Criticism
Critics often point to a decrease in tax revenue as an effect of supply-side economics.[37]
Reagan's tax policies pushed both the international transactions current account and the federal budget into deficit and led to a significant increase in public debt. National debt more than tripled from 900 billion dollars to 2.8 trillion dollars during Reagan's tenure. Advocates of the Laffer curve problematically contend that the tax cuts did lead to a near doubling of tax receipts ($517 billion in 1980 to $1.032 trillion in 1990),[38] so that the deficits were actually caused by an increase in government spending. However, an analysis from the Center on Budget and Policy Priorities argues that "history shows that the large reductions in income tax rates in 1981 were followed by abnormally slow growth in income tax receipts, while the increases in income-tax rates enacted in 1990 and 1993 were followed by sizeable growth in income-tax receipts." Specifically, the analysis calculated that the average annual growth rate of real income-tax receipts per working-age person was 0.2% from 1981 to 1990 and a much higher 3.1% from 1990 to 2001.[39] In 1982, during Reagan's second year in office, the U.S. economy fell into a recession. An accurate accounting indicates that receipts increased from $599 billion in 1981 to $1.032 trillion in 1990, an increase of 72%. In 2005 dollars, the receipts decreased from $1.25 trillion in 1981 to $1.13 trillion in 1983 and did not return to $1.25 trillion until 1985. The receipts in 1990 were $1.5 trillion in 2005 dollars, an increase of only 20%.[40] In contrast, from 1991 to 2000, receipts increased by 90% in current dollars, or 60% in 2005 dollars.
Critics also point to declining real wages as a result of Reaganomics.[41]
The job growth under the Reagan administration was an average of 2.1% per year, with unemployment averaging 7.5%. Comparing the recovery from the 1981-82 recession (1983–1990) with the years between 1971 (end of a recession) and 1980 shows that the rate of growth of real GDP per capita averaged 2.77 under Reagan and 2.50% under Nixon, Ford and Carter. However, the unemployment rate averaged higher under Reagan (6.75% vs. 6.35%), while the average productivity growth was slower under Reagan (1.38% vs. 1.92%), and private investment as a percentage of GDP also averaged lower under Reagan (16.08% vs. 16.86%). Furthermore, real wages declined sharply during the Reagan Presidency.[42]
Another recent critique of Reagan's policies stem from Tax Reform Act of 1986 and its impact on the Alternative Minimum Tax (AMT). The tax reform would ostensibly reduce or eliminate tax deductions. This legislation expanded the AMT from a law for untaxed rich investors to one refocused on middle class Americans who had children, owned a home, or lived in high tax states.[43] This parallel tax system hit middle class Americans the hardest by reducing their deductions and effectively raising their taxes. Meanwhile, the highest income earners (with incomes exceeding $1,000,000) were proportionately less affected, thereby shifting the tax burden away from the richest 0.5% to poorer Americans.[44] In 2006, the IRS's National Taxpayer Advocate's report highlighted the AMT as the single most serious problem with the tax code.[45] As of 2007, the AMT brought in more tax revenue than the regular tax which has made it difficult for Congress to reform.[44]
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