Ronald Reagan supported a plan called supply-side or trickle-down economics. He proposed a phased 30% tax cut for the first three years of his Presidency. The bulk of the cut was concentrated at the upper income levels. According to this theory, tax relief for the rich would enable them to spend and invest more, which would stimulate the economy and create new jobs for ordinary citizens.

This plan sparked a deep recession in 1981-1982. The high interest rates caused the value of the dollar to rise on the international exchange market, making American goods more expensive abroad. As a result, exports decreased while imports increased. The economy stabilized in 1983, and the remaining years of Reagan's administration showed national growth.

The defense industry boomed as well. Reagan insisted that the United States was vulnerable to the Soviet Union regarding nuclear defense. Massive government contracts were awarded to defense firms to upgrade the nation's military.

Economists disagree over the achievements of “Reaganomics.” Tax cuts plus increased military spending cost the federal government trillions of dollars. Congress approved his tax and defense plans, but refused to make any deep cuts to the welfare state. The results were skyrocketing deficits.

The national debt tripled from one trillion to three trillion dollars during the Reagan years. The growth that Americans enjoyed during the 1980s came at a huge price for the generations to follow.

Source: Reaganomics
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