Abstract
A key element in both the Thatcher and Reagan administrations’ economic policy was cutting tax. Lower taxation was a clear embodiment of the vision of ‘freedom’, shared by both Thatcher and Reagan, of individuals being free from the burdensome state and free to choose how they will spend their money. Few in either administration, let alone the general public, arguably understood monetarism and the intricacies of privatisation and deregulation. But taxation, if not something everyone could understand, was something to which everyone could relate. Geoffrey Smith argues that there was a clear ‘leapfrogging’ in tax cutting policy in the Thatcher and Reagan administrations and suggests that the Thatcher government was influenced by Reagan’s example of tax cuts, but also stresses that, in any event, both administrations were determined to pursue such policies.1 The following two chapters will examine the extent of mutual impact between the Thatcher and Reagan administrations regarding taxation. They explore the extent of policy transfer in tax cuts and other policies relating to taxation, such as budget deficits and enterprise zones. The differing tax cultures must be noted, namely the use of income tax and Value Added Tax (VAT) in Britain and the role of federal and state taxes in America. However, with regard to taxes on individuals, discussion will focus on personal income tax, particularly marginal rates. This particular chapter examines the origins of Thatcherite tax policies in Britain and Reaganomics and their implementation up to 1984 and transatlantic tensions in this period.
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Notes
G. Smith, Reagan and Thatcher (London: Bodley Head, 1990), 181.
A. Gamble, The Free Economy and the Strong State: The Politics of Thatcherism (Basingstoke: Macmillan, 1994), 53.
For a critical evaluation of supply-side economics, see: S. Rousseas, The Political Economy of Reaganomics: A Critique (New York: Sharpe, 1982); and,
A. Goolsbee, R.E. Hall, L.F. Katz, ‘Evidence on the High-Income Laffer Curve from Six Decades of Tax Reform’, Brookings Papers on Economic Activity, 1999:2 (1999), 1–64.
The Laffer Curve is defended in M. Sutter and H. Weck-Hannemann, ‘Taxation and the veil of Ignorance: A Real Experiment on the Laffer Curve’, Public Choice, 115:1/2 (2003), 217–40; and,
K. Matthews, P. Minford, S. Nichell and E. Helpman, ‘Mrs Thatcher’s Economic Policies 1979– 1987’, Economic Policy, 2:5, (1987), 59–101.
The merits of Reaganomics generally as a means of prosperity and competition in the globalised world are outlined in, W. Bienkowski, J.C. Brada, M-J. Radlo (eds), Reaganomics Goes Global: What Can the EU, Russia and Other Transition Countries Learn from the USA? (Basingstoke and New York: Palgrave Macmillan, 2006).
For a discussion about how taxation polices changed in the West after the 1970s, with specific reference to the move towards lower taxation, see, J.A. Kay, ‘Tax Policy: A Survey’, The Economic Journal, 100:399 (1996), 18–75.
J.E. Sawyer, Why Reaganomics and Keynesian Economics Failed (Basingstoke: Macmillan, 1987), 153.
L. Cannon, President Reagan: The Role of a Lifetime (New York and London: Simon and Schuster, 2000), 6.
J. W. Sloan, The Reagan Effect: Economics and Presidential Leadership (Kansas: Kansas University Press, 1999), 153.
R.M. Collins, Transforming America: Politics and Culture in the Reagan Years (New York and Chichester: Columbia University Press, 2007), 60–1.
R. Reagan, ‘Taxation’, 28 November 1978, in K.K. Skinner, A. Anderson and M. Anderson (eds), Reagan In His Own Hand (New York, London, Toronto, Sydney and Singapore: Simon & Schuster, 2001), 279.
Collins, Transforming America, 61. For an examination of Governor Reagan’s tax reform attempts in California and Californian tax policies pre-Proposition 13, see for instance, G. Burbank, ‘Speaker Moretti, Governor Reagan, and the Search for Tax Reform in California, 1970–1972’, The Pacific Historical Review, 61:2 (1992), 193–214.
