Tax cuts to the rich?

A comment from an economically informed mate:

It’s sad but the Libs seem to have imbibed US Republican Party economic policy. Supply side economics has been discredited for a long time amongst the economic community but remains a powerful policy amongst pro-business politicians and parties.

The idea is that tax cuts pay for themselves because the economic growth caused by the cuts ends up increasing tax revenue overall.

The original Supply Side economists weren’t too sure what the original tax rate needed to be for this to work, but it seems that it had to be very high in the first place.

Tax cuts for the rich (ie reducing the highest marginal tax rate) were introduced in many countries in the early 1980s. Reagan introduced it in the US whereas the ALP introduced it in Australia.

Historically, the pre-1980s top marginal tax rate hovered between 60-70 percent. In the UK it was famously set at 95%, which caused lots of problems and was derided by a song by The Beatles called “Taxman” and forced a number of bands (including the Rolling Stones) to go into “Tax exile”.

In short the highest marginal tax rate can be too high, but it can also be too low.

The tax cuts in the early 1980s also ushered in a period of big deficits and debt by governments that has continued to today.

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