What did Reaganomics do?

A) Reduce military spending
B) Extend the space program
C) Reduce welfare payments
D) Extend the Great Society

C: reduce welfare payments

Explanation:

Reaganomics and Tax Cuts

Congress cut the top tax rate from 70% to 50% in 1981. This helped spur growth in gross domestic product for the next several years. The economy grew 4.6% in 1983, 7.3% in 1984, and 4.2% in 1985.

Economic growth reduced unemployment for the next several years. It was 8.5% in December 1981. The minimum wage was $3.35 an hour. Congress passed the Job Training Partnership Act in 1982, establishing job training programs for low-income people. The unemployment rate rose to 10.8% by December 1982, then it fell to 8.3% in 1983, 7.3% in 1984, and 7% by December 1985. Reagan cut the tax rate again, to 38.5% this time, in 1986.

Growth was a healthy 3.5% by the end of 1986, but the unemployment rate was 6.6%. It was still higher than the natural rate of unemployment. Reagan cut taxes again to 28%. Growth bounced up to 4.2% in 1987 and unemployment fell to 5.7%. Growth leveled out at 3.7% in 1988 and unemployment fell to 5.3%.

The Policies of Reaganomics

Reagan based Reaganomics them on the theory of supply-side economics. This theory proposes that tax cuts encourage economic expansion enough to broaden the tax base over time. The increased revenue from a stronger economy is supposed to offset the initial revenue loss from the tax cuts.

But according to the Laffer Curve explanation, this only works if the initial tax rates are high enough. High taxes fall in the curve’s “Prohibitive Range.” Reagan's first tax cuts worked because tax rates were so high, but the 1986 and 1987 tax cuts weren't as effective because tax rates were already reasonable at that time.

Reagan also offset these tax cuts with tax increases elsewhere. He raised Social Security payroll taxes and some excise taxes, and he cut several deductions.

Reagan cut the corporate tax rate from 46% to 40%, but the effect of this break was unclear. He changed the tax treatment of many new investments. The complexity meant that the overall results of his corporate tax changes couldn't be measured.

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