Coffee House

What George Osborne can learn from the Paul Ryan/JFK tax cut plan

14 October 2012

One of the highlights of the Paul Ryan vs Joe Biden debate last week was Ryan attempting to explain that you can lower tax rates and increase tax revenues. “Not mathematically possible,” snapped back Biden. “Never been done before.” It has, replied Ryan. “Jack Kennedy lowered tax rates and increased growth.” An incredulous Biden said: “Oh, now you’re Jack Kennedy?” The audience laughed, but the joke was on Biden. People like him (and he has plenty counterparts in Britain) think that the only way of squeezing more money out of an economy is to increase the tax rates and cut spending. JFK understood that it’s more complicated: you need growth, and you need lower taxes to encourage growth. Here’s what he had to say:-

Claim your gift

JFK was making this argument long before Art Laffer doodled a graph on a cocktail napkin. And why? Because this is not a new-fangled theory of neoliberal economics. He was restating basic common sense. Look around Europe today: the countries doing badly are those (like Britain) who think that austerity is enough: cuts and higher taxes will do the trick. Countries that don’t have enough ideas for pro-growth economic policies. People now have still to learn the basic JFK lesson:-

An economy hampered by restrictive tax rates will never produce enough revenues to balance our budget just as it will never produce enough jobs or enough profits… In short, it is a paradoxical truth that tax rates are too high today and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now.

Sweden’s 2009 stimulus was a permanent tax cut for the low-paid, which has been found to pay for itself almost entirely. That would, presumably, astonish Biden. But not JFK. Here he is again:-

“Our practical choice is not between a tax-cut deficit and budgetary surplus. It is between two kinds of deficits: a chronic deficit of inertia, as the unwanted result of inadequate revenues and a restricted economy; or a temporary deficit of transition, resulting from a tax cut designed to boost the economy and increase tax revenues.”

Given that Biden was around at the time, you’d hope he’d remember that after JFK’s tax cuts, the American economy soared – as did tax revenues.

The taxes of JFK’s America and Reinfeldt’s Sweden were, of course, higher than Britain’s today. But the 2020 Tax Commission (on which I served) shows that there are many, many areas where there is scope to grow the economy – even, for example, copying German-style ‘mini jobs’ where you can earn €400 a month without paying any tax at all. A basic rule holds good: the surest way for government to encourage a recovery is to get out of the way and let people do the rest. George Osborne is a keen student of American history, so I have no doubt that he is fully aware of how JFK managed to steer America away from the low-growth, high-deficit trap in which Britain is now ensnared. He will also know the likely remedies. That’s why I’m looking forward to his mini-budget in December .

Give the perfect gift this Christmas. Buy a subscription for a friend for just £75 and you’ll receive a free gift too. Buy now.

Show comments
  • David Austin Stephens

    JFK wasn’t the only American president who urged tax cuts. Calvin Coolidge, JFK, Ronald Reagan and George W. Bush. Every single time the revenues increased. But of course Reagan was a Nazi so his blinding success doesn’t count. Obviously. Reagan qua Reagan was wrong.

    Mr. Obama knows well that reducing the capital-gains tax rate has always increased revenues; he’s still against it. This militates against the (in my view generous) idea that Mr. Obama simply doesn’t understand economics, which in and of itself should be disqualifying for any serious presidential candidate.

    I’m of the opinion that he knows this and with his reply invoking some nebulous leftist touchy-feely response of “fairness,” he indicated just who he is. And that America cannot expect any sort of recovery as long as he is here to do us down.

    If you watch his hands and disregard his words, it’s obvious that he has contempt for America and it’s my opinion he contemns anything he considers smaller than himself, which could be up to and including the Big Bang (which is NOT something found in a closet left by the Clinton White House).

    But if you listen to the words which have not been feed Mr. Obama by the TelePrompTer, you might get more of an idea of who the man is.

    An excellent politician but the jury is still deliberating on his intellectual firepower.

    The jury is not still out, however, on his views. This man, who has had the path before him eased like those who do that silly Canadian sport of scooting some puck across the ice with people sweeping in front of it, has never had to think that he is not the center of the universe. Zaphod Beeblebrox could take arrogance lessons from him.

    • Daniel Maris

      Debt increased hugely under Reagan did it not?

      • scheduled departures every day

        …not because of any lack of revenues. Those increased.

