Another Looming Market Risk: Talk Of Tax Hikes About To Come Fast And Furious

peterorszag tbi

Ok, we lied. There’s one more risk beyond the Fed meeting that you need to be wary of. It’s tax hikes.

Well… talk of tax hikes. Headline risk.

How come?

Because the President’s working group on deficit reduction is getting into full swing, and it’s a sure thing that the team will propose tax hikes as part of the equation to solve the deficit problem. Now, that doesn’t mean Congress is actually going to the tax hikes.

The path of least resistance — deficit spending — seems like the way forward for now. But there’s going to be a ton of talk about a VAT and other measures to gain revenue.

OMB chief Peter Orszag wrote the following today to kick off the organisation’s work:

The President formed the National Commission on Fiscal Responsibility and Reform because he believes that the path to fiscal stability begins with bi-partisan cooperation. Today, the Commission met with the President and held its first meeting, where I joined them to discuss the Nation’s unsustainable fiscal trajectory and the importance of the task before them.

recognising the fiscal future that we face, the Administration has taken major steps to restore fiscal responsibility. The President’s Budget includes more deficit reduction than proposed by a President in any budget in over a decade; by 2015, it would cut the deficit from 5 per cent of GDP to 4 per cent of GDP.  Furthermore, the comprehensive health insurance reform we have just enacted represents an unprecedented effort to address the forces underlying rising health care costs, and is projected to lower future deficits by more than $100 billion in the first decade and by more than $1 trillion in the next.

More must be done, however. The Commission is charged with recommending measures to reduce the deficit to about 3 per cent of GDP by 2015. This result is projected to stabilise the debt-to-GDP ratio at an acceptable level once the economy recovers — a key measure of fiscal sustainability. The Commission is also tasked with proposing policies to meaningfully improve the long-run fiscal outlook.

Here’s the kicker:

The options to further reduce the deficit may not be popular, but they are necessary. Success will require a commitment from both parties to engage in constructive and honest dialogue, and I look forward to working with the Commission in the weeks and months ahead.

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.