Why a Tax Hike May Be on the Horizon

Why a Tax Hike May Be on the Horizon


The tax battle may be over for now, but it will likely start up again before too long.

The American Enterprise Institute’s James Pethokoukis looks ahead to the next big tax move from Washington — and why it might just be a hike of some sort. “It’s hard to imagine another big deficit-financed tax cut happening anytime soon, especially as annual deficits enter trillion-dollar territory,” he writes. “Indeed, the next big battle might be keeping all these tax cuts in place if Democrats take control of Washington.”

On the other hand, if Republicans do turn to cutting spending on welfare programs, Social Security and Medicare, they might then look to use some of the money saved from cuts to slash taxes again. “Keep in mind, however, that for Democrats to go along with spending cuts — to make the math work, really — there will have to be tax hikes,” Pethokoukis writes.

The GOP is unlikely to go along with raising individual or corporate income tax rates, and alternatives for raising revenue, like a carbon or consumption taxes, will be difficult to push through. So it’s possible that smaller ideas, like expanding the Earned Income Tax Credit, might come up next, Pethokoukis suggests.

But big-picture tax reform may need to come back to the idea of raising taxes, perhaps with some external prompting: “I guess,” Pethokoukis says, “we will eventually find out if Washington cares about debt without a nudge from the markets.”