Anonymous asked in Politics & GovernmentOther - Politics & Government · 1 decade ago

How do tax cuts raise interest rates?

The government denies it, but if it were true, how would it work?

8 Answers

  • 1 decade ago
    Favorite Answer

    Tax cuts lower tax payments. Short term interest rates are controlled by the Federal Reserve. The Fed raises rates if the economy gets too active, to try to slow business down, and curb inflation.

    Long term interest rates are market driven. There is no one managing the long term rates. The economic conditions at the time affect long term rates.

    Tax cuts put more money into the economy and stir economic activity. The Fed then decides, independently, of the Administration if the economy is stirred too much.

  • 1 decade ago

    Tax cuts increase economic growth. They also have proven to increase Government Tax income.

    Interest rates raise as a way to cool down the economy.

  • Anonymous
    1 decade ago

    Tax cuts puts more money into workers' pockets, which stimulates the economy, and puts people back to work.

    When people start doing "too good" the Feds worry about inflation. So raising the interest rates cuts the economy back.

  • Anonymous
    1 decade ago

    well cutting taxes gives the assumtion that people are going to spend that money therefore increasing the strength of the economy. With a stronger economy they can raise interest rates and people will still finance because they have more money to spend.

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  • 1 decade ago

    when you cut taxes the economy grows when the economy grows unemployment goes down. when unemployment falls below 5 percent we are at what is considered full employment. when we reach that inflation starts to rise. the fed at that point raises interest rates to slow inflation. when interest rates rise growth slows down. when growth slows down the government raises taxes to cover spending. when they raise taxes the economy slows and goes into recession causing the fed to lower interest rates. (see top)

  • Anonymous
    1 decade ago

    Bill Clinton's book, "My Life" has a good explanation of how reducing the deficit lead to falling interest rates.

    Taxes were higer but the savings on mortgage interest for example really made up for it.

  • ?
    Lv 4
    4 years ago

    the interest fee relies on the quarterly comments from the Federal Reserve in case you spot plenty interest is paid to that checklist each and each quarter to extra or much less supply some indication the state of the financial equipment

  • jp
    Lv 6
    1 decade ago

    because its a decrease of income to the government so they find ways to compensate the loss.

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