Many Republicans look at Reagan’s policies in the early 1980s and assert that tax cuts pay for themselves. That’s wrong—Reagan’s rate cuts for the rich paid for themselves, but the tax cuts for the poor, the middle class and corporations did not. The deficit increased. But there is a limit to the deficit. At some time the government debt grows so large that it starts to harm the economy through higher interest rates, bigger debt payments, a weaker currency, etc.
a. Explain why Reagan’s tax rate cuts for high income taxpayers may have paid for themselves, but cuts for lower-income and middle-income taxpayers did not.
b. Explain the negative consequences of running persistently large budget deficits.