The Laffer curve and supply-side economics inspired Reaganomics and the Kemp-Roth Tax Cut of 1981. Supply-side advocates of tax cuts claimed that lower tax rates would generate more tax revenue because the United States government's marginal income tax rates prior to the legislation were on the right-hand side of the curve. This assertion was derided by George H. W. Bush as "voodoo economics" while running against Reagan for the Presidential nomination in 1980.[42] During the Reagan presidency, the top marginal rate of tax in the United States fell from 70% to 31%. According to the Office of Management and Budget (OMB) historical data, federal government revenue as a percentage of GDP fell from 19.0% of GDP in 1980 to 18.4% by 1989.[citation needed]
David Stockman, Ronald Reagan's budget director during his first administration and one of the early proponents of supply-side economics, was concerned that the administration did not pay enough attention to cutting government spending. He maintained that the Laffer curve was not to be taken literally—at least not in the economic environment of the 1980s United States. In The Triumph of Politics, he writes: "[T]he whole California gang had taken [the Laffer curve] literally (and primitively). The way they talked, they seemed to expect that once the supply-side tax cut was in effect, additional revenue would start to fall, manna-like, from the heavens. Since January, I had been explaining that there is no literal Laffer curve."[43] Stockman also said that "Laffer wasn't wrong, he just didn't go far enough" (in paying attention to government spending).[44]
Some have criticized elements of Reaganomics on the basis of equity. For example, economist John Kenneth Galbraith believed that the Reagan administration actively used the Laffer curve "to lower taxes on the affluent".[45] Some critics point out that tax revenues almost always rise every year, and during Reagan's two terms increases in tax revenue were more shallow than increases during presidencies where top marginal tax rates were higher.[46] Critics also point out that since the Reagan tax cuts, income has not significantly increased for the rest of the population. This assertion is supported by studies that show the income of the top 1% nearly doubling during the Reagan years, while income for other income levels increased only marginally; income actually decreased for the bottom quintile.[47]
During Reagan's presidency, the national debt grew from $997 billion to $2.85 trillion.[48] This led to the U.S. moving from the world's largest international creditor to the world's largest debtor nation.[49]
