Argument: Bush tax cuts lead to higher interest rates

Issue Report: Expiring Bush tax cuts for the wealthy in 2010


William Gale. “Five myths about the Bush tax cuts.” Washington Post. August 1, 2010: “3. Making the tax cuts permanent will lead to long-term growth. A main selling point for the cuts was that, by offering lower marginal tax rates on wages, dividends and capital gains, they would encourage investment and therefore boost economic growth. But when it comes to fostering growth, this isn’t the whole story. The tax cuts also raised government debt — and higher government debt leads to higher interest rates. If estimates of this relationship — by former Bush Council of Economic Advisers chair Glenn Hubbard and Federal Reserve economist Eric Engen, and byoutgoing Office of Management and Budget Director Peter Orszag and myself — are accurate, then the tax cuts have raised the cost of making new investments. As the economy recovers and private borrowing rises, the upward pressure on interest rates is likely to grow even stronger. […] I have used standard growth and investment formulas to calculate that the overall effect of the Bush tax cuts on economic growth has therefore been negative — and it will continue to be negative if the cuts are extended.”