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


Ms. Truss has been cheered on by conservative champions of supply-side economics in the USA, including lots of the chief backers of Mr. Trump’s tax cuts. Stephen Moore, who served as an outdoor economic adviser to the previous president, praised Ms. Truss for her willingness “to challenge the reigning orthodoxy by sharply cutting taxes to spice up growth,” calling the package “a gutsy and sound policy decision.”

“By far an important change is the reduction in the highest income tax rate from 45 percent to 40 percent,” Mr. Moore wrote. “It will bring jobs, capital and businesses back to the U.K.”

A number of critics, though, have lined as much as denounce the tax package, warning it’s going to provoke economic war with the Bank of England and risk a harmful combination of economic contraction and soaring prices, which could in turn hurt the worldwide recovery.

The impact of previous tax cuts, including those signed into law by Mr. Trump in 2017, provides fodder for those critiques.

Much as Ms. Truss has proposed to do, Mr. Trump reduced tax rates for income earners across the spectrum, including those in the very best bracket. He also cut quite a lot of business tax rates — a contrast with the British plan, which cancels a planned increase in corporate taxes. Mr. Trump said his full package of cuts would jump-start economic activity by encouraging businesses to speculate, hire and lift wages.

Yet initial evidence, which incorporates studies from I.M.F. economists, suggests Mr. Trump’s cuts didn’t deliver the steep gains in investment and productivity that conservatives had promised. If such gains got here to pass in Britain, they may help counter inflation there.

As an alternative, the cuts increased consumer spending, an consequence that helped temporarily expand growth in the USA, the I.M.F. found, but which might be dangerous in a high-inflation environment.

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