  • scheduled departures every day

    Mr. Nelson,

    You speaking of “tax cuts” is reminiscent of you speaking of “spending cuts” a while back. It’s nothing but Londonistan bubble dweller fantasy, promulgated by you bubble dwellers to gin up excitement and support for your Cameroon buddies.

    Of course, as we know, there are and have been no “cuts”, no matter how much you squealed with delight over them. There are and have been spending increases, just as there are and have been tax increases, thanks to you Cameroonians.

    Please stop with the fantasy. And please make it a point to begin using the English language in the same responsible manner you demanded of Clegg the other day.

  • Daniel Maris

    Go to Annex A and you’ll see that according to the table Sweden tax take at 45% (as a % of GDP) is some 10% higher than the UK’s at 35% in 2010.


    Is Fraser arguing we should increase our tax take by over a quarter? I doubt it.

  • David B

    Mathematically a bubble bee cannot fly, but it still flys. This just goes to show how politicians will not look at the evidence history and economics has taught them. The tax curve is an inverted u, if the rate is to high tax revenue falls.

  • Mike Barnes

    “Sweden’s 2009 stimulus was a permanent tax cut for the low-paid,
    which has been found to pay for itself almost entirely. That would,
    presumably, astonish Biden. But not JFK.”

    Erm nobody on the left is against tax cuts for low paid. That would be a Keynesian response to the crisis, a stimulus measure. For instance it was Balls and the left opposed to the VAT rise, which he knew would cripple demand.

    No, what we’re against is tax cuts for millionaires. That does absolutely nothing to pump demand into the economy.

  • Rockin Ron

    “But the 2020 Tax Commission (on which I served)” – no offence Fraser, but if you, a naive hack with barely any understanding of economics and hardly any experience of the real world can be an adviser to this Commission, then that shows it is all about show and not substance. Reporters are supposed to report news, not become news.
    As you have constantly demonstated through your articles, you have scant knowledge of economics, a childish belief in accepting politicians statements at face value and next to nothing to compare your experience with, since your world has almost totally been the Westminster village. You are part of the problem, not the solution!

  • Andy

    We should work towards a Flat Tax. The whole tax system is now so complex no one properly understands it. So lets simplify it: cut the rate to 20% and abolish all reliefs save a personal allowance.

    • Daniel Maris

      Flat tax is a good idea, as long as it’s combined with Universal Credit and a Property Tax.

      • rubyduck

        We have property taxes. Council Tax, Stamp Duty, CGT and IHT.

        • Daniel Maris

          Yep and those property taxes are low compared with most other countries.

  • TomTom

    Kennedy also created the Eurobond Market through Operation Twist trying to rig long-term interest rates. He created the boom in the Eurdollar Market and the Offshore Centres. The following years saw the US funding Asia and Europe through US trade deficits whilst funding Kennedy’s War in Vietnam through loose fiscal policy. It was effectively his version of QE and it simply created London as the centre of Offshore hot money which destabilised the US Dollar in the late 1960s.

  • Jules

    If George Osborne cuts taxes for the rich AGAIN, there is going to be a revolution. Just what exactly does Gideon have to do before Cameron sacks him? Everything boy George touches he fcuks up. He has lost the Tories the 2015 election because of the 50p tax cut, he made Cameron appoint Mitchell as chief whip and his economic ‘plan’ has completely FAILED, killing growth and putting us into a double dip recession. Even his ‘friend’ Lagarde at the IMF has turned on him.

    When will the docile media start calling little Gideon to account?

    • Andy

      If the 50% Tax rate was so a wonderful idea why did Labour never have it over 13 years ??

      When will the docile media start calling the dreadful Labour Party to account for the mess they made of our economy ?? A mess that will take 30 years to sort out.

    • Daniel Maris

      I think you went a bit easy on Gideon there. His initials must spell GO! for some reason.

    • rubyduck

      Cut taxes for the rich and more of them come here. Increase taxes on the rich and they bugger off.

  • ButcombeMan

    “copying German-style ‘mini jobs’ where you can earn €400 a month without paying any tax at all”.

    Has it escaped your notice Fraser, that the minimum income before income tax is payable, in the UK, is considerably higher than 400 Euro a month and has been for a very long time?

    The more general point about high tax frustrating personal enterprise is true, I have myself turned down quite a lot of work (export work as well) because of my 40% tax rate.

    I do not need the money, I did it and do it (when I do), for intellectual stimulation. Because my tax rate is 40% I questioned why I was bothering when some of the work was in such very unpleasant places.

    Expecting Balls and Cable to understand this, is a bridge too far.

