Breaking down ideas and institutions: the politics of tax policy in the USA and the UK

Abstract

As the existing comparative policy literature suggests, both ideational and institutional analyses have clear analytical value in their own terms but, under many circumstances, it is the combination of the two perspectives that allows for a full understanding of policy trajectories. In this article we suggest that, to improve our understanding of how ideas and institutions interact to produce change, it is important to break down these two overly broad concepts. This is because beyond general arguments about how ‘ideas’ and ‘institutions’ interact, students of public policy should itemize ‘ideas’ and ‘institutions’ into more focused, and empirically traceable, subcategories while recognizing the changing and contingent nature of their interaction, over time. To illustrate this, we turn to the politics of tax policy in the United States of America and the United Kingdom, tracking developments from the rise of the New Right and an aggressive income tax cutting agenda, personified by President Reagan and Prime Minister Thatcher, through to the revived debate about the legitimacy of increasing taxes on those earning the highest incomes that emerged in the era of austerity that followed the Great Recession of 2008.

Keywords:

• ideas
• institutions
• tax policy
• fiscal policy
• United Kingdom
• United States of America

Acknowledgements

The authors thank Tanya Andrusieczko, Edward Ashbee, Robert Henry Cox, William Crotty, Pierre-Marc Daigneault, Isaac Martin, Andrew Rudalevige, and the reviewers for their comments and suggestions. He also acknowledges support from the Canada Research Chairs Program.

Notes on contributors

Daniel Béland is Professor and Canada Research Chair in Public Policy (Tier 1) at the Johnson-Shoyama Graduate School of Public Policy. A student of comparative public policy, he has published 11 books and 90 articles in peer-reviewed journals. Recent books include The Politics Policy Change (Georgetown University Press, 2012; with Alex Waddan) and Ideas and Politics in Social Science Research (Oxford University Press, 2011; co-edited with Robert Henry Cox).

Alex Waddan is Senior Lecturer in American Politics and American Foreign Policy at the University of Leicester. A specialist of fiscal and social policy, he has published numerous journals articles and several books dealing primarily with US politics and welfare state reform. His books include The Politics Policy Change (Georgetown University Press, 2012; co-authored with Daniel Béland) and Clinton's Legacy? A New Democrat in Governance (Palgrave Macmillan, 2002).

Notes

1. In this article, due to the limited space available, and considering the theoretical task at stake, we focus almost exclusively on ideas and institutions. This does not mean that structural and psychological factors are irrelevant in the study of the cases at hand. Simply, our goal is to better grasp the ideas–institutions nexus rather than solving a concrete empirical puzzle and examining all the possible explanations available in the literature.

2. We concentrate on national government taxes directly affecting households. Thus, the article centers on national income tax, social insurance contributions (that is, Social Security payroll taxes in the USA and NICs in the UK), and consumption taxes imposed by the central government.

3. The focus on national level politics means that the article does not address the highly controversial effort to introduce what became known as ‘the poll tax’ in the UK in the late 1980s. Although this was legislated at the national level, the tax itself concerned the funding of local government (for the story of the rise and fall of the poll tax see Butler, Adonis, and Travers 1994). Also, while the rise of antiproperty tax movements in some states in the USA in the late 1970s is relevant to the politics of our story we do not seek to explain the origins of those movements.

4. The idea behind the Laffer Curve is not that tax cuts will always generate more revenue, but that there comes a point where too high marginal rates become such a strong disincentive that revenue falls. The subtleties of where that point might be were not always properly debated in the political sphere. Bruce Bartlett, who worked in the Reagan White House, notes that the Republican Party was looking for new ideas in the wake of the 1976 elections that left them out of the White House and very much in minority status in both chambers of Congress. The passage of Proposition 13 convinced many Republicans that a tax cutting agenda was a road to recovery and so they ‘jumped aboard the tax-cut bandwagon’ being driven by Kemp and other true believers based on the idea that tax cuts would lead to dramatic economic expansion (Bartlett 2006, 160).

5. Stamp Duty (now Stamp Duty Land Tax) is paid by the buyers of a property.