Tax cuts for the wealthy only benefit the rich (2023)

In 2023, the UK witnessed a political crisis triggered by then Prime Minister Liz Truss and Treasurer Kwasi Kwarteng's announcement of unfunded tax cuts for high earners. This move, rooted in the controversial "trickle-down economics" theory, sparked global condemnation and analysis. A study published in 2020 by Dr. David Hope and Dr. Julian Limberg from the LSE's International Inequalities Institute and King's College London, examined the economic impact of major tax cuts for the wealthy across 18 developed nations over 50 years.

The research concluded that cutting taxes on the rich leads to increased compensation bargaining, directly harming lower-income workers and offering no tangible benefits to economic growth or unemployment rates. The paper, which garnered extensive global media attention, became the most downloaded LSE research paper in history, with over 150,000 downloads.

Despite the paper's findings, many citizens, particularly in the US, remain misinformed about the significant decline in taxes for the wealthy over the past four decades. Dr. Hope and Dr. Limberg discovered that ordinary people's support for tax cuts for the rich is largely uninformed, and providing them with this data could reduce their backing.

The study suggests a major policy implication: refraining from cutting taxes on the rich to boost the economy, especially when considering the impact on inequality.