    Tax works best, direct or indirect, when it is thinly spread and of marginal differrence to a transaction .That is how to get government out of the way of enterprise. Low tax on financial transactions of any sort is vital to keep an economy moving. Osborn has not understood , for example, that by smoothing Stamp Duty he might stimulate economic activity, lose some stamp duty at the bottom end of the market yet get more in revenue from other housing associated transactions than he does now from the limited property sales taking place.

    Does Osborne understand that VAT at 20% is too high, evasion is increasing among small traders, some are deregistering and drifting into cash. Losing VAT is only the half of it, the black economy is growing and tax and NI are also being lost.

    Expecting Osborne to understand this, is a bridge too far.

    We are being very badly served by politicians of all colours.

    • TomTom

      20% is ludicrous and makes so much economically unviable…….a bottle of wine with VAT + Duty + Service Charge + VAT becomes £40 to drink 90 pence worth of wine ex-vineyard

      • dalai guevara

        Proof once more that the homebrew industry must be on the rise. Drink locally, sustain your economy. The Dragon’s Den posse exclaim: it’s a business!

      • Fergus Pickering

        Where are you drinking this bottle, pray?

        • TomTom

          breakdown of a £20 bill for a bottle of wine in a restaurant, listed at
          £17.80: 12.5% service, 20% VAT, 69% restaurant gross margin, 27% wine
          merchant gross margin, 25p delivery, £1.81 duty, 39p freight and
          storage. Cost of the bottle, including wine and packaging, ex-cellars?
          90p – half the cost of the duty. (So a high rate tax payer has to earn
          forty quid to pay for a bottle that the producer flogged for less than a

    • Fraser Nelson

      In the German case, you can take as many of these mini-jobs as you like, there is no National Insurance nor employers tax. I take your point about 40%. When the effective tax rate is 95% as it is for our low-paid on welfare, you can see why immigration accounts for most of the rise in employment over the past two years (and the 13 before that).

  • Daniel Maris

    This is simplistic stuff Fraser. I would make the following comments:

    1. Sweden was incredibly highly taxed before 2009. It is STILL taxed at a much higher rate that we Brits. If Sweden’s tax rate is the reason for its success then we need to RAISE taxes!

    2. The America of JFK’s time did not face serious competition from the likes of China and Korea. Even Japan’s impact was fairly small at the time. The US was a big continental economy with lots of scope for growth and lots of young people. The America of JFK’s time for instance did not have to devote 15% of its GDP just to keep its health services going.

    3. The tax avoidance/evasion industry in the early 1960s was nowhere near as sophisticated as it is now.

    4. Paul Ryan has a plan? Let’s not forget George Osborne had a plan as well. Has it succeeded? No.

    In my opinion our future prosperity relies more on:-

    (a) Reducing welfare dependency, which in turn means you have to provide work for everyone. Creating a strong work ethic will have all sorts of beneficial results, and reduce the demands on the taxpayer.

    (b) Developing a high tech approach to meeting our own production needs and creating lots of opportunities for us to earn money abroad.

    (c) Erecting tarriff barriers with similarly developed economies to stop countries like Cheating China from destroying our industrial base.

    (d) Stopping mass immigration which is a huge drag anchor on growth.

    • Felix Hemsted

      On Tariff barriers: We have known since the time of Ricardo that ANY barriers, applied to imports and exports, make us worse off. All tariffs would do is make are goods slightly more expensive. They would not bring manufacturing back.
      On Immigration: You need to watch:

      • Daniel Maris

        Tosh. I don’t mean our own tariff barriers but co-ordinated barriers with Europe, America and Japan would protect us. You are forgetting how Korea, Japan and China have all built up their industries behind official and unofficial tariffs. Free trade was in our interest for a couple of hundred years. No longer.

        Similarly immigration controls will protect our living standards. Didn’t you see the recent admission from the ONS that mass immigration had driven down per capita GDP figures? Of course capitalists and well paid professionals do all right from immigration.

      • Daniel Maris

        The fact that you quote a You Tube video that deals with effects of immigration on the USA is instructive. The USA is a huge continental economy with vast tracts of still largely empty land – and its immigrants are largely drawn from Christian cultures. It is a country founded on immigration. It is nothing like the UK in terms of population density, infrastructure and culture, or in the character of its immigration.

        Belief in universal panaceas is a childish thing.

