Mindy Herzfeld (Florida): Will the Bond Market Force Congress’s Tax Hand?, 192 Tax Notes Fed. 1749 (Sept. 7, 2026)
Warnings about the dangers of an ever-increasing federal deficit have persisted for years, but Congress, successive administrations, the economy, and the markets shrugged them off. However, the latest sign of unease comes from a corner that legislators may be unable to ignore. When the bond market reacts negatively to the size of the deficit — and in doing so demands higher yields on U.S. treasuries — it means the problem has grown too large for Congress to dismiss. That message may be the impetus that lawmakers need to finally begin making the hard choices of raising taxes and cutting spending.
Enacting a VAT
A broad-based consumption tax enacted as a VAT is an idea that economists love but politicians hate. A wide spectrum of centrist economists support it, with the Tax Foundation saying that a 5 percent VAT could almost eliminate the near-term primary deficit with “relatively little economic damage” — although it notes that simply adopting a VAT without other reforms would “not put the debt on a sustainable course” over the longer term. (See also Eric Toder, James R. Nunns, and Joseph Rosenberg, “Using a VAT to Reform the Income Tax,” Urban Institute (Jan. 27, 2012).)
Although a VAT may be the only stand-alone tax reform option that could make a meaningful dent in the deficit, it’s a political lightning rod. VAT is generally unpopular with the public, and in other countries, strong pushback in response to an increase in VAT rates is not uncommon. (See, e.g., “After Protests, Lebanon Defends Tax Hike as Needed to Balance Budget,” The Arab Weekly, Feb. 18, 2026.)
Taxing Wealth, Not Income
Earlier this year, Warren reintroduced the Ultra-Millionaire Tax Act (S. 4246), with Rep. Pramila Jayapal, D-Wash., (H.R. 8085). (Prior coverage: Tax Notes Federal, Apr. 20, 2026, p. 427.) Her colleague on the Finance Committee, Sen. Bernie Sanders, I-Vt., introduced the Make Billionaires Pay Their Fair Share Act (S. 3956) by Rep. Ro Khanna, D-Calif., (H.R. 7767). (Prior coverage: Tax Notes Federal, Mar. 9, 2026, p. 1688.)
Warren’s proposal is for an annual 2 percent tax on net worth above $50 million and a 3 percent tax on net worth above $1 billion, to apply to the wealthiest 260,000 households (Sanders’s proposal is for an annual 5 percent tax on net worth above $1 billion, to affect fewer than 1,000 taxpayers). To prevent avoidance, the bill proposes an exit tax similar to the current section 877A, along with additional investment in the IRS (to the tune of $100 billion) and a minimum audit rate (of 30 percent) for relevant taxpayers.
Taxing AI
The 30 revenue raisers in the CBO report do not include a tax on AI. But as various proposals for taxing AI are offered by members of Congress and participants in the AI marketplace, it may be time to start taking some of them seriously. The many different tools available to tax AI are explored in a recent report by the Bipartisan Policy Center. (Aaron Till and Shai Akabas, “What Would It Mean to Tax AI?” Bipartisan Policy Center (Aug. 24, 2026).)
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As an alternative to taxing AI companies’ income directly, some have suggested that a portion of their equity be held by the federal government, with the dividends going to a special fund. Sanders’s American AI Sovereign Wealth Fund Act (S. 4825) would have those shares held by a special fund. As with revenue from his proposed wealth tax, Sanders would use the AI revenue to fund social welfare rather than deficit reduction.
