Commentary: Tax Cuts: Why Triggers Won't Work

President Bush has a problem back in Washington. After a romp in the GOP-controlled House, his tax cut is threatened in the 50-50 Senate by, of all people, trigger-happy Republicans. Senate GOP moderates fear that their President's 10-year, $1.6 trillion tax plan is too much of a riverboat gamble. At least five want to put in place a mechanism that would sound the alarm if big projected surpluses fail to materialize. Deficit hawks such as Republicans Olympia J. Snowe of Maine and Arlen Specter of Pennsylvania have joined a half-dozen Democrats such as Evan Bayh of Indiana to line up behind such a "trigger" that would halt tax cuts if surpluses fall short.

The idea of linking tax breaks to actual surpluses, rather than notoriously flaky 10-year budget forecasts, makes sense. It appeals to voters who worry that tax cuts could bust the budget. And triggers have been embraced by Federal Reserve Chairman Alan Greenspan. Indiana's Bayh says the device would require future lawmakers to think twice about the impact of tax changes on the budget. "It can force people to revisit decisions in the light of day," he says.

"NO PENALTY." Sounds great in theory. But if history is any guide, triggers won't impose much fiscal restraint in the real world. Congress can't control today the way lawmakers decide to tax or spend in future years. So, a trigger's effectiveness will depend entirely on the willingness of a future Congress to pull it. That's what went wrong the last time Congress tried such an approach, with the Gramm-Rudman-Hollings law of 1985. In an effort to get a handle on $200 billion deficits, Congress tried to cap spending. If outlays exceeded mandated limits, the law was supposed to trigger across-the-board budget cuts.

There was just one hitch: The spending targets were never met. Lawmakers just hid the excess spending, shifting expenditures from one year to another. "It's easy to mess around with triggers," says ex-Senator Warren Rudman (R-N.H.), an author of the statute. "There was no penalty for not pulling the trigger." If Congress couldn't hold the line in an era of deficits, it's hard to imagine it would do so in a period of surpluses.

An even bigger problem comes from timing. The new tax triggers would likely be tied to either the size of the surplus or perhaps a reduction in the national debt. If either fell short of projections, future stages of Bush's tax cut would be delayed. But the most likely reason for a smaller surplus would be a sagging economy. And Congress wouldn't snatch away a planned tax cut just as the economy was turning sour. Says former Congressional Budget Office Director Rudolph G. Penner: "It is very difficult to pull a trigger in a way that you wouldn't regret."

If such a device were in place today, what politician would vote to delay a scheduled tax cut? Bayh says a bipartisan bill may include an exemption in the event of a recession. Senator Robert G. Torricelli (D-N.J.), would give the President even broader authority to waive the law. Such loopholes just lessen the chances of anyone ever pulling a trigger.

Of course, triggers could also be used to curb spending. But by the end of the decade, 75% of federal spending will be for such sacrosanct entitlements as Social Security and Medicare. And big cuts in other popular programs might be just as difficult. "A trigger can be made to work only if politicians have the will to pull it," says Allen Schick, a budget expert at the University of Maryland.

The structure of the Bush tax cuts makes triggers even less viable. Most of his plan--rate cuts, marriage penalty relief, and a doubling of the child credit--are fully effective by 2006. But the biggest anticipated surpluses don't arrive until 2007. As a result, nearly all Bush's plan would already be in place before the triggers ever kicked in.

For now, triggers have little support in the Administration. Budget Director Mitch Daniels calls them a "boneheaded idea." Still, the President needs the backing of Senate moderates for his tax cut. So don't be surprised if he ends up buying votes with a nice-sounding but ultimately toothless device. Just don't expect Congress to actually pull that trigger anytime soon.

By Howard Gleckman

Gleckman covers fiscal policy from Washington.

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