Friday, December 18, 2020

Tax cuts for the rich don't work

For the past fifty years, right-wing parties, backed by NeoLiberal think-tanks, have aggressively pushed for tax cuts for the rich. The supposed justification for this is that they will encourage the righ to work harder, leading to economic growth and higher employment. They were wrong. A new study shows what we knew all along: there are no benefits to these tax cuts. All they do is redistribute wealth upwards and drive up inequality, making our societies worse off:

Major reforms reducing taxes on the rich lead to higher income inequality but do not have any significant effect on economic growth or unemployment, according to new research by LSE and King’s College London.


The paper, published by LSE’s International Inequalities Institute, uses data from 18 OECD countries, including the UK and the US, over the last five decades. The Economic Consequences of Major Tax Cuts for the Rich, by David Hope and Julian Limberg, shows that the last 50 years were a period of falling taxes on the rich in the advanced economies. Major tax cuts were spread across countries and throughout the observation period but were particularly clustered in the late 1980s.

It states: “Our results show that…major tax cuts for the rich increase the top 1% share of pre-tax national income in the years following the reform. The magnitude of the effect is sizeable; on average, each major reform leads to a rise in top 1% share of pre-tax national income of 0.8 percentage points. The results also show that economic performance, as measured by real GDP per capita and the unemployment rate, is not significantly affected by major tax cuts for the rich. The estimated effects for these variables are statistically indistinguishable from zero.”

The New Zealand Finance Ministers who pursued such cuts - Roger Douglas and Bill English among them - should hang their heads in shame. They made us a worse society. The only people they benefited were their rich donors and cronies. But then, that was always, the point, wasn't it? The supporters of tax cuts were never arguing in good faith. They were only ever seeking a public excuse for selfishness, while the billionaires who fund them laughed all the way to the bank.