Do tax cuts stimulate the economy? - Jonathan Smith
370,254 Views
3,594 Questions Answered
TEDEd Animation
Let’s Begin…
In 1981, the US economy was struggling: unemployment rates were climbing and inflation had peaked at an all-time high. To combat these issues, President Reagan introduced a number of economic policies, including tax cuts for large corporations and high-income earners. But did these policies actually stimulate economic growth or improve circumstances for Americans? Jonathan Smith investigates.
Additional Resources for you to Explore
The topic of trickledown economics is really broad and there are a number of opportunities to dig deeper and learn more about economics.
The Laffer Curve: There is a theory behind the idea of different tax rates creating different tax revenues known as The Laffer Curve. At 0% tax there is zero revenue because nobody pays tax and at 100% tax there is also zero revenue because nobody would work. Because of this, Laffer theorizes that there is an optimum point in which tax revenue is highest. Therefore cutting taxes from above this optimum point could lead to higher tax revenues. More details here.
Raeganomics: President Reagan implemented a number of economic policies and this coined the term “Raeganomics.” These included but were not limited to:
- Reducing government spending
- Reducing taxes
- Reducing regulations
- Slowing down money growth to control inflation
More info can be found here
Supply Side Economics: Economic policy is divided into supply-side and demand-side. Trickledown economics is a supply-side policy. An introduction to supply and demand can be found here with a really useful page on supply-side economics here. More information around trickledown economics specifically is here.
The Kansas State Example: The Kansas example in the video gives an example of where supply side economics didn’t work and is available here.
The Laffer Curve: There is a theory behind the idea of different tax rates creating different tax revenues known as The Laffer Curve. At 0% tax there is zero revenue because nobody pays tax and at 100% tax there is also zero revenue because nobody would work. Because of this, Laffer theorizes that there is an optimum point in which tax revenue is highest. Therefore cutting taxes from above this optimum point could lead to higher tax revenues. More details here.
Raeganomics: President Reagan implemented a number of economic policies and this coined the term “Raeganomics.” These included but were not limited to:
- Reducing government spending
- Reducing taxes
- Reducing regulations
- Slowing down money growth to control inflation
More info can be found here
Supply Side Economics: Economic policy is divided into supply-side and demand-side. Trickledown economics is a supply-side policy. An introduction to supply and demand can be found here with a really useful page on supply-side economics here. More information around trickledown economics specifically is here.
The Kansas State Example: The Kansas example in the video gives an example of where supply side economics didn’t work and is available here.
About TED-Ed Animations
TED-Ed Animations feature the words and ideas of educators brought to life by professional animators. Are you an educator or animator interested in creating a TED-Ed Animation? Nominate yourself here »
Meet The Creators
- Educator Jonathan Smith
- Director Gavin Edwards, Movult
- Narrator Addison Anderson
- Animator Movult
- Art Director Movult
- Sound Designer Cem Misirlioglu
- Director of Production Gerta Xhelo
- Editorial Director Alex Rosenthal
- Producer Bethany Cutmore-Scott
- Editorial Producer Elizabeth Cox