        • TomTom

          US would need 2 BILLION more immigrants to match England’s population density

      • TomTom

        Tariffs brought Manufacturing to USA, Japan ,Taiwan, Korea, China, – you should learn about Tariffs. Maybe you have not heard of The Calico Act which protected Britain from cheap Indian cotton and allowed Lancashire to industrialise ? you seem to have no grounding in Economic History – go look at the McKinley Tariff 1890 and ask how Germany industrialised, and France

      • TomTom

        Ricardo was WRONG. His theory of Comparative advantage is WRONG. He was a Stockbroker and his international trade theory was inaccurate

    • fubarroso

      1 Sweden is successful despite being highly taxed. Just think how more prosperous they could be were they not so!

      2. Did the US even have a “health service” as such in JFK’s day?

      3. True! Did you ever think that perhaps people wouldn’t bother so much with avoidance/evasion if the taxes didn’t hurt so much?

      4. Osborne’s plan hasn’t been a spectacular success because he has been very half hearted about what needs to be done. Thanks be that Gordon Brown or Ed Balls aren’t still in charge though or we would be in Carey Street by now.

      (a) …which in turn means you have to provide work for everyone Who exactly is “you” here. If you mean the government then you are deluded. The government cannot provide work for anyone. Actually that’s not strictly true as the government can easily create non-jobs as Labour have already proven. What is true is that government cannot help the economy by creating real jobs that boost the economy. The best that it can do is get it’s money grubbing fingers out of the way of entrepreneurs and let them get on with it.

      (b) I agree we need a high-tech approach, but the idea that the government can develop such is laughable. Most of them are technically illiterate!

      (c) If you think a trade war with China or any of the BRICs is going to solve our problems then I fear there is no hope for you whatsoever.

      (d) Best way of stopping mass immigration is to stop handing out benefits to all and sundry. No benefits – they won’t come unless they are certain that their earning prospects are better. That means that they will be well educated, willing to work and equally importantly willing to adapt to the British way of life.

      • TomTom

        In 1962 MOST British workers did NOT pay Income Tax

        • fubarroso

          Sorry, but I fail to see the relevance of this to my comment. Incidentally though you are wrong. I was only 17 in 1962 and still at school. My mother worked part time as a cashier earning peanuts and she still got stung for Income Tax.

          • TomTom

            The standard rate of tax in 1938 was 5s. 6d. in the £, and the average
            earnings of the ordinary married working man amounted to about £3 10s. a
            week. On those earnings that married man paid no tax at all………….The average wage of the married worker is about £810 a year, or £15 11s.
            6d. a week. On part of his earnings he gets into the 7s. 9d. rate, but
            the average amount of tax he pays on his taxed poundage is 5s. 3d. in
            the £.( Debate on Finance Bill 1962)

      • Daniel Maris

        Fubarroso –

        1. That doesn’t follow at all from your or Fraser’s argument since he and you are arguing that tax levels are intimately connected to prosperity levels.

        2. Well the US have always had private health services. But back then there was not the huge number of people on Medicare. My point really is that if you slash tax, you have to also look at services. Of course the USA may enjoy a peace dividend as troops come back from the Middle East which may allow for tax cuts.

        3. That’s the theory. But it assumes very rich people aren’t also very greedy people. All the empirical evidence suggests otherwise. I prefer the imposition of simpler non-avoidable taxes.

        4. Had he been less half hearted the double dip would have been even worse. As it was he managed to scare the living daylights out of a large section of the public, causing them to save rather than consume.

        (a) It’s virtually impossible to argue with someone who thinks public sector jobs aren’t “real” jobs that generate wealth. Would we not be poorer if the teaching profession disappeared tomorrow? Is maintaining the rail network not adding to the nation’s wealth? How would things turn out if the Police didn’t turn up for work tomorrow? Maybe the snow-plough and gritter drivers should just let the motorways clog up this winter.

        (b) The private sector won’t do that – there is no incentive to do so. It will require a lot of infrastructure investment. Governments are good at that.

        (c) I think a trade war between the Americans/EU and China would be a wonderful thing which probably resolve our economic problems virtually overnight. Cheating China needs us much, much more than we need them. Do we eat their rice? No. Are there things they produce which we can’t? No.

        (d) Many immigrants might like our benefit system but they will come for work as well.

    • Fraser Nelson

      Yes, Sweden’s rich pay a fortune in tax but the marginal tax rate I’m talking about was an Earned Income Tax Credit for the low-paid. Cutting that worked there, and it would here.

