Britain’s Gamble on Tax Cuts Has Economists Warning of Past Mistakes

Ms. Truss has been encouraged by conservative supporters of supply-side economics in the United States, including many of the main backers of Trump’s tax cuts. Stephen Moore, who served as outside economic adviser to the former president, praised Ms Truss for her willingness to “challenge the prevailing orthodoxy by slashing taxes to boost growth”, calling the package “a brave and wise political decision.” ”.

“By far the most important change is the reduction of the top income tax rate from 45 percent to 40 percent,” Moore wrote. “This will bring jobs, capital and business back to the UK”

However, a host of critics have lined up to denounce the fiscal package, warning that it will spark an economic war with the Bank of England and risk a damaging combination of economic contraction and skyrocketing prices, which in turn could hurt the global recovery.

The impact of past tax cuts, including those enacted by Trump in 2017, fuels those criticisms.

Just as Mrs. Truss has proposed to do, Mr. Trump lowered tax rates for people earning incomes across the spectrum, including those in the highest bracket. He also cut a variety of business tax rates, in contrast to the British plan, which cancels a planned increase in corporate taxes. Trump said his entire package of cuts would boost economic activity by encouraging businesses to invest, hire and raise wages.

However, initial evidence, including studies by IMF economists, suggests that Trump’s cuts did not deliver the strong investment and productivity gains that conservatives had promised. If such gains were to happen in Britain, they could help offset inflation there.

Instead, the cuts boosted consumer spending, a result that helped temporarily expand growth in the United States, the IMF found, but could be dangerous in a high-inflation environment.