Paul Krugman: 'At such a time, slashing taxes for the rich, who are less affected by higher energy prices than people with lower incomes are... sends the message that only the little people will face hardship.'
And those of us on the center-left can, I think, be forgiven for feeling a bit of schadenfreude. Conservatives constantly warn that progressive policies will be punished by the “bond vigilantes,” who, they claim, will drive up interest rates at the prospect of any increase in public spending. Such warnings usually are proved wrong. In Britain, however, the bond vigilantes actually did make an appearance: Interest rates shot up after the Truss government announced its economic plans.
How big a tax cut did Truss propose? She and her officials announced their policy without a budget score, which contributed to the market’s loss of confidence. However, there are independent estimates; for example, the Resolution Foundation, a British think tank, estimated the Truss tax cuts at 146 billion pounds over the next five years, which would be around 1% of projected gross domestic product over the same period. That’s not trivial, but it’s also not huge.
Questions about Truss’ judgment were reinforced by the cluelessness of her timing. Right now ordinary Europeans, including Britons, are facing hard times, largely as an indirect consequence of Russia’s invasion of Ukraine. Ukrainians, incredibly, seem to be winning the war; it doesn’t detract from their valor to say that Western weapons have played an important role in their success. So Vladimir Putin has tried to place pressure on the West by cutting off natural gas flows.
At such a time, slashing taxes for the rich, who are less affected by higher energy prices than people with lower incomes are, instead sends the message that only the little people will face hardship. This message is especially toxic given that the British public is in an uproar over cuts to public services, especially health care, and wants to see taxes go up, not down, to pay for more. And it’s hard to govern effectively when you’ve angered most of your nation.
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