Indeed, Robert Rubin, the former secretary of the Treasury, has gone so far as to suggest that a substantial tax cut is fiscally irresponsible and will jeopardize our economic prosperity. As the government has been taking in more in tax revenues than it has been spending, it has been buying Treasury bonds and reducing the supply of government debt. More funds are therefore made available for private bonds and other financial instruments. Interest rates tend to decline and private investment is stimulated, boosting the economy and increasing the prospects for long-run economic growth. Cut taxes Those opposed to Mr. Bush's plan go on to argue that a big tax cut will reverse these virtuous effects.
Smaller surpluses risk increasing interest rates.
Private buyers will then be crowded out of the financial markets, putting investment spending and future economic growth at risk. Yet a substantial tax cut is essential if we are to keep the economy on a path of long-run growth. Increasing fiscal restraint worked well during the past decade, but for nonrecurring reasons. Because these factors aren't likely to continue over the next several years, the increasing fiscal drag that comes when government overtaxes citizens and siphons money out of the spending stream will have a depressing effect on economic activity. Unless corrected, it could lead to considerable slack in the economy.