Pressure is building on Rishi Sunak to tax the City financiers and business owners that conventional Tory thinking states will quit Britain – or, less theatrically, restrain their entrepreneurial instincts – if they are forced to contribute more to the communal pot.
Study after study shows that the tenets of free-market thinking are deeply flawed and that nations that follow a tax-cutting agenda do nothing for the underlying strength of their economies.
The latest examination of the subject comes from the London School of Economics. It studied fiscal policies in 18 countries over 50 years and concluded that tax cuts for the rich have never trickled down and only really benefit those individuals who are directly affected.
The paper found that cutting the top rates of tax filled the pockets of higher earners and increased inequality. It did little, if anything, to stimulate business investment.
This might seem obvious to anyone on the left of the political spectrum, who will have long since dismissed the trickle-down theory of economics. But it is a mantra on the right and remains a cornerstone of the argument for tax cuts.
Mitch McConnell, the Republican Senate majority leader, took pains to say goodbye to Donald Trump with a list of achievements over the last four years. One that made him particularly proud was the economic boom that was kicked off by the biggest tax cuts for the rich since Ronald Reagan’s time in the Oval Office.
This, he argued, had given rise to pay rises across the board, and especially for low-income workers. And he is not the only rightwing politician or thinktank economist in the US to credit the cuts with a boost to investment and wages.
What he failed to mention is that individual states have spent the past four years increasing their minimum wage rates following years of stagnation, sometimes by almost double. Nothing to do with Trump.
Back in the UK, George Osborne cut the top rate of tax from 50p to 45p in 2012 with the support of business leaders and economists, including two former members of the Bank of England’s monetary policy committee, DeAnne Julius and Sushil Wadhwani, who said the higher rate he inherited from Labour “punished” entrepreneurship.
Several years later, Osborne hailed the move as a money-spinner. He said Britain’s highest earners had generated so much extra income, encouraged by the tax benefit, that they had paid £8bn in extra tax to the exchequer.
But what Osborne failed to say was that tax payments were held back in the year before his policy came into effect and then paid the following year at the lower rate. This deferral was a sleight of hand, a distortion, and, in the end, supported an economic fallacy.
Meanwhile, if anyone needed persuading that the problem of runaway boardroom pay is acute in the UK, a report last week by the High Pay Centre does the trick.
The study reveals that Ocado’s…
Go to the news source: Trickle-down economics is dead. It’s time to tax the rich harder | Executive pay…