President Reagan was a great promoter of 'supply-sideeconomics", a theory that held that four central policies: Lowermarginal tax rates, less regulation, restrained government…spending, and tightening the money supply would lead to economicgrowth. Lowering the tax rate was based on the idea that lowertaxation would lead to increased spending and investment, which inturn would lead to increased government revenue despite the loweredrates. .
Part of the problem in real life is that in politics you neverend up with the pure and neat theoretic model you start out with.So although Reagonomics worked for awhile, Reagan himself had toundo many of his original tax cuts later on, because people andcompanies used their tax windfalls for a lot of other things tooand Federal revenue based on extra activity fell short ofexpectations. A major effect of Reaganomics was that under Reaganthe national debt tripled from less than one to almostthree trillion dollars. Restraining Government spending turned outto be wishful thinking: Reagan greatly increased Governmentspending instead of curbing it. 'Less regulation' was low onReagan's priority list but ultimately led to the big - and verycostly - Savings and Loans scandal. Reagan considered the huge risein Government debt 'the great disappointment of his Presidency',but he should not have been that surprised: Earlier, whenGovernor of California, State debt had also exploded under hisrule. ( Full Answer )