To keep the system operating required huge government subsidies, paid for with budget deficits that were monetized by the central bank, which led to high inflation. Inflation exacerbated problems with the tax system by pushing almost everyone up into tax brackets once reserved for the wealthy. In 1979, the basic tax rate was 33 percent, and the top rate went as high as 98 percent -- 83 percent on wages and an additional 15 percent surcharge on so-called unearned income such as interest and dividends.
Press reports were filled with stories about famous Britons who were abandoning the country, about managers refusing promotions and a growing proliferation of tax avoidance schemes. Company cars became pervasive as one of the few ways one could enjoy tax-free income.
Thatcher was elected to Parliament in 1953 and served in cabinet-level positions. In 1975, she was elected leader of the Conservative Party, which was then in opposition. She achieved this position by arguing that British decline was not inevitable, that the right policies could tame inflation and restore prosperity. These included tight control of the money supply, tax rate reductions, privatization of British industry, deregulation and a tougher position toward unions.
On May 4, 1979, Conservatives won control of Parliament, making Thatcher prime minister. She quickly set about implementing her agenda. Just one month later, the basic rate of taxation was cut from 33 percent to 30 percent, and the top rate on wages went down from 83 percent to 60 percent. In subsequent years, the basic rate was reduced to 25 percent and the top rate lowered to 40 percent.
Britain's nationalized industries were sold off to the general public, making many of them shareholders for the first time. Its extensive public housing was sold to tenants, making many of them homeowners for the first time. After a series of bitter encounters, the unions were finally tamed. The result was a rejuvenation of the economy, the restoration of an enterprise culture and the end of talk about British decline.
Thatcher resigned as prime minister in 1990 and joined the House of Lords in 1992. Even her sternest critics admit that her reforms were necessary and beneficial to the country.
Bruce Bartlett is a former senior fellow with the National Center for Policy Analysis of Dallas, Texas. Bartlett is a prolific author, having published over 900 articles in national publications, and prominent magazines and published four books, including Reaganomics: Supply-Side Economics in Action.
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