The Bush Tax Cuts: What is their impact on government borrowing and interest payments?
If tax cuts are not offset by either lower government spending or higher taxes elsewhere, the revenue loss from the cuts results in increased government borrowing. The additional borrowing, in turn, increases future interest payments owed by the government. The total budget cost of a tax cut in any future year therefore includes both the revenue loss in that year and the higher interest payments that result from previous revenue losses. Economists estimate these interest costs using projected interest rates generated by the Congressional Budget Office for this purpose. With debt service costs included, the budgetary cost of the Bush tax cuts as legislated for fiscal 2001 to 2010 is almost $2.2 trillion, or 1.7 percent of GDP.