10 When the Reagan administration took office in 1981, its fiscal strategy was to reduce government expenditures and tax rates. Since the proponents of the Reagan plan believed that lower tax rates would stimulate income, they expected that the tax cut would lead to only a small reduction in tax revenues. Thus, if government expenditures were reduced, the size of the budget deficit could also be reduced (or at least maintained within manageable proportions). The proponents of this strategy believed it would stimulate aggregate supply while retarding aggregate demand and thereby reduce the inflationary pressures.