34
savings and raise interest rates. This combination negatively effects labor supply and
capital, which can explain the sluggish economic growth we are currently experiencing.
As the Tax Policy Center notes, even the President’s Council of Economic
Advisors (CEA) agree with this observation. “One dollar of [public] debt reduces the
[domestic] capital stock by about 60 cents”
128
. Thus if the tax cuts are extended domestic
capital stock will decline $2.6 trillion by 2014
129
. Assuming the tax cuts are made
permanent and the AMT is adjusted, interest rates would rise by 72 basis points
130
in
2014
131
. As noted above, higher interest rates reduce investment. The net effect of the
loss in national savings, even assuming 1% economic growth, is to reduce GDP by .3%
and GNP by .7% by 2011
132
.
By any measure, the tax cuts over the last four years have been a failure. From
tepid short-term growth, fiscal instability, negative long-term consequences, widening the
gap between rich and poor, and the inequitable distribution of financing the tax cuts
among tax payers the tax cut policies of the last four years have simply not measured up
to the promises made by the Bush administration.
128
Gale, William and Orszag, Peter. “Bush Administration Tax Policy”. Tax Policy Center. Urban-
Brookings Institute, 2004. 416
129
Id
130
According to the Economist.com, basis points are one one-hundreth of a percentage point. For example,
“if a bond yield moves from 5.25% to 5.45%, it has risen by 20 basis points” (Economist.com).
131
Gale, William and Orszag, Peter. “Bush Administration Tax Policy”. Tax Policy Center. Urban-
Brookings Institute, 2004. 416
132
Id
Convention