If Low Interest Rates are Good for the Economy then Why Aren’t Low Tax Rates?

The Federal Reserve has come out with an economic outlook report. The low growth numbers led to a statement that interest rates would not be raised until late in 2014. MoneyNews.com offered this statement on the Federal Reserve action:

The Federal Reserve has downgraded its outlook for economic growth this year but is slightly more optimistic about the unemployment rate.
The Federal Reserve also says it plans to keep interest rates “exceptionally low” until at least late 2014, longer than previously forecast, while it expects unemployment will stay high and inflation will remain “subdued.”

It makes no sense. If low interest rates are helping prime the pump of the economic recovery, then it stands to reason that low tax rates would also help. If people are paying less money for borrowed money, and that’s a good thing, then lowering tax rates would have the same effect. In fact, it would have a larger impact because lowering tax rates for everyone, including the “rich,” would create a flood of economic expansion.

Obama keeps bringing up the “everybody should pay their fair share” issue. Interest rates aren’t only being lowered for the poor. They are being lowered for everyone. The rich aren’t paying a higher interest rate than the poor.

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It’s lower interest rates that make it less expensive for people to borrow money. With borrowed money, a business can expand production, build a new building, advertise, increase inventory, develop new products, etc. The result is more jobs and a boost to the economy.

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The same thing would happen if tax rates were lower for everyone. There would be more investment, more spending, and more hiring in order to accommodate the infusion of new capital into the market place.

Obama will never make the above argument because “taxing the rich” is a class warfare campaign tactic. It creates a tangible enemy for him to fire up his base who are dependent on government hand outs and pay outs.

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