NCPA - National Center for Policy Analysis

No, Bill, Tax Cuts Don't Raise Interest Rates

January 24, 2001

Taking one of several time-outs while leaving office, soon-to-be ex-President Bill Clinton reiterated the reasons why a major tax cut wouldn't work. He claimed that paying down the national debt would bring lower interest rates. But he still appeared to believe that tax cuts would raise them.

Under Clinton's law of economics, interest rates could not have fallen after former President Ronald Reagan cut taxes in the early 1980s.

  • But the prime rate did fall from an all-time high of 20.5 percent to 6 percent -- the lowest in 19 years -- by mid-1992.
  • Conversely, after Clinton forced a large tax hike through Congress in 1993, the prime rate went from 6 percent to an eventual 8 percent.

And tax cuts typically do not reduce government revenues.

  • After the Reagan tax cuts, federal revenues rose from almost $600 billion in 1981 to nearly $735 billion in 1985.
  • While they did drop in fiscal 1983, that period included a quarter in calendar 1982 -- which was the last quarter of the recession.

Source: Editorial, "The Interest Rate/Deficit Myth," Investor's Business Daily, January 24, 2001.


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