Reaganomics: Definition, Policies, and Impact

What is Reaganomics?

Reaganomics describes the economic program promoted by President Ronald Reagan (1981–1989). It combined large tax cuts, reduced domestic social spending, deregulation of many industries, and support for a tighter monetary policy to fight inflation. The approach drew on supply-side economics and the idea—often labeled “trickle-down”—that tax relief for businesses and high earners would stimulate investment, job creation, and broader economic growth.

Context and objectives

Reagan took office after a period of stagflation—high inflation combined with weak growth and high unemployment. His four principal goals were:

• Reduce government spending on domestic social programs
• Cut taxes for individuals, businesses, and investments
• Roll back regulations that were seen as hindering business
• Support a slower growth of the money supply to curb inflation

Key policies and measures

Tax policy
* Major tax reductions were enacted early in Reagan’s term and again in the mid-1980s. Top marginal individual income-tax rates fell from 70% in 1980 to 50% after early reforms and were reduced further after the 1986 tax reforms. Corporate rates were also lowered.
* Reforms simplified aspects of the tax code by removing some deductions and incentives and by altering depreciation rules to encourage investment.

Spending and budget priorities
* Federal domestic spending on some welfare and social programs was cut or constrained. At the same time, defense spending increased substantially as part of a strategy of “peace through strength.”
* Changes to entitlement administration (for example, stricter enforcement of disability benefits) were controversial and affected many recipients.

Deregulation
* Price controls and restrictions were eased in sectors such as oil and natural gas and long-distance telecommunications.
* Financial-sector deregulation included measures like the Garn–St. Germain Depository Institutions Act (1982), which loosened rules for savings-and-loan institutions.
* Enforcement of some environmental regulations was relaxed and public lands were opened for resource development.

Monetary policy
* Reagan’s administration supported a tight monetary stance—continuing the Federal Reserve’s anti-inflation course begun under Paul Volcker—raising real interest rates to bring down inflation from double digits to low single digits.

Economic outcomes

Short- and medium-term effects often cited in assessments include:

• Inflation fell from very high levels in the late 1970s–early 1980s to low single digits.
• Unemployment declined from recession-era highs to mid-single digits by the late 1980s.
• Real GDP growth resumed, and the stock market experienced sustained gains through the 1980s and beyond.
• Job creation during the 1980s recovery has been estimated in the tens of millions, though methodologies and attributions vary.

Critics and longer-term consequences

Supporters credit Reaganomics with ending stagflation, restoring economic growth, and encouraging entrepreneurship. Critics emphasize several countervailing effects:

• Federal budget deficits and public debt increased markedly during and after the Reagan years.
• Cuts in domestic social spending and tax changes coincided with rising income inequality; many studies find that the benefits of the era disproportionately favored higher-income households.
• Financial deregulation has been linked by some analysts to the savings-and-loan crisis of the late 1980s and, more broadly, to vulnerabilities in the financial system—though causal links to later crises (such as 2008) remain debated among economists.
• Wage growth for middle- and lower-income households lagged behind gains at the top of the income distribution in the decades that followed.

Evidence and debate

Economists remain divided on how much of the 1980s expansion reflected Reagan’s policies versus recovering from an earlier recession and the Federal Reserve’s disinflation. Supply-side claims that tax cuts fully “pay for themselves” remain controversial; empirical work generally finds that large tax cuts boost economic activity but also tend to increase budget deficits and inequality.

Common questions

Did Reagan use the phrase “trickle down”?
There is no record of Reagan using that exact phrase; the term was applied by others to describe the belief that benefits to businesses and high earners would spread through the economy.

Did Reaganomics “work”?
It depends on the metric. Reaganomics coincided with falling inflation, a return to growth, and a strong stock market, but it also coincided with rising deficits and greater income inequality. Assessments vary by political and analytical perspective.

Bottom line

Reaganomics reshaped U.S. economic policy by prioritizing tax cuts, deregulation, and anti-inflationary monetary policy. It helped end stagflation and spurred economic expansion in the 1980s, but it also contributed to larger federal deficits and a distribution of gains that favored higher-income groups. The approach remains influential—and contested—among policymakers and economists.