This past weekend Americans celebrated a revolution that began with a tea party in Boston Harbor -- and today's Tea Party movement takes its inspiration from those early protests against the economic despotism of George III. So it is ironic that the first Tea Party government seems to have been formed in, of all places, London -- and it is a Tory-led government no less.
Last week, Chancellor of the Exchequer George Osborne unveiled an emergency budget that would be the envy of Tea Partyers here in the former colonies. Osborne announced dramatic spending cuts of 25 percent for all departments of government -- the steepest reductions in eight decades. The austerity measures include a two-year wage freeze for nearly 6 million government employees, and nearly $17 billion in welfare cuts. Only two areas were declared off limits: foreign aid and health care (note to GOP: repeal Obamacare fast -- once created, national health care is a one-way ratchet). Some areas, such as defense and education, will face smaller reductions -- meaning some departments could face cuts upward of 30 percent.
The spending cuts were necessitated by years of Labor profligacy, which produced the second-largest budget deficit in Europe, and a debt that grew on Labor's watch to roughly 799 billion pounds. Now the Conservative-led coalition must undo the damage.
While the budget includes some important pro-growth tax cuts (such as reducing the corporate tax rate to 24 percent, the lowest of any Western economy), it also includes some unfortunate tax increases -- a concession to the Liberal Democrats in exchange for their support for deep spending cuts. For example, the capital gains tax rate will rise from 18 to 28 percent for upper income taxpayers. The Liberal Democrats wanted to raise the rate to 40 percent, but Osborne told parliament a "dynamic analysis showed that this would have resulted in smaller total revenues." The government will also increase the VAT by 2.5 percentage points. Still, the balance of spending cuts to tax increases is 77 to 23 percent. As Osborne put it, "The country has overspent; it has not been under-taxed."
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