In the last year of the Carter Administration (1980) the US inflation rate climbed to a peak of 14.8%, the top individual tax payer rate was 78%, unemployment was 7.4%, federal outlay was 17% higher than the economy's growth rate, and the federal government grew while enacting loads of new spending programs. During this period, the US economy was the worst it had been since the Great Depression of the 1930s.[citation needed] The nation was in quite a deep hole of economic collapse when the new president Ronald Reagan took office in January 1981.[citation needed] Reagan had to devise a constructive, sound tax and monetary policy to pull the US out of its economic low point.[citation needed]
Stephen Moore of the Cato Institute stated that "no act in the last quarter century had a more profound impact on the US economy of the eighties and nineties than the Reagan tax cut of 1981." He claims that Reagan's tax cuts, combined with an emphasis on federal monetary policy, deregulation, and expansion of free trade created a sustained economic expansion creating America's greatest sustained wave of prosperity ever. The American economy grew by more than a third in size, producing a $15 trillion increase in American wealth. Every income group, from the richest, middle class and poorest in this country, grew its income (1981-1989). Consumer and investor confidence soared. Cutting federal income taxes, cutting the US government spending budget, cutting useless programs, scaling down the government work force, maintaining low interest rates, and keeping a watchful inflation hedge on the monetary supply was Ronald Reagan's formula for a successful economic turnaround. The economic principle that business expansion, jobs and wealth follow low tax rates is widely accepted.[
