Lowering taxes on the wealthy helps the wealthy. It does not help the economy. Consumer spending is not increased, so the lost tax income by lowering taxes is not earned back through a larger economy to tax.
The predictable result is more income inequality, which already is higher than it ever has been since the second world war.
I don't think wealthy are paying much taxes, percentage-wise (significant in dollar value though). There are simply too many tax minimization instruments that they have at their disposal. It's the middle class that is carrying the brunt of taxation. So when they say "tax the rich", what they really mean is "tax the middle class and small business owners". Eventually, you would run out of "other people's money" and you will have a society of super-rich and super-poor. I suspect it won't be a good place to live in.
I was under the impressions that the "tax the rich" mentality actually aims to close these loopholes for the super-rich. The idea is (I think) that increasing taxes on the literal top 1% or 0.1% just a little is much more effective than increasing them across the board.
What we the little folk mean for "tax the rich" is indeed "tax the mega rich". What gets implemented for "tax the rich" is a different story, because lobby can more than often sway implementations.
There aren't very many historical examples of societies with high income tax, mostly because being able to effectively collect national income tax is a fairly new invention after all.
But the examples we do have include USA in the 1950s (top tax bracket 91%) and Sweden in the 1970s (top tax bracket 87%). Those are some of the most successful societies ever, especially in comparison to their peers at the time. Even the extreme right in these countries sees those eras as national high points.
I don't think there's evidence that taxation on its own creates stratified societies of super-rich and super-poor. For example, the problems of Brazil are largely unrelated to the tax rate.
The ultra-rich certainly have tax minimisation schemes in place, but by saying that middle-class bears the brunt of taxation, I suspect you're falling victim to the fallacy that rich people don't think of themselves as rich[1]. In the UK at least, the tax burden is fairly progressive:
The top 1% of earners pay roughly 30% of all income tax. The top 10% pay roughly 50% of all income tax. Meanwhile, the bottom 50% pay roughly 10% of income tax.
That leaves to 50-90th percentile, who you might call "middle class" (although it's debatable whether someone in the 80-90 range is truly middle class) who pay approximately 30% of all income tax. So the whole middle class only pays as much tax in total as the 90-99 range, although their total of pre-tax income is double.
While this may all be true, a more sobering perspective comes from considering the impact on the individuals paying the taxes:
"the poorest fifth of people paid 22.9% on indirect taxes such as Value Added Tax (VAT) compared with 9.1% for the richest fifth" [0].
"As it stands, there is set to be both an Income Tax rise and Income Tax cut in 2024-25, and a further tax rise in 2025-26, with a net transfer from lower- to higher-income individuals" [1].
To return to parent comment's point, trickle-down economics have demonstrably failed. Taxes are avoided by the rich while punishing the poor - surely absolutely not what should be happening.
The obvious problem is that if wealthy people get more money, they literally can't spend it all, so the just invest it instinctively/based on reflex. But here is the problem, what if they don't invest their money? What if they keep 10% of it liquid? Spending money or investing it puts money in the hands of the rest of the economy. Not spending or not investing it means there is no income opportunity for anyone else, that money is essentially dead to the economy and dead money has to be replaced. This means people need to borrow money at the rate money dies, they need to go in debt to replenish all the dead money.
Here is a problem, at some point the debt load on the economy is so high, people refuse to take on more debt, but the system demands yet more debt. What happens? Since money is leaving the real economy and just doing nothing, deflation will occur, which will increase real returns above zero, even if the interest rate is already zero. We would expect that if people save more money and nobody borrows more money, that the return on money goes down but with deflation the opposite happens! Real returns start going up, which makes all economic activity in the pyhsical economy unprofitable. Imagine if you set a land value tax that is higher than anyone wants to pay, everyone would abandon the land and in the same way a too high return expectation makes people flee the physical economy into the financial economy.
In other words, the completely obvious and reasonable option of paying off your debt doesn't even exist, it simply is not a legal move in this board game we call the financial economy.
The completely obvious answer to this problem is to let yields become negative to counteract deflation, the end result is that the real return is zero, people get to pay off their debt, people who refuse to spend or invest get disincentivized from holding onto dead money and instead make it available to those who need it.
Here is another perspective: In functioning markets we expect that resources are allocated to those who have too few of them, like food being sold to starving people because they are willing to pay higher prices which solves food shortages as it becomes more profitable to become a farmer and produce food.
We should ask ourselves then, if farming works as intended (with some caveats) then why on earth does money not follow the same principle? Why doesn't the economy try to allocate money to those who need money the most? It is rational and efficient to do so, yet in our current economies we come up with tons of post rationalizations to defend the status quo. What we see instead is that money is allocated towards those who need it least, money compounds and allocates more money to those who already have too much. This is clearly inefficient, it means less total economic growth, it means lower wages for everyone, it means centralisation of the economy and increasing dysfunction as a result of valuing a handful of preferences more than everyone else's.
