Next week, Chancellor Jeremy Hunt will stand up in parliament and present the last Tory budget before the general election. To satisfy the unruly Tory right and many of their wealthy supporters, it is widely expected to contain tax cuts, even if the actual tax burden remains at record highs.
“There is plenty of scope to cut tax rates in the budget. Debt interest charges are about to tumble as inflation falls. Abolish UK Government Investments and cut nationalised industry losses.”
—John Redwood MP on “X”, Feb. 29th 2024
The trouble with this low-tax shibboleth is that high expectations of public services and other commitments make implementation difficult without driving debt further towards the £3 trillion mark. Debt interest repayments alone now total £83 billion a year—twice the entire UK defence budget.
The “supply side” mantra of lowering taxes to stimulate the economy has a terrible track record. That this does not work in reality has its more egregious example a century ago, during the spectacular, but “Wild West” growth of America’s industrial might.
Ford in autos; Rockefeller in oil; Vanderbilt in railroads; Carnegie in steel—a century ago, they each amassed personal fortunes to become America’s “robber barons”. All of them held it as self-evident that the wealth they gathered from and spent for public purposes benefitted the general masses. It was clearly of more value to the less wealthy than if scattered among them in more trifling amounts.
“Wealth, passing through the hands of the few, can be made a much more potent force for the elevation of our race than if distributed in small sums to the people themselves. Even the poorest can be made to see this.”
—Andrew Carnegie
At least Carnegie practiced what he preached, building the great Carnegie Hall on 7th Avenue in New York City, and a lass well know one in his home town of Dunfermline.
His philosophy, if not his philanthropy, was trotted out again in the 1980s by Ronald Reagan. The economy did indeed boom, but only for the richer part of the population. “Joe Sixpack”—the auto worker pulling down $20 an hour in Detroit, or the steel worker earning similar in Pittsburgh found themselves living in what became known as “The Rust Belt”.
Less than 40 years later, along came Donald Trump, peddling the same snake oil. In 2017 Trump slashed the top corporate tax rate from 35% to 21% and reined in taxation for foreign profits. So far, it deprived the US Treasury of some $2 trillion in revenues since 2017. A report from the Institute on Taxation and Economic Policy (ITEP) looked at the first five years the law was in effect. It found most profitable corporations paid “considerably less than 21%’ because of loopholes. In fact, between 2018 and 2022:
- 342 companies studied paid an average effective tax rate of 14%.
- 87 (24%) of them paid effective tax rates of under 10%.
- 55 (16%) of them, mostly major corporations, paid less than 5%. These included T-Mobile, DISH Network, Netflix, General Motors, AT&T, Bank of America, Citigroup, FedEx, Molson, Coors and Nike.
- 23 (7%) of them, all profitable, paid no federal tax at all over the entire five-year period.
Today in the USA, Republicans want to extend the Trump tax cuts after their scheduled end in 2025, a plan that would cost $4 trillion over a decade even without the deeper cuts to the corporate tax rate Trump wants if re-elected. In contrast, his opponent Joe Biden h called for higher taxes on the wealthy and corporations, which would generate more than $2 trillion.
Curtailing revenue and focusing only on spending cuts reflect a society like the one those late-nineteenth-century industrialists embraced. It is a similar philosophy that tax-cutting Tories are espousing, in which a few wealthy leaders get to decide how to direct the nation’s wealth.
“I agree with the Chancellor who said he wanted the rich to stay here and to spend their money here.”
—John Redwood MP on “X”, Feb. 29th 2024
“Keep the non-dom tax status. Non-doms are good for the British economy.”
—Jacob Rees-Mogg MP on GB News, Feb. 29th 2024
A study by the Policy Institute for King’s College, London found that Britons are particularly concerned about inequalities between more and less deprived areas (56%). Their concern is significantly higher than the European average (39%).
The Equality Trust’s cost of inequality report on 23 OECD countries showed the UK spends more than anywhere else in Europe subsidising the cost of structural inequality in favour of the rich. Inequalities of income, wealth and power, when compared with the top five most equal countries are estimated to cost the UK £128.4bn a year in damage to the economy, communities and individuals
Next week, when the Chancellor breezily announces tax cuts for the rich, claiming it will boost the economy and do wonders for levelling up, put on your most sceptical face and keep a tight grip on your wallet because “trickle-down economics” is a ruse invented by the rich to keep them that way.
“I mean the truth is, I’ve never had it so good in terms of taxes. I am paying the lowest tax rate that I’ve ever paid in my life.”
—Warren Buffet (a.k.a. “The Sage of Omaha”, net worth now $117 billion)
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davidsberry 