    • David B

      You say create jobs to kick start your ideas, but how. Getting the government to employee people to dig holes has been tried and does not work. We need the private sector to create real jobs. The question is what is the best way to do that. I would argue tax cuts both corporates and income tax

      • Daniel Maris

        If you put money in my pocket now I would use it to cut my credit card payments not to spend it on consumption. I think that is the problem with tax cuts in this country at this time.

        In terms of creating jobs, I would begin by converting welfare into work. If someone is being paid £100 a week, let’s ask them to work at the minimum wage level for the proportionate number of hours – something like 16 hours in this case.

        The jobs would be productive employment opportunities that don’t compete with existing jobs but do add to productivity or enhance society – and don’t require a big capital investment. Examples might be: information kiosks in towns and cities to help people find locations and information on local attractions etc.; working on the internet to publicise the UK as a holiday destination (in addition to current advertising); health and safety work etc.; visiting the elderly and so on.

        However, I would see this productive employment sector growing over time, becoming self-sufficient. Gradually the subsidy from the state could be reduced or withdrawn.

        I think we will also need to begin reducing working hours again as millions of jobs are going to disappear over the next few years (check out staff, shelf stackers and pickers, long distance lorry drivers etc). Working hours have been the same for about 50 years – a ridiculous situation! – they had been reduced by about 30-40% in the previous hundred years.
        We need to reorganise work and get on to a four day and then three day week. The growth in leisure time will itself be a huge stimulus to the economy.

        • David B

          I find the idea of paying down debt to be a useful use of funds. The debt mountain in the private sector needs dealt with. Stoking another consumer boom is not an economic policy

          Government is not productive. It provides the means for the private secotor to be productive. Education, infrastructure, etc. it has long been proved civil servants and politicians are very bad a picking technology winners. BL is not a shining example of how to run a car manufacturing business

          How do you propes to fund a four or three day week. If you squeeze company profits where will the funds come from to by new equipment, invest in R&D and pay tax.

          Your statistic is interesting. Working hours have not fallen at a time the tax take from those same people has increased dramatically increasing the cost of living. Do you think there might be a connection. I certainly do!

  • Marky_d

    The difference between left and right is not one – as the bbc would have us believe – of growth through stimulus vs austerity. It’s one of stimulus through creating governmental non-jobs / featherbedding loyal voter groups vs stimulus through reduced tax incentives. Unfortunately Cameron represents the worst of all worlds – a supporter of massive multi layered government (EU), too cowardly to make the proven, right wing arguments for growth.

    • Augustus

      True. Tax cuts allow the rich and poor alike to keep more of the money they earned rather than give it to nameless, faceless and largely unaccountable self-important bureaucrats to distribute. But it’s an old truism that governments never shrink. Bureaucracies by their nature are engineered to balloon. It take a force of nature to reverse that process. We already know the Cameroons can’t do it.

  • AdemAljo

    Why should this be a surprise to anyone?

    I hope Romney wins. I’m not such a big fan of the man, but Paul Ryan is a phenomenal running mate and I hope Romney wins only so that we can see Ryan in office.

    If Romney gets in, we in the UK will have an extremely privileged position of observational advantage. If there are any doubters of lower tax/high revenue left in the UK, they will be able to look to America, as a (hopefully) fiscally responsible economy and see whether lowering tax really works, which, of course, it will.

    Alternatively, if they wish to ignore any results coming from a Republican US, then they can look to France, as a fully socialist country, with higher taxation etc etc and see whether they make it out of the mire, which, of course, they won’t.

    My money’s on Romney. Pun intended.

    • Andy

      I fear you have lost your money. I would be surprised if Romney wins.

    • dalai guevara

      What Osborne and AdemAljo can learn:
      when you do not pay your taxes, you will not become President. It’s – as always – simple as that.

      • AdemAljo

        You’re more right than you know. It also happens to socialists as well.

        Remember that? Eh, Ken?

        My hope springs eternal, however, so let’s just wait for November.

        • dalai guevara

          as always – I do not engage in left and right thinking.

  • telemachus

    I see you are a build for growth man

    • AdemAljo

      For calling yourself ‘telemachus’, you seem to be quite keen to argue the toss over pretty much anything…

    • fubarroso

      Hi @telemachuss:disqus How is your Mum dear Penelope?

      • telemachus

        I take it you are one of the suitors.
        I,m setting up the dozen Axe Heads

        • fubarroso

          Not me mate! The last thing I need is Odysseus coming after me :-)

Can't find your Web ID? Click here