For half a decade, fiscal policy favored stimulating the economy by giving financial incentives to upper income populations with the expectation that they will invest to create new new jobs. Turns out – this didn’t work out.
Tax cuts for rich people breed inequality without providing much of a boon to anyone else, according to a study of the advanced world that could add to the case for the wealthy to bear more of the cost of the coronavirus pandemic.
The paper, by David Hope of the London School of Economics and Julian Limberg of King’s College London, found that such measures over the last 50 years only really benefited the individuals who were directly affected, and did little to promote jobs or growth.
“Policy makers shouldn’t worry that raising taxes on the rich to fund the financial costs of the pandemic will harm their economies,” Hope said in an interview.
That will be comforting news to U.K. Chancellor of the Exchequer Rishi Sunak, whose hopes of repairing the country’s virus-battered public finances may rest on his ability to increase taxes, possibly on capital gains — a levy that might disproportionately impact higher-earning individuals.
It would also suggest the economy could weather a one-off 5% tax on wealth suggested for Britain last week by the Wealth Tax Commission, which would affect about 8 million residents.
The authors applied an analysis amalgamating a range of levies on income, capital and assets in 18 OECD countries, including the U.S. and U.K., over the past half century.
Their findings published Wednesday counter arguments, often made in the U.S., that policies which appear to disproportionately aid richer individuals eventually feed through to the rest of the economy. The timespan of the paper ends in 2015, but Hope says such an analysis would also apply to President Donald Trump’s tax cut enacted in 2017.
“Our research suggests such policies don’t deliver the sort of trickle-down effects that proponents have claimed,” Hope said.
