Liz Truss just resigned from her job as the British Prime
Minister. Her tenure in office was a mere 45 days, making her time in office of
any Prime Minister in U.K. history going all the way back to 1721.
A disastrous series of self-inflicted wounds —
which turned into a political death spiral — began with a misfired attempt by
the Conservative Party leader to radically reorient the government’s economic
agenda by slashing taxes without saying how the decision would be paid for. It
sent the markets reeling, and Truss never recovered.
By the end of her tenure, according to a YouGov poll, Truss’s net favorability stood at minus 70
percent. If that figure had continued its downward slide, she would have been
on track to overtake Russian President Vladimir Putin, who has a net favorability rating
of minus 84 percent among members of the British public.
Truss became prime minister on Sept. 6
after being elected by members of the Conservative Party to replace Boris
Johnson as their leader. Her first two weeks included the death of Queen Elizabeth II and
were politically muted while the country entered a period of mourning.
But on Sept. 23, her
finance minister, Kwasi Kwarteng, made a
fatal misstep: Without any warning, he unveiled a significant shift in the
country’s economic strategy, promising to slash taxes for the highest earners
and biggest corporations — with no plans to pay for it.
Almost immediately, the British pound’s valuation tanked,
the United Kingdom’s central bank was forced to hike interest rates, and the
cost of taking out mortgages soared. Inflation — already at record highs —
raised the cost of living further, shredding the Conservative Party’s
reputation for fiscal responsibility. Some working-class voters who were drawn
to Conservatives by their embrace of Brexit were turned off by a renewed sense
that the party represented only the interests of financial elites.
Of the 56 Prime Ministers who have served during that time
period, 22 left office because they had resigned.
The most interesting character in the long list of Prime
Ministers is Winston Churchill, who served two terms. The first term was from
May 10, 1940 to JULY 20, 1945. His second term was from October 20, 1955, to
April 5, 1955. Although he technically resigned in April of 1955, he remained
Prime Minister until 1964, and was given a state funeral upon his death in
1965.
Even though Churchill was instrumental in defeating the Nazis,
his Conservative Partly lost in the 1945 general election.
Since 1950, Truss’s Conservative Party has won 11 out of 15
elections, including the last 4. The Labour won the other 4.
For several months, the president had been selling the
legislation on the claim that the tax cuts would “be rocket fuel for our
economy.” His claim was critical to defending against the criticism that most
of the tax cuts would go to corporations and the very wealthy—supposedly, the
money would ‘trickle down’ to the middle class.
The president and administration officials, often echoed by
Congressional Republicans, claimed that as a result of the tax cuts: • Business
investment would jump. • GDP growth would skyrocket to between 4 and 6 percent.
• Household incomes would increase
between $4,000 and $9,000. • Job growth would accelerate. • The tax cuts would
‘pay for themselves’—adding nothing to the federal debt, or even reducing it.
These claims were not the president’s invention; they
originated with and were repeated by the most senior economic policy experts in
his administration. Kevin Hassett, then the chairman of the president’s Council
of Economic Advisers (CEA), said that the median wage increase for workers due
to the tax cuts could amount to $20,000 per year. Treasury Secretary Steven
Mnuchin said that “not only will this tax plan pay for itself, but it will pay
down debt.”
Gary Cohn, then the director of the National Economic Council
(NEC), said that “we can pay for the entire tax cut through growth over the
cycle.” Larry Kudlow, the second director of the NEC, claimed that “the
deficit…is coming down, and it’s coming down rapidly.”
Other economists were highly skeptical of these claims.
Jason Furman, chairman of the CEA during the Obama
administration, said that the White House claim of up to a $9,000 increase in
household income due to corporate tax cuts was “more than a little
far-fetched.” Austan Goolsbee, another former chairman of the CEA said that the
administration’s “trickle-down, magic-beanstalk…argument” was “nonsense.”
Former Treasury Secretary Larry Summers said that he “would be hard pressed to
give [the administration’s tax analysis] a passing grade.”
Two years after the tax cuts were enacted, evidence clearly
shows that the critics were right. Overall, the economy is not outperforming
solid trends that predated implementation of the tax cuts and were inherited
from the Obama administration.
GDP growth has averaged 2.5 percent — exactly the same as the
average in the quarters before the tax cuts, and nowhere near the 6 percent
promised by the president. • Business investment, which is essential to a
stronger economy, lags substantially behind the average of the quarters that
preceded the tax cuts.
Household income increased only $550 in the first year after
implementation of the tax cuts—far behind the previous three years and not
close to the $4,000 to $9,000 or more per household that the administration had
claimed.
The Congressional Budget Office now projects that the 2017 tax
cuts will increase the national debt by $1.9 trillion over 11 years.15 The tax cuts
are not remotely on track to ‘pay for themselves.’
As a result, policymakers in the future may be pushed to make
cuts to programs that are critical to middle-class families, like Social
Security and Medicare, and forgo crucial investment in infrastructure and
education that are essential to sustainable economic growth.
In addition, the almost $2 trillion hole in the budget may
make the economy more vulnerable to the next recession because it will be far
more difficult for Congress to find the will and resources to pass the fiscal
stimulus necessary to jump-start the economy. This is especially concerning
given that the Federal Reserve has less ability to fight the next recession
because it cannot implement large rate cuts to stimulate the economy.
As a result, it is crystal clear that the 2017 tax cuts have
not remotely achieved the economic miracle that the Trump administration
promised. While die-hard defenders of the tax cuts likely will claim that the
greatest benefits still lie in the future, the current trends suggest that
those benefits will never be achieved and that the rationale for the tax cuts
was unsound. By the time the experiment has fully run its course, Americans
will already have paid a very steep price.
The resignation of British Prime Minister Liz Truss on
Thursday morning puts an end to a month of economic and political turmoil.
Republicans should take note of her mistakes if they want to avoid a similar
debacle after the midterms and in 2024.
Truss’s first mistake was to push a
radical economic agenda she did not campaign on. Her personal views supporting
a low-tax, smaller government were telegraphed years ago in her book,
“Britannia Unchained.” But she did not campaign for the premiership on that
agenda. She had promised some modest tax reductions and offered rhetorical
backing for deregulation. But those were far short of the sweeping tax cuts she
and her chancellor of the exchequer unveiled in their now-infamous mini-budget
proposed in late September.
Failing to prepare
public opinion for her proposals meant there was no widespread support for them
in any segment of British society. Conservative MPs who championed fiscal
stability were gobsmacked at the prospect of widening deficits as far as the
eye could see. The broader public backed more spending
and taxation, not less. And investors who had made calculations about the
British economy based on her public statements were blindsided, sending
interest rates soaring and pushing the pound to historic lows.
https://www.washingtonpost.com/opinions/2022/10/20/truss-resignation-british-republicans/
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