Liz’s tax cuts – a simple guide to why lowering rates actually works

Proof from the UK and around the globe that lower tax rates encourage growth

Montage © Facts4EU.Org

Lowering top rates of tax also produces a greater tax-take from the rich

With western economies engulfed in a perfect storm of escalating debt, rising inflation and sluggish growth, we look at the controversial issue of Liz Truss’ tax cut strategy and reveal the facts of how it has been proven to work - many times over.

Not only have tax cuts stimulated growth, they have also resulted in the rich paying a higher share of tax revenues, not lower. Below we cite examples from the UK and around the world.

The following has been adapted from a longer article by CIBUK.org which draws on the work of other organisations.

The Facts4EU.Org layman’s guide to a low tax, high growth economy

For policy makers in the UK the evidence is compelling. Tax cuts increase revenue and the highest payers pay a higher percentage of the total take.

Brexit Facts4EU.Org Summary

Delivering a low tax, high growth economy

1. Evidence from the United Kingdom that tax cuts work

1979 - 1988 : Chancellor Geoffrey Howe cut the top rate from 83% to 60%. Before the cut, the top 1% of UK taxpayers paid only 11% of the total income tax take. By 1988 they were paying 14% of income tax revenue.

1988 - 1997 : Nigel Lawson cut top rates from 60% to 40% and receipts rose further. By 1997 the top 1% of earners paid a huge 21% of the total tax bill.

2013 : Chancellor Osborne cut the additional rate of income from 50% to 45%. In the subsequent year £8bn more revenue was raised. The top 1% of taxpayers now pay 30% of income tax.

When adding in National Insurance contributions - which we should as they are effectively an additional tax on income - the top 1% were paying 34% of the the total income tax reveneue of the UK government by 2018. More than one-third of the total tax-take.

2. Evidence from the United States

1921 - 1951 : The top rate of US income tax was raised to 71% during WWI with dire economic results and was later cut to 25% by Presidents Coolidge and Harding. As a result, revenues nearly doubled. The share of tax paid by those earning over $100k rose from 28% in 1921 to 51% in 1925.

1963 – 1968 : President Kennedy's 1963 tax cuts reduced taxes at all levels, cutting the top rate from 91% to 70%. Total income tax revenue increased from $68.8 bn in 1964 to $95.7 bn in 1968. The share of tax paid by those earning over $50k went up from 12% in 1963 to 15% in 1966.

1981 – 1986 : President Reagan cut the top rate of US income tax from 70% to 50% in 1981 and cut the top rate again to 28% in 1986. The share paid by the top 10% of taxpayers increased from 48.0% in 1981 to 57.2% in 1988.

The opposite is also true.

1990 – 1991 : President George HW Bush raised the top marginal income tax rate to 31% in 1990. Tax receipts fell as a % of GDP and in 1991 after the tax increase richer taxpayers paid $6.5 billion LESS than they had in 1990.

2003 – 2007 : These were later reversed by his son George W. Bush. In 2003 he reduced the highest rate of income tax from 39.6% to 35% and the dividend tax from 39.6% to 15%. From 2004 to 2007 federal tax receipts increased by $785 billion with the bulk of that coming from the better off.

3. Evidence from around the world

Below are just a few extra examples from across the globe, proving that the ‘Laffer Curve’ works.

Canada 1981 – 1992 : When the top federal tax rate in Canada was cut from 45% in 1981 to 29% in 1990, the share of tax receipts paid by the top 10% of taxpayers grew from 29% in 1981 to 45% in 1992.

India 1984 – 1985 : India in 1984 reduced its top income rate from 65% to 50%. As a result, tax revenue in the 1985 fiscal year rose by 20% over 1984.

Sweden 2016 : Sweden increased income tax for high-earners by 3% to 60% in 2016. The affected group reduced their earnings and less revenue was raised.

Care to know the history behind the 'Laffer Curve'?

It’s worth recalling the now famous dinner which took place at the Two Continents Restaurant in Washington in December 1974 at which the US economist Arthur Laffer drew his famous curve on a napkin to illustrate the economic phenomenon which now bears his name.

His thesis was the trade-off between tax rates and tax revenues - something of major importance in the UK right now. Put simply, it challenges the assumption that if tax rates are lowered, revenues will be lowered by the amount of the decrease in the rate. According to Laffer, the reverse is true.

US economist Arthur Laffer

“The economic effect recognizes the positive impact that lower tax rates have on work, output, and employment - and thereby the tax base - by providing incentives to increase these activities.
“Raising tax rates has the opposite and negative economic effect by penalizing participation in the taxed activities. The arithmetic effect always works in the opposite direction from the economic effect.”

Observations

Lower taxes and higher growth

This is perhaps stating the obvious but it needs saying.

We have demonstrated above that when tax rates go down, tax revenues tend to increase. Most people pay tax on their earned income and businesses pay taxes on their profits. It follows that tax revenues can only increase when tax rates go down because people are earning more, and businesses are making more profits. Ergo the economy is growing.

