How Lower Taxes Will Affect the Many
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There is an additional reason why interest rates may soon increase that may be added to those in Tom Petruno’s “Spring May See Interest Rates Sprout After Winter’s Slide” (May 1).
Both federal and state governments seem determined to reduce taxes. This will likely increase interest rates in two ways. First, the Federal Reserve, fearing inflationary pressures, will increase short-term rates to mop up the excess liquidity created by the tax cuts. (Uncle Sam giveth and Uncle Sam taketh away!) Second, foreign buyers of our debt will find it less attractive as they perceive that our governments are not truly dedicated to reduction of deficits and debt. These buyers will bid up the rates on intermediate and long-term bonds, which will increase rates of competing types of instruments, including mortgages.
The result of the tax cuts then will be beneficial to savers (higher rates) and detrimental to investors in both stocks and bonds, and another disaster to the real estate sector.
CHARLES G. BILL
Garden Grove
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