Forget trickle down, what the UK needs is middle-out economics
As millions of British families struggle to pay the costs of food, fuel and rent, Liz Truss and her chancellor, Kwasi Kwarteng, have unveiled their economic plan: cut taxes for corporations and rich people.
The policies announced in the mini-budget – reversing planned rises in corporation tax and national insurance, cutting stamp duty, scrapping the top income tax rate – will put millions of pounds into the pockets of the wealthiest people, not to mention bankers, who will have the cap on their bonuses removed.
Truss is a deep believer in trickle-down economics – the theory that if you cut taxes for corporations and rich people, it will spur economic growth, which will eventually trickle down into higher wages and rising living standards for the rest. As Truss put it last week: “Lower taxes lead to economic growth, there is no doubt in my mind about that.”
There may be no doubt in the prime minister’s mind, but there’s a lot of doubt in the data. The US has had four decades experimenting with this kind of economics, and the evidence is clear: not only does it not work but it does enormous damage to the economy and society.
Jared Bernstein, a member of Joe Biden’s council of economic advisers, summarised the evidence against trickle-down economics in a presentation to the joint economic committee of Congress several years ago. Bernstein noted that, if the trickle-down theory was correct, we would expect to see that, when tax rates go down, growth goes up and vice versa. But using data stretching from 1947 to 2015, Bernstein showed in no case was that true.
Tax cuts not only failed to stimulate gross domestic product growth, they also failed to stimulate employment growth, wage growth, investment growth or productivity growth.
Read more on theguardian.com
