U.K. Prime Minister Liz Truss has reversed her tax cut plan that was announced several weeks ago. The markets feared such a plan would further stoke inflation flames. Political opponents cowered at the thought of having less taxpayer revenue to waste away. The problem with Truss’ plan is that it did not go far enough. Truss’ plan should have dramatically cut taxes AND Government spending. Government spending is approximately 51% of U.K. GDP. Governments need to relinquish their collective Dr. Feelgood role of pumping benefits to people and corporations. Instead, they ought to operate lean, fiscally responsible operations so that economies and markets may thrive rather than be saddled with low growth, high debt and high inflation.
The problem with Prime Minister Truss’ tax cut plan was that it did not go far enough. Her plan did not dramatically curb Government spending, which accounted for approximately 51% of U.K. GDP. Low taxes stimulate productivity and supply, both of which are lacking in the U.K. and the West in general.
- The British Government’s largest spending category is “Social Protection” which is code for welfare. “Social Protection” accounts for approximately 15% of GDP.
- Government-subsidized Healthcare accounts for approximately 10% of GDP.
- One can only imagine what expenses the U.K. Government buries in the “Economic Affairs” category which represents approximately 10% of GDP.
In a perfect world a Government should only provide for those citizens who are physically or mentally unable to provide for themselves. However, in practice Governments succumb to the temptation to award more and more “benefits” or “entitlements” – what I call “welfare” – to an ever larger number of people in an effort to buy votes. That’s the scam. Welfare = Buying votes.
How can any economy thrive when Public Debt is 95% of GDP (the U.K.), or 130% (the U.S.) of GDP? No economy can thrive under those circumstances.
The answer to the economic growth equation is:
- Minimal personal and corporate tax rates;
- Minimal Government spending (fit the expense budget to the tax receipts/revenue source as any business would);
- Minimal regulation. Instead, Western Governments prefer to play the Dr. Feelgood role of pumping benefits to people and corporations that are not tied to productivity.