Author: Rob L Davidson
The U.S. Congress has just approved President Trump's "One Big Beautiful Bill," marking a major legislative victory for his administration - and his ideology. By claiming tax cuts that mostly help the wealthy will somehow boost growth and reduce the national debt, he’s peddling “supply side” or “trickle down” economics. But most economists and experts say his bill will add trillions to the national debt and history has plenty of examples of this approach failing to “trickle” anywhere but up. Why, then, do these failed economic policies continue to be championed by political leaders? Is it self-interest from billionaire presidents, economic illiteracy, or could it be something more strategic? And what do we do if Reform brings Trump’s policies to the UK?
Trump’s Bill is centred around massive tax cuts. There are also significant reductions in public services, especially healthcare and food stamp programs. He has claimed that this combination will bring “MASSIVE growth”. The White House claims that this growth (and the cuts to public services) will lower national deficits by $2 trillion.
The non-partisan Congressional Budget Office (CBO) has consistently projected that such large-scale tax cuts would substantially increase the national debt. Economists argue that these proposed measures, rather than fostering shared growth, would primarily benefit the wealthiest, further concentrating wealth at the top and placing a greater burden on essential public services.
In response, Trump has simply used the White House platform to label the CBO as the “Crooked Budget Office”. Hardly a reasoned rebuttal but let’s imagine it was, how do we know that these policies won’t live up to Trump’s promises?
Historical Case Studies in Failure
Ronald Reagan's America:
In the 1980s, "Reaganomics" ushered in significant tax cuts for corporations and high-income earners in the United States. While it did boost growth, it also saw the national debt rise and by more than any president outside of war time. The extra money in the economy was flowing upwards as inequality grew, including racial inequality. At the other end, Reagan slashed welfare spending and public service programs, ending the “New Deal state” and permanently shrinking government.
Margaret Thatcher's Britain:
Here in the UK, Margaret Thatcher's policies came from the same playbook as Reagan’s. She cut the top rate of tax from 83% down to 40% and the basic rate of tax from 33% down to 25% over the decade she governed. As is common, she offered tax cuts for “everyone” but mostly the richest.
Arguably she had more success than Reagan, seeing tax revenue grow with GDP on average but the extra revenue largely came from hiking the VAT rate which effectively paid for the tax cuts to the rich by taxing the poor. NB: when looking at how much people spend, VAT can be seen as progressive (rich people spend more on the weekly shop) but when looking at how much income and wealth people have, VAT is a regressive tax.
On top of redistributing wealth upwards, she cut benefits and housing as well as other public services. Pensioners got it the worst, pensioner poverty rose from 13% to 43%. Child poverty doubled. And this is the important point, she boosted money flowing around the system (growth) but only kept control of debt by passing tax to the poor, shrinking the state, and cutting benefits for the vulnerable. As someone once said, “That’s your bloody GDP. Not ours!”
George W. Bush's Tax Cuts
The tax cuts enacted under President George W. Bush in 2001 and 2003, touted as growth stimulants, largely failed to deliver sustained economic growth, instead significantly contributing to ballooning deficits and the national debt . These cuts disproportionately benefited high-income households, accelerating the trend of widening income inequality and saw lower incomes stagnate while upper wealth ballooned.
Donald Trump's First-Term Tax Cuts
During his first term, President Trump was advised by Arthur Laffer who had also advised Reagan and influenced Thatcher in the ‘80s. Trump enacted the Tax Cuts and Jobs Act of 2017, a substantial reduction in corporate and individual income taxes. As ever, supporters said it would boost tax revenue, reduce the deficit and boost growth for all. Instead, it increased inequality, failed to deliver wage growth for the lowest earners and increased the deficit and national debt.
Liz Truss's "Mini-Budget" in the UK
More recently, Liz Truss's short tenure as UK Prime Minister saw the disastrous "mini-budget" of September 2022. The Trump acolyte claimed it as a plan to cut taxes to boost growth. While some growth in the short term may have been expected it was never going to pay for the tax cuts and debt was expected to grow (at a time of high national debt). It was also expected to boost inflation during a time of already increasing inflation. In the end, the markets responded by pushing up the cost of government borrowing further adding to her debt problems and eventually causing her resignation but not until after she pushed up mortgage rates and set back the whole economy.
Why do they do it?
The evidence then is that supply side economics never “trickles down” and more often inflates national debt even if it does sometimes boost growth. So why do Conservative politicians continue to push these policies so vigorously?
One explanation might be simply personal benefit. Individuals at the top of the economic hierarchy, including politicians and their donors, often gain directly and substantially from policies that reduce taxes on wealth and high incomes.
However, looking at what else is always achieved may reveal a more strategic political goal: the shrinking of the state. The tax cuts are generally accompanied by cuts to public services and welfare, and any growth in economic output is seldom able to match increases in national debt. These policies create a "ratchet effect" in two important ways, designed to diminish government's role over time.
First, there are the direct financial constraints placed on future governments. When tax revenues are significantly cut, and national debt rises as a consequence, subsequent administrations face enormous pressure to limit spending - look at the “scorched earth” budget from the last Conservative government. It’s difficult to win elections on a platform of raising taxes and so the system essentially becomes "locked in" to lower government spending levels.
Second, and perhaps more concerning, is a psychological and political ratchet. As public services and welfare provisions shrink, especially if national debt is growing, people can become more susceptible to divisive arguments about who "deserves" public services and welfare. “Look at the debt” they say, “we can’t afford to support all these people”, “it was never designed for this.” Reagan talked about “welfare queens”, the UK’s Conservatives talked about “strivers and shirkers”, Trump’s bill may take healthcare away from another 10.5 million people but they’re either “aliens” or they don’t work so it’s what they deserve, right?
People are more susceptible to these arguments during economic ‘hard times’ which is why downturns are so often used as an excuse for dismantling the state. But cutting spending and increasing inequality both suppress growth generally and so these policies can develop into a vicious cycle - one that can be seen clearly in the impact of the last 14 years of Conservative government, the state of public services, and the rampant popularity of the anti-immigrant, small-state, Reform party.
Coming back to the future
It is of course difficult to prove someone’s motivation but as we watch Trump’s bill roll out across the US and we are forced to hear his media-grabbing rhetoric, I suspect we will be able to see what’s really behind this legislation. While that unfolds, we may have to worry about the same policies returning to the UK.
Nigel Farage is so tied to the US president that half of Britain see him as “Britain’s Trump”. His recent pledges have included something like £80 billion of tax cuts and although he hasn’t fully specified his spending cuts, he’s already copying Trump’s DOGE approach to slashing vital programs in the councils he now controls. Cutting taxes and dismantling the state are top of the agenda for the party topping the opinion polls.
Even so, it's not enough to know what we’re up against or why these policies are bad for most people. As Reagan himself said, “If you’re explaining, you’re losing.” The problem we have is how to outshine the allure of that old Reaganomics promise - to tax and spend less but to get more. Farage’s closeness to Trump is not popular with most Brits so that may help but the greater challenge will be, how do we tell a true story that is even better than that old lie?
Dr Rob L Davidson is an active member of St Albans Liberal Democrats and a former SLF exec member. He is a data scientist with publications in cancer research, environmental sciences, and open data. He is probably best known for founding the campaign groups Scientists for EU and Healthier IN the EU during the Brexit referendum period.