new departure?
- He was a change from the 1960s and 70s- however, it was similar to the Republican
government of 1920s
- Reduction of “big government” was a return to “laissez-faire”
- Union membership fell and the government, and many businesses, portrayed union
membership as “un-American”
- Allowed for the creation of big business corporations
- Believed in significant tax reductions- reduced top-level personal tax rates
- New industries flourished while farming and mining suffered
- Created economies where the wealth was focused at the top
- Encouraged financial speculation- led to stockmarket crashes
- Believed in “rugged individualism” - economy where people could flourish
The political scene when Reagan came to power:
- People not only doubted the government, they had severe doubts about the future
Reagan’s beliefs:
- Was a committed Christian
- Believed in traditional family values and prayer in schools
- Spoke out against abortion
- His government was not as conservative as many of the religious right who had
supported him would have hoped
What effect did Reagan’s economic policies have?
Immediate Action:
- His domestic policies focused on the economy
- He wanted to control government spending, to reduce government involvement and to
cut taxes
- Within 3 days, he sacked many White House staff members and put a federal
government hiring freeze in place
, The plan for reform:
- Reagan wanted to present his whole budget policy through to 1984 as a single bill when
he met Congress
Reaganomics:
- The plan had four parts and stressed the importance of passing the legislation quickly
- - Cutting the federal deficit
- - Personal and business tax reduction
- - Deregulation
- - Planned control of the money supply
Getting the legislation passed:
- The White House only had to win the support of 26 Democrats in the House to pass its
legislation- made pushing through the budget and tax bills easier
- Tax legislation: Senate changed tax reduction to 25%, Democrats felt that they had been
manipulated and the White House offered tax concessions to some Democrats
- ERTA (Economic Recovery Tax Act 1981)- cut marginal income by 23% over 3 years
and linked the tax bands to inflation- benefitted those who were paying higher tax ;
business tax rates were reduced and business tax breaks
Interpretations of the effect of Reagan’s policies:
- Reagan’s policies of tax cuts and money supply control were intended to stop inflation;
reduce employment; increase personal wealth; increase productivity; encourage
personal saving and investing; and encourage businesses and service providers to
produce more- wanted federal spending and the federal deficit to fall
Did the policies stop inflation and unemployment?
- Put pressure on the Federal Reserve Board (FRB) to put tighter restrictions on the
money supply
- The money supply restriction led to a sharp rise in interest rates
- Hurt industries that had to buy supplies on credit or had loans with a long pay-back
period
- Many businesses were badly hit
- Unemployment went up
- Inflation did begin to fall
Did the policies increase personal wealth?
- The rich became richer and the poor did not
- Tax cuts hurt the rich the most and the poor least
Did the policies increase productivity?
- Most usual approaches are to calculate the output per worker per hour or to calculate
GDP
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