Thinking About Higher Interest Rates and Lower Taxes

March 22, 2013
It would be great if the US came to the realization that lower taxes are good for economic growth.

Investors both near and far appear to be hedging with the belief that US interest rates will soon be moving higher.  This outlook is based on the belief that the Federal Reserve Board will edge off the quantitative easing throttle based on the strength of the US economy.  The market is beginning to signal what we have been telling people for some time now – borrow now while the borrowing is good.  Some expect a sharp increase in market rates once the Federal Reserve Board stops keeping rates artificially low.  We do not expect a dramatic rise in interest rates, but why wait to find out?

I am in Northern Ireland now.  The UK is all-abuzz over the new budget proposed by Chancellor Osborne.  I have just a few quick thoughts to share with you.  The debate over austerity versus borrow and spend stimulus is raging.  So far austerity is winning but the borrow/spend crowd is growing in volume.  The UK is on the right path in terms of reducing their exposure to the debt crisis with debt to GDP of 63.1% (we are at 123.8%).

There seems to be wide recognition that the top marginal personal tax rate needs to come down to attract businesses that pay well.  There also appears to be a general recognition that corporate tax rates need to come down to attract foreign direct investment and to help businesses prosper.  It would be great if we in the US could come to the same realization that lower taxes are good for economic growth.

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