B. Domitrovic, Econoclasts: The Rebels Who Sparked the Supply-Side Revolution and Restored American Prosperity (Wilmington, Delaware: ISI, 2009), 153–4.
For further reading about the impact of Proposition 13 see: G.M. Galles and R.L. Sexton, ‘A Tale of Two Tax Jurisdictions: The Surprising Effects of California’s Proposition 13 and Massachusetts’ Proposition 2 1/2’, American Journal of Economics and Sociology, 57:2 (1998), 123–33.
G. Wills, Reagan’s America: Innocents At Home (London: Heinemann, 1998), 365.
E.H.H. Green, Thatcher (Oxford: Hodder Arnold, 2006), 56.
For an examination of Conservative policy development in Opposition see, Green, Thatcher, 56–61. For an authoritative study in the nature of the post-war consensus and the cause of its decline, see, D. Kavanagh, Thatcherism and British Politics: The End of Consensus? (Oxford: Oxford University Press, 1990).
See: R. Blake, The Conservative Party from Peel to Major (London: Heinemann, 1997), 300–10;
J. Campbell, Edward Heath (London: Jonathan Cape, 1993), 265–7.
B. Harrison, ‘Mrs Thatcher and the Intellectuals’, Twentieth Century British History, 5:2 (1994), 209.
E.A. Reitan, The Thatcher Revolution: Margaret Thatcher, John Major, Tony Blair, and the Transformation of Modern Britain, 1979–2001 (Lanham, Md. and Oxford: Rowman & Littlefield, 2003), 30.
J. Campbell, Margaret Thatcher Volume Two: The Iron Lady (London: Vintage, 2008), 49.
Sir Geoffrey Howe’s Budget speech, 12 June 1979, quoted in G.K. Fry, The Politics of the Thatcher Revolution: An Interpretation of British Politics, 1979–1990 (Basingstoke: Palgrave Macmillan, 2008), 78.
P. Minford, ‘Mrs. Thatcher’s Economic Reform Programme’, in R. Skidelsky (ed.), Thatcherism (Oxford: Basil Blackwell, 1989), 96.
See, for instance, O. Jean Blanchard, W. Branson, and D. Currie, ‘Reaganomics’, Economic Policy, 2:5 (1987), 15–56.
H. Young, One of Use (London: Macmillan and Pan, 1991), 241.
C. Bean and J. Synoms, ‘Ten Years of Mrs T’, NBER Macroeconomics Annual, 4 (1989), 14.
B. Evans, Thatcherism and British Politics 1975–1999 (Stroud: Sutton, 1999), 69.
W.H. Buiter, M.H. Miller, J.D. Sachs, W.H. Branson, ‘Changing the Rules: Economic Consequences of the Thatcher Regime’, Brookings Papers on Economic Activity, 1983:2 (1983), 331.
A.B. Laffer, ‘Government Exactions and Revenue Deficiencies’, in B. Bartlett and T.P. Roth (eds), The Supply-Side Solution (London: Macmillan, 1984), 137; originally printed in Cato Journal, 1 (1981), 1–21. Bartlett and Roth: ‘In this article he develops a simple model of tax rates, output, and revenue. In addition, he traces some of the historical antecedents of the so-called Laffer curve and then reviews the evidence of the 1962 and 1964 tax cuts to determine their effects on tax revenue (p.120)’.
I. Morgan, ‘Reaganomics and its legacy’, in C. Hudson and G. Davies, Ronald Reagan and the 1980s: Perceptions, Policies, Legacies (New York, NY: Palgrave Macmillan, 2008), 107.
See, D. Stockman, The Triumph of Politics (London, 1986).
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© 2012 James Cooper
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Cooper, J. (2012). Origins and First Term Cuts. In: Margaret Thatcher and Ronald Reagan. Palgrave Macmillan, London. https://doi.org/10.1057/9781137283665_4
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DOI: https://doi.org/10.1057/9781137283665_4
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