Liz Truss’ tax policy was short-sighted – economics

Massive policy reversals are always spectacular, now the new UK government is understeering Liz Truss such at. Like many other governments in Europe, it is trying to stem the economic turbulence – so far without success. She herself has just pulled out a key component of her quickly cobbled-together rescue package for the British economy: she has waived the much-heralded abolition of the top tax rate of currently 45 percent for top earners.

Previously, tax cuts aimed primarily at benefiting the wealthiest in society were considered imperative by the British government: they should be used to fuel growth in the country as a whole. It may be that the signal that “we are primarily concerned with the rich” will not go down well, the prime minister said recently, but she will not let that deter her. It’s just economically correct. Now it’s: “We got it, we listened.” Above all, they listened to their own deputies, more and more of whom openly rebelled and made the majority in parliament questionable for the legislative package.

Every government has to juggle between growth and social balance

Apart from the fact that the leadership of this country, which is important for Europe even without EU membership, continues to stagger, the process is also important in principle and from a German perspective. Because every government has to juggle between growth and social balance.

No government can, should or wants to afford to be suspected of only working for the top earners. This not only leads to political upheavals, it is also unjustifiable in substance: it is for the good of the whole country. But politicians must ensure that money stays in the country and comes into the country to invest. Brit Liz Truss has openly toyed with a supporter of the old “trickle-down” thesis popular in the era of US President Ronald Reagan, according to which the income increases experienced by the wealthy in a society gradually spread to the middle classes as well and the poorer in society, more than that: it has even been claimed that more money for the rich is an imperative for increasing incomes for the rest of the population.

Annoyingly, this theory is often apostrophized (especially by its opponents) as part of a supply-side economic policy, i.e. an economic policy that does not focus primarily on consumers and employees, but on companies and investors: they should create the jobs that ensure general prosperity. However, no responsible supply politician believes that this could work as clumsily as described above. And at the latest in the financial crisis of 2007, the world saw that it is not wise to rely solely on banks and financial investors and expect them to promote general prosperity.

On the other hand, anyone who takes up the cause of social justice and redistribution will fail just as quickly in an internationally networked world . This is typically experienced by opposition politicians who came to power with the demand for a change in structures. These are often more left-wing governments, but even the populist right-wing alliance in Italy, for example, will probably soon find out that it will not be possible to govern successfully against the financial markets and in this case also against the EU.

In the end, it’s about pursuing a balanced economic, financial and tax policy. The Truss government, for example, would have made things easier if their tax concept had been better thought out. Collecting the top tax rate of 45 percent would have meant that well-earning medium-sized companies would have had the same tax rate as multi-millionaires – that’s neither fair nor communicable. The government should also have prepared smart measures to relieve the burden on lower and middle incomes. Clever politics means: to consider all this and put it into an overall concept.

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