Will financial markets force a $400 billion tax hike or a VAT?

September 30, 2009

So I am at this CAP thing on the deficit where talk of higher taxes was hot and heavy. Both Robert Rubin and Roger Altman both seemed to imply that the financial markets will force action sooner rather than later on the deficit — and that means higher taxes.

Outside WH adviser and CAP president John Podesta was talking up the VAT over the weekend, and Altman said today that the WH will have to start doing $500 billion to $700 billion a year in annual deficit reduction during this term. Maybe $400 billion of that should come through higher taxes such as a national VAT.

Definitely the Wall Street guys seemed more worried than the academics like Alan Blinder or Laura Tyson about the near-term importance of deficit reduction. Blinder, also former Vice Chair of the Fed, says he could envision the dollar crashing because of American fiscal problems. And Tyson though the balance-sheet recession and expiration of the Bush tax cuts would mean slow growth ahead for the US economy.

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