Reagan Signs ERTA: Massive Tax Cuts for Wealthy Begin Inequality Explosion

President Ronald Reagan signs the Economic Recovery Tax Act (ERTA), enacting sweeping tax cuts that disproportionately benefit the wealthy and inaugurate the “supply-side economics” era. The legislation slashes the top marginal tax rate from 70% to 50% and the bottom rate from 14% to 11%, with combined 1981 and 1986 reforms ultimately reducing top rates to around 30%. Proponents claim the tax cuts will stimulate investment and economic growth that “trickles down” to all Americans, but critics note the benefits flow overwhelmingly to high-income earners and corporations.

ERTA costs the federal government an estimated $2 trillion in lost revenue between 1982-1991, contributing to an explosion in deficit spending. Between 1982 and 1989, the national debt nearly triples from $1.1 trillion to $2.9 trillion despite promises that economic growth would offset revenue losses. The tax cuts accelerate wealth inequality as the rich capture most economic gains while real wages for working Americans stagnate. The wealth gap between rich and poor vastly increases during the Reagan years, beginning a pattern of upward wealth redistribution that continues for decades.

The Economic Recovery Tax Act represents a fundamental ideological shift away from progressive taxation and New Deal social programs toward corporate-friendly policies justified by “trickle-down” theory. While GDP growth occurs during the 1980s, economists note the benefits accrue primarily to upper-income brackets while poverty rates remain elevated and social mobility declines. The ERTA establishes the Republican Party’s core economic orthodoxy for the next four decades: tax cuts for the wealthy will solve all economic problems, evidence notwithstanding.