You have to feel the people living in Britain right now. As if the recent hurt of losing their Queen, the insult of having to endure King Charles and the prospect of a cold and costly winter weren’t bad enough, they also have a new Prime Minister who seems determined to do collapse their economy and ruin their pensions.
In Liz Truss’ first financial update after winning the Tory leadership and replacing Boris Johnson, she and her Chancellor of the Exchequer Kwasi Kwarteng tried to channel Margaret Thatcher into cutting the highest tax rate in the country of 45% to 40%. It was a leadership campaign promise they were determined to keep, a promise they believed would help Britons tackle soaring inflation and turn the country around. But rather than boosting Britain’s economy, it nearly killed it – and with it, perhaps, the idea that supply-side economics (the theory that underpinned the policies of Thatcher and Ronald Reagan) is well suited to the challenges of the 21st century.
The new package of economic measures measureswho also deleted a cap on the bonuses that bankers can receive, caused the pound sterling to fall to its the lowest unprecedented level against the US dollar. It pushed global stock markets to new annual lows, forced the Bank of England to to buy £65billion in government bonds and even drew criticism from the International Monetary Fund and Moody’s.
It was just the latest, and perhaps most costly example to date, of why the country’s decision to leave the European Union was actually an act of economic suicide. One wonders if the Canadian politicians who so vigorously encouraged the vote at the time – Andrew Scheer, Jason Kenney and Pierre Poilievre – will finally put away their populist pom-poms for good.
Truss’ government finally back on the tax cut (ironically, just a day after she said it wouldn’t), but the damage to her reputation and the UK economy had already been done. The Truss tax cuts are the latest, albeit the most dramatic, example in recent memory of the high cost of tax cuts for the wealthy.
So far, these examples have done little to deter conservatives from pursuing such policies. On the contrary, the belief that lowering taxes for the wealthy can attract investment, increase productivity, and increase government revenue remains a central tenet of conservative orthodoxy in the Western world. It kept many otherwise reluctant Republicans tied to Donald Trump’s ideologically incoherent regime, and he delivered for them with his administration’s 2017 “Tax Cuts and Jobs Act” a $2.3 trillion gift to the people. high income and business.
At the time, Treasury Secretary Steven Mnuchin claims that “not only will this tax plan be amortized, but it will pay down the debt”. It’s a familiar promise that is regularly made (and subsequently broken) whenever the Conservatives attempt to cut taxes for the wealthy.
As Jim Tankersley noted in a recent New York Times room, a pair of economists from the Urban-Brookings Tax Policy Center in Washington studied the pre-COVID impact of Trump’s tax cuts — and found them deeply inadequate. “Budget cuts have done little to promote job growth or investment outside of the oil and gas sector, which is strongly correlated to the global price of fossil fuels,” Tankersley wrote. “And they found that the cuts significantly reduced federal tax revenue, contrary to Republican promises that the cuts would be amortized by incentivizing additional economic growth.”
Princeton economist Owen Zidar study, which covers decades of U.S. tax data, goes one step further. “The stimulative effects of income tax cuts are largely due to tax cuts for the bottom 90%,” he concludes, “and that the empirical link between job growth and tax changes for the top 10% is small to negligible over a business frequency cycles.
Translation: if you want to create jobs, lower taxes for the working and middle classes instead.
Opinion: Old habits die hard, and few habits are older for conservatives than pushing tax cuts for the rich, writes columnist @maxfawcett for @NatObserver.
But old habits die hard, and few habits are older for conservatives than tax cuts for the wealthy. Witness the recent room in the Toronto Sun by Matthew Lau, adjunct researcher at the Fraser Institute, which took aim at the federal government’s plan to tax luxury goods. “Even if the goal of tax policy is to maximize government revenue – which it shouldn’t be in the first place – reducing the rate of tax on top earners is probably a better idea than increase,” he wrote.
This is the orthodoxy to which Lau, Truss and Danielle Smith of the UCP subscribe: no matter the circumstances or the context, cutting taxes on the wealthy is always a good idea.
Truss may have reason to question that logic, given that she could end up losing her job as a result of her failed attempt to cut taxes. But you can be sure that Canadian conservatives, whether it’s Smith of the UCP or Poilievre of the CCP, will almost certainly ignore the lesson Truss is set to learn.
The real question is who ends up paying the price – and how much it will cost.