Robert Rubin, Treasury Secretary under former President Bill Clinton, wants the U.S. government to raise taxes to address the country’s federal deficit.
The suggestion was likely to be very unpopular with voters and politicians alike in a presidential election year. But Rubin warns of “enormous” risks, greater than those of the early 1990s when Clinton enacted deficit-shrinking budget-tightening measures during his presidency.
“The risks are enormous and some of them are materializing already, like higher interest rates,” Rubin said, speaking on Bloomberg Television.
Government Spending And Rising Debt
Government spending is always a thorny issue. Congress has only recently approved legislation for current funding plans to avoid a government shutdown.
Funding for additional spending that can’t be met by tax revenues has to be raised by borrowing through government debt markets — adding to the already towering fiscal deficit. The deficit currently stands at $1.6 trillion, or 6% of gross domestic product, and is expected to rise to $1.8 trillion in 2024.
Such high levels of debt incur additional costs in the form of interest — a long-term fiscal risk that has been causing some friction in the Treasury market.
Bank of America analysts recently noted that the inversion in the U.S. Treasury yield curve — an economic warning sign that has preceded many recessions in the past — had been in duration for its longest period since the 1929 crash.
Also Read: Treasury Glut: Can Investor Demand For US Bonds Keep Pace With Supply Increases?
Tax Hikes? ‘I Wouldn’t Bet On It’
Rubin formed part of the Clinton administration that underpinned a historic reduction in the fiscal deficit,
The Clinton administration managed to turn a surplus by the end of the 1990s.
“Looking forward, we’re having to deal with both spending and taxes. When you get realistic about it, I think you’re going to have to largely rely on the tax side,” Rubin added.
He suggested that around 60% of the debt increase between 2000 and 2022 was due to tax cuts implemented during Republican administrations.
Rubin said he hoped Washington would address the deficit after the November presidential election. “I wouldn’t bet on it,” he added.
He said the main problem is that political divisions are too wide….
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