A negative interest rate on cash deallocates money away from those who don't need it and makes it available for those who need it. The wealthy can keep their wealth, they just have to keep it in the real world and not in some abstract "stores of values" that upon further inspection don't change in any shape or form even as their "value" changes. Spending more money on the same shiny rock doesn't make you wealthier, it just gives you the illusion of wealth. Imagine owning a kilogram of gold and doubling the population and thereby doubling the amount of gold buyers and thereby the price of gold, the real wealth doesn't exist inside the gold, it exists in the form of the doubling population, the owner of the gold did nothing to double the population so it doesn't make sense to give him twice the share in the economy just because the population doubled, that would mean someone else would have to give up their share in the economy.
> Biden, meanwhile, tweeted: “I am sick and tired of trickle-down economics. It has never worked. We’re building an economy from the bottom up and middle out.”
And the Petrodollar, which allows us to mostly do whatever we want. Just a side note.
The US have become a net energy exporter and the largest exporter of natural gas.
This strategy is paying off, especially when you compare with the situation in Europe, which has chosen the opposite strategy (shale gas exploitation is banned).
> This strategy is paying off, especially when you compare with the situation in Europe, which has chosen the opposite strategy (shale gas exploitation is banned).
At least our water taps aren't on fucking fire [1]. Fracking is dangerous and unlike the US, Europe doesn't have wide swaths of unsettled land where no one cares about if natural resource exploitation is destroying nature. Texas fits the area of most of Germany, a third of France, the whole of Belgium and the Netherlands - and only has 28 million people!
The problem was rather that no one here thought to build out diversified, renewable energy - the French bet their house on nuclear and now that half the plants are offline for maintenance or failure, the absurd energy prices are to a large part covered with tax money and public debt (and the lack of capacity by German gas peaker plants), the Italians went big for hydro (which failed thanks to the record drought), and us Germans, well we based our entire economy on cheap Russian gas the last thirty years.
Europe has plenty of space for fracking and is not really dangerous.
They somehow decided that it was better to import gas from Russia and to be vulnerable rather than to produce it locally and reap the strategic and economic benefits because "but the environment"... Really a myopic approach to strategic issues: If Europe depends on gas, and it does, then supply must be secure and domestic if possible. This does not prevent from moving to renewables at the same time.
A trade deal between the US-UK which the current UK goverment has been banking on has already been shelved as not happening in the short to medium term.
This is unsurprising to anyone outside of the UK goverment.
She says UK has to lower taxes to be competitive yet at the same time asks the world to do the same -lower taxes-, so at some point they won't be competitive anymore as we'd have low taxes everywhere, so I guess she'd again say they have to lower taxes and the world should follow afterwards, until no one can lower taxes because there are no taxes. Maybe that's the point.
Or maybe the megarich lobby wants lower taxation over board. Not that they'd pay much, thanks to Bahamas and everything, but having even more money is always better right?
Has there really been lack of capital for investments in recent years? Shouldn't all of the western economies be in excellent shape with all possible investments avenues done now? As isn't entire point of trickle down increase availability of capital?
In Britain alone the Government has borrowed half a trillion pounds (roughly 25% of GDP) in 2020-21. Most of that went into the hands of normal people via furlough (paying people 75% of salary to stay at home during Covid), support for the self-employed and loans (up to £50k) for small businesses.
It would be fascinating to see a study into where this money ended up. As you say, it should have found its way into the economy and in turn the pockets of large companies/the Government which could use it for capital investment, but in reality the country is crumbling.
The beneficiaries are poor enough to not afford saving that money, so it definitely ended up back in the economy. After all there are no studies saying that savings had increased, are there.
The construction market went crazy. Last year, prices for materials were doubling every 3 months, and there were no trades available anywhere to carry out work. Maybe it was used to buy a lot of overpriced back extensions, kitchens, conservatories and decks. Coupled with the reduction in skilled trades available because of brexit, prices were really high.
The furlough money paid to salaried workers while they sheltered at home wasn't "extra" in the economy, in some sense.
Those people who received furlough got it instead of their salary, and they weren't working while they received it (not counting fraud and edge cases). The economic value of their work temporarily disappeared, and that value probably exceeds the amount paid in furlough by some reasonable measures.
Among the self-employed, transitioning-between-jobs-at-the-time and edge-case people, a lot didn't get anything. I didn't receive a penny via furlough or similar payments, nor did I qualify for any kind of loan. The one client I had who owed me also decided to stop paying everyone in April 2020, telling all suppliers "we have no money to pay anyone", and that was that. They owed me for a long period of services provided and not yet paid, so I was counting on it. In normal circumstances a supplier might petition for their client's bankruptcy, but special rules were in place to stop that at the time. I still haven't been paid by them though.
So I couldn't afford my rent during most of 2020, or food. Luckily my landlord let me defer rent for 6 months (I still had to pay it later), and local volunteers provided food for a while. It was a rough time but unusually communitarian. The last part of the year ended with some surprisingly good contracts though, and 2021 was my best year financially ever. Which isn't as good as it sounds, because there was a big hole to fill, and now I'm back to where I was in 2019, roughly. Except with more skills :-)
That's a lot of lost economic value from people not doing any work or not being paid, and a lot of people who were left with a big financial hole, which later acts as a drain on the rest of the economy even when they start earning again, because what they earn later goes to filling the hole more than on new goods and services. I'm glad all the people who received furlough and loans were helped; it could have been much worse.
