Tax Cuts for the Rich Don't Work.

One of the great lies of the Bush administration (and all other conservatives) is that if you give a tax break to the rich and to companies, it stimulates the economy.

25 years ago, Margaret Thatcher convinced the British electorate to hand her a landslide mandate to try out neo-conservative economics. Tax breaks for corporations and the rich were enacted, intended to give "the best environment for investment".

Literally billions of pounds were transferred from wages to companies or to individuals as tax cuts - to be used not for investment but for a consumption boom by the richest members of society.

Over the next 15 years of Thatcher's reign, wages fell but company profits rose. The economy looked healthier if you only looked at the stock market but investment actually fell by 3.9%... the same amount as company dividends rose.

Ken Livingstone, the current Mayor of the City of London, calls it "Thatcher's Frankenstein's Monster".

All this must seem eerily familiar to Americans, who in the main aren't used to looking beyond their own shores for recent political history. There is a reason why it is familiar, though. Karl Rove admits that he has based Bush's agenda on the precepts of Thatcherism even though history records her economic experiment as a dismal failure that left the UK close to bankruptcy, as it will for the US under Bush.

Where Thatcher failed, Gordon Brown, the socialist Chancellor of the Exchequer for Tony Blair's government, has succeeded. How?

Brown set out at the beginning a remarkable but simple concept: giving tax cuts or welfare to the poor is the best way to kick-start an economy. If you give money to the rich, they hide it offshore or spend it on foreign luxury goods. If you give far smaller amounts to the poor and the working class, they spend it at the local store, the small businesses in their area, or even leave it as a tip for a waitress. The local businesses and stores pay wages, usually low wages, to other working class people, who in turn spend it again, and so on.

A dollar given to the poorest 20% of society will circulate, on average, five times - far exceeding the economic generative effects of the same dollar given to the richest 20% and hidden in an offshore trust fund.

Simple, huh?

Update The Hamster blog reports that the Bush tax cuts didn't work - big surprise.

With the newly released payroll employment data for December 2004 it is now possible to assess whether the administration's tax cut strategy produced the employment growth that was projected. The final verdict is grim. Job growth over the last 18 months has fallen short by 1,703,000—more than one-third less than the number of jobs the administration said would be created without the tax cuts. Given that the economy failed to produce the number of jobs expected with no policy change, it seems hard to argue that the tax cuts were a successful strategy in adding any jobs—the promised 1.4 million additional jobs never materialized.

The Emperor has no clothes again.