At least she tried. British Prime Minister Liz Truss understood that the high-tax, cheap-cash model that had been in place since 2009 had run its course. There was no money left. The lockdowns and the Ukraine war brought the crisis to a head, but it would have happened anyway. You can’t carry on forever creating currency for state officials to spend.
During the party primary that followed Boris Johnson’s unexpected, and possibly temporary, resignation, Truss made clear that she intended to tackle the problem at its root, cutting taxes and allowing interest rates to rise to a more historically normal level.
Rank-and-file Tory members approved and voted for her. But Tory members of Parliament did not. They blocked her proposed tax cuts, thereby ending her premiership — the shortest in Britain’s long history.
It is fair to say that, in doing so, they were reflecting the wishes of their constituents. In Britain, as elsewhere, there is a stubborn refusal to face up to the costs of the lockdowns. Politicians who say, “We paid people to stay home for the better part of two years, and now we must face the reckoning,” are outbid by those who say, “There’s no real problem. The deficit can be closed by taxing the rich and getting money back from greedy energy companies.”
President Joe Biden is in this second camp. Indeed, in a huge breach of protocol, he openly criticized Truss’s tax cuts. “I wasn’t the only one that thought it was a mistake,” he declared, waving his ice cream cone about. (He often seems to be clutching ice cream these days. Perhaps it is what the poet meant by “second childhood.” But I digress.)
The president went on: “I think that the idea of cutting taxes on the super-wealthy at a time when….” Then he suddenly remembered that sitting presidents are not supposed to interfere in the domestic affairs of allied governments and ended rather lamely, “I disagree with the policy, but that’s up to Great Britain.”
Hmm. Let’s just put that tax cut for “the super-wealthy” in perspective, shall we? Truss wanted to reduce the top rate of tax from 45% to 40% for people earning over £150,000 ($170,000). In the United States, the highest rate of federal tax is 37% and kicks in at $523,600. Those “super-rich,” in America, would pay just 24%. True, there are also state taxes, but in only three states is the income tax above 10%.
These figures might be connected to the fact that the U.S. is richer than Britain. Both countries flattened their tax rates in the 1980s, and both saw revenues rise as rates fell. As prime minister, Tony Blair kept in place the rates he had inherited from Margaret Thatcher. But Gordon Brown, in his final budget, decided to lay a booby-trap on his way out, rather in the manner of the retreating Russians in Kherson. He hiked the top rate, knowing that it would cost the Treasury revenue, but also knowing that reversing the rise would be politically unpopular since it would look like (in Biden’s phrase) “cutting taxes on the super-wealthy.”
Sure enough, the booby-trap exploded, leaving bits of Truss all over Downing Street. It became clear, during her six weeks in office, that serious spending cuts were impossible. Any proposal to reduce budgets (allowing public sector pay to reflect local living costs, say, or ensuring that benefits rise no faster than wages) ran into opposition. Labour claimed that seeking to return to a level of tax and spending higher than during the Blair years was extremism, and voters agreed.
Are things different in the U.S.? It seems to me that, the world over, voters prefer sweet illusions to bitter truths. The furlough schemes and emergency grants have turned vast sections of the middle class into subsidy junkies. At the same time, many of those who left the workforce show no interest in returning.
The years 2020 and 2021 saw a faster rise in state spending around the world than any equivalent period in history, including during the two world wars. That spending was supposed to be temporary and contingent. But, just as after the two world wars, governments are now reluctant to relinquish the powers that they assumed on a supposedly emergency basis. Yes, the furloughs have been wound up. But the increases in healthcare and other budgets are now being treated as structural. Instead of spending falling back to pre-2020 levels, taxes are rising to meet it.
The story of the aggrandizement of the state is the story of expansion during crises. This was the biggest expansion yet, and it is proving the hardest to reverse.
