Politics

Topic updates

Tax cuts for the rich increase their income, but there are no boons for wider society...

Mike McCartney

29th July 2021

In fact the net outcome can be considered as negative: a new research paper, the most expansive ever on the topic, finds that tax cuts boost the income of the top 1% but don't improve economic growth or unemployment

It's a bit left field for the Politics Blog this one, and you might suspect that this post would be happier on the Economics Blog, perhaps, but bear with me.

In short, I know a lot of Politics students are interested in poverty (especially relative poverty) but don't study Economics. So, yes, the research was conducted by academics from the Department of Political Economy at KCL, but it's well worth having a look at. And being purely cynical I don't think citing it in a personal statement for a Politics or Politics and International Relations application would do the applicant any harm.

This paper popped up on my Twitter feed. I'll give the link below, but here is the abstract:

"This paper uses data from 18 OECD countries over the last five decades to estimate the causal effect of major tax cuts for the rich on income inequality, economic growth, and unemployment. First, we use a new encompassing measure of taxes on the rich to identify instances of major reduction in tax progressivity. Then, we look at the causal effect of these episodes on economic outcomes by applying a nonparametric generalization of the difference-in-differences indicator that implements Mahalanobis matching in panel data analysis. We find that major reforms reducings taxes on the rich lead to higher income inequality as measured by the top 1% share of pre-tax national income. The effect remains stable in the medium term. In contrast, such reforms do not have any significant effect on economic growth and unemployment."

The full paper can be found here: http://eprints.lse.ac.uk/10791...

So what does an academic paper from two academics from a Political Economy Department have to do with studies of Politics? Political issues isn't on the A Level syllabus, so knowledge of the article's contents won't massively boost your exam chances. But sometimes the purpose of my postings is to encourage students to take the wider view, and seek to add breadth to their studies. This can provide context to what is being studied and, I think, makes topics more relevant.

This research is directly relevant to 'pure' Politics. This is what Senator Elizabeth Warren posted in reaction to the initial release of the research findings:

"Trickle-down economics is nothing more than a brazen ploy to help the rich and powerful get richer and more powerful. After decades of this nonsense, it is still all the Republicans have to offer. It is time to make the rich pay their fair share."

And there are links here with the Occupy Wall Street movement (see: https://www.theatlantic.com/po...) and what morphed into the 99% - see: https://99-percent.org

Therefore, there is a link to pressure groups, and also, as alluded to above re Senator Warren, party policy and government in both the UK and USA. With regards to the latter, the research findings published by the LSE should help boost public support for an increase in the minimum wage in the UK and USA if the data becomes more widely known.

Of course, attempts by the Democrats in Congress to raise the federal minimum wage failed earlier this year: https://www.cnbc.com/2021/07/1...

The research findings did receive a decent amount of coverage in the press in both the UK and US, but at the moment too many voters (in the two countries just mentioned but also other western nations) seem to be susceptible to believing the view heavily promoted since the 1980s that tax cuts for the wealthy boost the economy.

In addition to the paper, the LSE have also conducted a video seminar. The link is here: https://www.facebook.com/LSEIn...

If you are interested in the topic, can I recommend the a book? Given to me by one of my Y13 Economics students, Ben, it is a fascinating read. Reviews:

"A well-conceived and important study which makes a significant contribution to knowledge about social mobility, and an important intervention into broader political debates --Selina Todd, University of Oxford

Without question this is the outstanding study of social mobility in the UK to have appeared in the past 20 years. Using a brilliant mixed method design, Friedman & Laurison trace the long shadow of class privilege in driving career prospects even in the supposedly dynamic sectors of today's knowledge economy. Anyone who thinks Britain is a meritocracy needs to ponder the lessons of this wonderful book --Mike Savage, LSE

Friedman and Laurison show how it can possibly be that upwardly mobile executives and professionals earn less than those raised in the upper classes. Everybody in The Class Ceiling has a desirable job, but even in the upper reaches of British society, class roots matter --Mike Hout, New York University"

Killer stat. You are more likely to get what the authors call a "top job" if you have a 2:2 from a Russell Group university and your parents are themselves from the top echelons of the employment market that a graduate with a 1st from a Russell Group institution who comes from a home where parents are from the bottom end of the job spectrum.

Then again, 1st class degrees aren't much of a rarity these days, so make of it what you will.

Available from a number of booksellers for under £10: the class ceiling

Mike McCartney

Mike is an experienced A-Level Politics teacher, author and examiner.

Boston House,
214 High Street,
Boston Spa,
West Yorkshire,
LS23 6AD

Tel: +44 0844 800 0085

© 2021 Tutor2u Limited. Company Reg no: 04489574. VAT reg no 816865400.