As for where the money went, in 2021 the reports were that a large share of the population gained savings or paid off their long-term credit, due to working at home in well paid jobs while having not much to spend it on. That suggests a lot of people likely still have a large amount of savings, and a lot of people likely have paid off more of their home mortgage than they would if the pandemic had not happened. Those two factors might turn into spending on the rest of the economy during more confident times, but even people with savings are worried about the future, so would rather hold onto it for now.
Business investment in the UK is very low compared to other countries. Not really due to lack of capital though. Er no all possible investments are not done or this forum would be shut down.
UK has no place to lecture anyone else on economic management.
The country has one of the lowest growth rates in Europe, has crashed exports to its biggest market, maintained imports by simply waiving customs checks opening up the domestic market for all kinds of fraud, has signed one-sided free trade deals for the newspaper headlines, introducing competition to those domestic producers for no equivalent gain for exporters, whilst failing to sign a symbolically important free trade deal with US - despite the special relationship - and also deciding to escalate hostilities with China, the world second largest economy, as a 'pick me' demonstration of loyalty to the aforementioned US.
No need to mention pandemic mismanagement which managed to put billions onto the national debt, crashing multiple business sectors with its confused lockdown vs let it rip oscillations and still end up with one of the highest infection rates / case fatality rates from Covid-19. Latest figures from IFS additionally suggest up to 500,000 UK workers are 'economically inactive' due to long covid, a massive loss of workers, increasing the cost of employment for those employers who do need to hire.
The way to treat UK prognostications on economic matters is 'precisely the opposite'
> also deciding to escalate hostilities with China, the world second largest economy
After what Russia has done to Ukraine, I sincerely hope more democracies put values before trade. UK is doing what everyone else should be doing, but don't have the courage to. Not something to be ashamed of.
Democracies never put values before trade - UK is at this very moment selling arms to Saudi Arabia, who are currently prosecuting a genocidal war against Yemen. China has been remarkably uninvolved in military conflict for the past 50 years, unlike many democracies
I can think of a large democracy that fairly recently started two wars for bullshit reasons and fucked up two countries that, admittedly, were already well fucked up. But probably a large number of people died that wouldn't have died otherwise.
As others have pointed out, Liz Truss has no qualms about calling Saudi Arabia an important ally[1]. Statements against China are a way to pander to the Tory base.
While im no fan of Saudi Arabia, I wouldn’t go calling this pandering. China has long considered the West an enemy, and has been an abusive trading partner. It’s high time the UK stands up for itself.
this is projection - the hostility is pretty much one way from West to East. You can even see when the mood changed, post GFC, when China stopped buying US T-bills
Abusive trading partner in the strict sense of goods trading, not sure. But China requires or used to require (some / interesting / all?) foreign countries operating in the country to create joint ventures with Chinese companies. Probably done to transfer know-how, possibly profits, and to keep control. Volkswagen had the foresight to enter China early (as it did decades earlier in Brazil), and it had to do that.
protectionism of this sort is basically how all the East Asian tigers developed from being as impoverished as Africa in 1950's to where they all are now. It's a problem now because the unbroken period of 400 years + pf Western hegemony might finally be under challenge by a country who is big enough not routinely bend the knee
Well maybe the UK has a higher sensitivity regarding China because of Hong Kong, but realistically, if the West would really boycott all states with human rights issues, we would be starving soon. Not to mention that we would need to look at ourselves first before criticizing others...
This "democracies vs dictatorships" spin is just that, a nice story for the public. But this is not how countries operate and they have no values when it comes to international relations, only interests. You'll also notice that it's only some authoritarian countries that are 'problematic' otherwise are 'good friends'...
China is becoming powerful, so it is a threat to the established, Western, order and especially the supremacy of the US. That's the real issue. If tomorrow China became a democracy it wouldn't be any less of a threat, and in fact it might become a more formidable threat.
> and also deciding to escalate hostilities with China, the world second largest economy, as a 'pick me' demonstration of loyalty to the aforementioned US.
Agreed on the rest of your comment, but not on this one. The hostilities were instigated by China occupying Hong Kong despite a binding treaty. HK was a former British territory, allowing its unilateral takeover without at least some form of payback would be utter idiocy.
Compared to 1970s Britain, 1990s Britain was in far better shape economically. I'm not a Tory voter, but if Thatcher hadn't done what she did, someone else would've had to.
Luckily for Labour they didn't have to, and so they kept their base, even though they don't seem to have subsequently reversed any of her major policies.
Lowering taxes on the wealthy helps the wealthy. It does not help the economy. Consumer spending is not increased, so the lost tax income by lowering taxes is not earned back through a larger economy to tax.
The predictable result is more income inequality, which already is higher than it ever has been since the second world war.
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