Those who want the U.S. to slash its budget deficit often say government red ink causes both inflation and higher interest rates. Neither is true, observers point out.
Looking back on former President Ronald Reagan’s tax cuts, many economists including some Nobel winners argued that tax cuts would shrink tax revenues, explode the deficit and send inflation and interest rates soaring. So what happened?
Reagan understood what the economists did not, namely, that growth wasn’t a function of government. Whatever role government might play in stabilising the economy’s ups and downs, it takes business and entrepreneurial vision to drive growth. Now, with President Bush pushing more tax cuts, we’re hearing the same arguments.
Source: Editorial, Deficit Deceit, Investor’s Business Dailey, December 5, 2002.
For text http://www.investors.com/editorial/issues.asp?v=12/5
For more Taxes & Economic Growth http://www.ncpa.org/iss/eco/
FMF Policy Bulletin/11 December 2002