Tax cuts create an incentive to increase output, employment, and production, so they also help balance the budget by reducing means-tested government expenditures. A faster-growing economy means lower unemployment and higher incomes, resulting in reduced unemployment benefits and other social welfare programs.

Finally, ‘levelling up’ and equity. When top-rate taxes are reduced, the top earners end up paying a higher proportion of the total tax take.

We really hope that more MPs will want to consider the facts before conspiring against the Government’s policies based on little knowledge.

This is basic economics – it’s not party political

Facts4EU.Org remains non-partisan, We simply wish to see a fully-free, fully-independent, and fully sovereign United Kingdom be as successful as possible on the world stage.

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[ Sources: CIBUK.Org | House of Commons Library | ONS | HMRC ] Politicians and journalists can contact us for details, as ever.

Brexit Facts4EU.Org, Thurs 13 Oct 2022

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Reader Comments 14

1. John Hardman , Thursday, October 13, 2022, 08:29:

All other parties and a lot of the Conservative MPs do want the UK to collapse and go running back into the strangling arms of the unelected EU.
They are simply brain washed.
They do not care about anyone, only the beloved EU and it’s empire.
I thank facts4eu.org for all there hard work.

2. Adam , Thursday, October 13, 2022, 09:50:

Starmer's crew would be a 💯 times Worse than anything that Truss and co would do Her MP's need to shut up they voted for Her now deal with it she's not Margaret Thatcher but she is nothing like The hapless Theresa May

3. Zerren Yeoville , Thursday, October 13, 2022, 10:09:

The barrage of invective directed against the Truss administration has very little to do with its economic policies or the mini-budget. It has **everything** to do with their plans to 'sunset' all carried-over EU laws (unless specifically retained) by the end of 2023, thus making Rejoining or Aligning that much more difficult. The Blob and its allies in the Davos jet-set will move heaven and earth to evict Truss and replace her with someone more Euro-submissive before that can happen - they are absolutely desperate to prevent the retained EU laws being finally purged from the UK statute book, even if some of them are kept although stripped of the Brussels elements.

4. LuxuryBalloon , Thursday, October 13, 2022, 10:30:

Every Conservative voter likes tax cuts. But the markets are concerned that our annual deficit is 8.3% of GDP in 2022. It used to be 2.4% in 2016. For comparison, the USA’s annual deficit is predicted to be 3.9% of GDP by end of 2022. And the Eurozone deficit is expected to reach 2.7% of GDP in 2022.

5. Northern Realist , Thursday, October 13, 2022, 10:44:

The problem that I see is this - come the next election, I simply could NOT vote for the Conservatives again.
I did that for Boris, and we got a form of Brexit that we never would have had under the awful May. I did that through gritted teeth.
When I look at what else they've done, they simply do not deserve a vote. My local (Conservative) Councillor lost earlier this year to Labour. I had spoiled my ballot paper. The same thing will happen at the next GE. They have simply paid NO attention to what voters like me want.
Do I want a Labour government? No
Would I EVER vote for a Labour government? No
Am I going to get a Labour government? Probably
The Conservatives need to finish off Brexit properly, stop the channel paddlers and seriously stop the net zero con.
If they haven't delivered ALL THREE by the next election (and that's delivered, not talked about) then they simply won't get my vote, and Jake Berry will be going back to conveyancing house sales.
You know what you have to get DONE, Liz!

6. Buster , Thursday, October 13, 2022, 12:31:

Brexit is finished. Yes, it really is this shit.

7. Paul Whiteley , Thursday, October 13, 2022, 12:33:

Doesn't matter what she does, the media will be totally against it!

8. TJ , Thursday, October 13, 2022, 12:39:

Another insightful and wise argument from Buster ;) Poor lonely grump

9. Brexit Lover , Thursday, October 13, 2022, 14:01:

3.
Absolutely hit the nail on the head. The rejoiners and the MSM henchmen are determined to bring any government down that has plans to rip out the EU laws. Absolutely scum the lot of them! We need a bloody big bonfire of EU laws and rejoiner Muppets on the top !!!

10. Jon, Wales , Thursday, October 13, 2022, 16:26:

I believe we are perhaps witnessing once again a sad reflection of the UK political elite, together with a hostile MSM, and interfering overseas elites meddling in UK politics and our democracy.
In a nutshell, it is parliament against the people - AGAIN?
ALL members of the UK parliament and government need to understand one thing - DEFY THE 2016 UK-WIDE VOTE AT THEIR PERIL - for they will lose their parliamentary seats. We Brexiteers have fought for decades to restore our nation from unelected unaccountable overseas bureaucrats (ERG please take notice)!
It is distressing that Prime Minister Truss saw fit to effectively give away UK defences without any parliamentary debate.
Liz Truss has much to do and I'm prepared to give her a chance - but not for much longer if she continues giving UK taxpayers cash to France to do THEIR job.
To attempt to stop ILLEGAL channel migration, STOP giving France OUR money, and temporarily suspend every fishing licence granted to French fishers (UK fishers come first in internationally recognised UK waters).
At this time, the conservative party will NOT receive my vote at the next general election unless I see positive action in keeping with the 2016 mandate.

14 comments, page 1 of 2

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