Tax Cuts for the Rich Only Benefit the Rich, LSE Study Finds
Tax cuts for the wealthy only benefit the rich (2023)
A new LSE study analyzing 50 years of data from 18 wealthy nations debunks trickle-down economics: cutting taxes on the wealthy doesn't boost growth or employment, but simply makes the rich richer. The research, by David Hope and Julian Limberg, found that tax cuts for top earners lead to increased rent-seeking among CEOs, who bargain for higher pay at the expense of workers. The paper, which became the most downloaded in LSE Research Online history, has significant policy implications, suggesting that such tax cuts are ineffective if the goal is economic growth.
If you cut taxes on the rich, they then bargain more aggressively for their own compensation at the direct expense of workers lower down the income distribution.
- manlymuppet
The thing I don't like about this is that it treats trickle-down economics as if it's something that needs to be debunked. Trickle-down economics has never been a real economic policy, and never been seriously advocated by federal policy-makers. It is an entirely pejorative term created by detractors of supply-side economics.
The policies of supply-side economics, however, are much more defensible, but it seems people would much rather pick on the strawman.
- 1997cui
The current issue I feel with taxing is that, at least in USA, it mostly taxes based on Salary on Employees, but never tax on the capital or the actual wealth.
Tax the rich means: Increase W2 tax and property tax which, takes money away from me to feed lower middle class
Tax cut means: Reduce the estate tax and cooperate tax, keep the W2 tax flat, and cut the benefits that most critical to the bottom: Food stamps while keep other unnecessary programs unchanged: Discounted Toll for low income when driving in HOV lanes.
- drowntoge
> The average citizen seems to be fairly poorly informed that taxes on the rich have fallen really dramatically in the past 40 years.
There's an observation.
- rahimnathwani
The paper talks about economic growth, income distribution and unemployment.
I'm mostly interested in economic growth, so looked at what the paper claimed about that.
It found that major, sudden reductions in taxes on the rich did not have any statistically significant effect on the trajectory of economic growth over the following five years.
But:
- Their sample is small. They only looked at relatively large, discrete declines in their home-grown measure of taxes on the rich. They did not look at all tax-rate changes.
- They did not look at effects beyond the five-year horizon, which means it would probably exclude the impact on people starting startups, as the successful ones usually take more than 5 years to start making serious money. (or did during the period the paper considered, even if timelines have subsequently accelerated.)
- Big sudden tax cuts don't happen in a vacuum, and I don't see a way to control for confounding.
- CrzyLngPwd
The rich don't pay income tax like us little people do, they don't pay capital gains tax like us either.
They can avoid both through schemes such as taking low salaries and borrowing against assets they will never sell for a profit.
The tax system would need a complete overhaul to plug those holes, but it would always be a game of whack-a-mole.
- slifin
A lot of the poor and middle classes don't understand how a billionaire earning millions of pounds per week in passive income is any problem for them - or where it comes from
1, billion, 2 billion, 100 billion individuals makes no difference to the average person
In fact there's a misguided sense that they earnt that money through work and not rent seeking
But the sad truth of the matter is - the rich are on the other end of your mortgage or indirectly your rent - the other end of that business loan to your favourite coffee shop controls the price of your coffee - you pay them interest directly or indirectly through everything you pay for and they use that money to buy more of the assets you use - they are a massively increasing rent seeking class
Their wealth growth is exponential it compounds on itself some particularly rich people are seeing 40% annual returns and the overall economies wealth growth is 1 or 2%
It's analogous to a black hole things like capital gains tax and income tax mean nothing to these people because they don't sell and they don't have a "working" income because that's not how the ultra rich accumulate wealth
The sad thing is for people on benefits the government look automatically into your personal bank account and track anything coming in - they have built a massively invasive infrastructure to track the poor so they can remove their benefits if they try to earn £5 selling music or selling IT services - but if you're rich the government don't even k […]
- teach
Quelle surprise!
- haunter
This is basically what happened in Orbán's 16 years in Hungary. He gave indirect tax cuts for the rich, or just generally everyone who is not living pay check to pay check (by hungarian standards it means you are rich). So for example installing solar panels came with a tax writeoff but the whole thing was setup that it only benefit who already have had enough money to install a full brand new solar panel system. So it didn't help at all those who are really in need. Same happened with EV cars. If you already have money for a brand new EV car you got it cheaper. For the rest? Good luck. Mind you this is eastern Europe where everyone is driving +15 year old diesels from Germany. The rich got richer.