A Revenue 'Trigger' Would Shoot Down Tax Cuts If Economy Doesn't Grow As Expected

Nov 29, 2017
Originally published on November 30, 2017 7:28 am

Republicans lawmakers are considering a federal budget "trigger" that would raise taxes if proposed tax cuts don't deliver the economic growth they have promised.

But the proposal is generating a lot of pushback from critics, especially conservatives.

The so-called trigger mechanism would be a legislative provision to rescind corporate tax cuts by as much as $350 billion if revenue targets are not met, Bloomberg News reports.

Congressional Republicans have said they expect the tax cuts to unleash a wave of economic growth, which will boost tax revenues and keep the budget deficit from increasing.

The trigger would kick in if that doesn't happen as promised.

While few details have been released, the aim would be "to try to create a backstop or a trigger mechanism that to the extent that growth estimates that have been laid out aren't achieved, we don't pass on even greater debt to our children," Sen. Bob Corker, R-Tenn., told Fox News on Tuesday.

But the idea is opposed by many economists, who say it could force Congress to raise taxes in the middle of an economic slowdown — which they say is exactly the wrong time to do so.

"I'm concerned that if we hit a downturn, then we could have these automatic tax increases, and that would actually make a recession worse," said Gus Faucher, chief economist at PNC Financial Services Group.

Lawrence Summers, who was Treasury secretary in the Clinton administration, said, "You'll deliver the economy a body blow, reducing consumption and reducing investment, just at the moment you most need to be encouraging [it]."

Summers also expressed doubt that Congress would actually implement a trigger during a recession, when the political pressure to keep taxes low would be especially strong.

"This kind of gimmick is the reason why Congress has single-digit popularity ratings," he adds.

The trigger has also been criticized by a number of business and conservative groups, including the U.S. Chamber of Commerce and Americans for Prosperity, which is funded by the Koch brothers.

Romina Boccia, deputy director for economic policy studies at the Heritage Foundation, says the trigger would leave businesses uncertain about the future, undermining the potential benefits of the tax cuts.

"Including a potential tax increase through a trigger or by any other means creates uncertainty, which will lower the overall economic growth we can expect to see from the tax plan," Boccia said.

Several GOP senators have also expressed doubts about the trigger, including Iowa's Charles Grassley and Thom Tillis of North Carolina. John Kennedy of Louisiana was quoted as saying he would rather "drink weed killer than vote for the thing."

But it was not clear whether their opposition would be enough to kill the trigger, and congressional Republicans are reportedly still talking about ways to keep the idea on the table.

"We are probably going to have one but I prefer not having it," Utah Sen. Orrin Hatch told reporters. "It depends on how the bill is written. There's a way I would support it."

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KELLY MCEVERS, HOST:

Republicans are struggling with a way to cut taxes without increasing the federal budget deficit, and one idea under consideration would be a budget trigger. However, it's already generating lots of opposition. NPR's Jim Zarroli reports.

JIM ZARROLI, BYLINE: Supporters of the tax overhaul are promising that the cuts under consideration would send growth rates soaring; incomes would increase, and lots of extra tax revenue would pour into the Treasury. So they say the budget deficit shouldn't get any larger. But just in case it does, they have a solution. On Fox News yesterday, Tennessee Senator Bob Corker said the idea would be...

(SOUNDBITE OF ARCHIVED RECORDING)

BOB CORKER: To try to create a backstop or a trigger mechanism that, to the extent the growth estimates that have been laid out aren't achieved, we don't pass on even greater debt to our children.

ZARROLI: Corker didn't provide details, but the idea is this. If growth is less than expected and tax revenues fall short, Congress would undo the tax cuts. It would raise corporate taxes by as much as $350 billion according to Bloomberg News. Larry Summers calls the idea absurd.

LARRY SUMMERS: This kind of gimmick is the reason why Congress has single-digit popularity ratings.

ZARROLI: Summers says the imposition of a trigger means that Congress would have to raise taxes at a time when the economy is underperforming, maybe even in a recession. And that's exactly the wrong time to do it.

SUMMERS: You'll deliver the economy a body blow, reducing consumption and reducing investment just at the moment you most need to be encouraging.

ZARROLI: Summers also believes Congress would never really allow a tax increase to go through in the midst of a recession. The political pressure to override the trigger would be too great. The idea is also unpopular on the right. Business and conservative groups lined up against the proposal today, including the U.S. Chamber of Commerce and the Koch brothers-funded Americans for Prosperity. Romina Boccia of The Heritage Foundation says businesses need certainty. The prospect that a tax increase might kick in if growth slows would make a lot of them more cautious about the future.

ROMINA BOCCIA: Including a potential tax increase through a trigger or by any other means creates uncertainty, which will lower the overall economic growth we can expect to see from the tax plan.

ZARROLI: Whether the trigger will actually make it into the final tax bill is unclear. Several Republican senators are already expressing doubts about the idea. And Louisiana Senator John Kennedy was quoted as saying he would rather drink weed killer than support a trigger. But Republicans are searching for a way to cut taxes without increasing the deficit, and this is one way they hope to accomplish that. Jim Zarroli, NPR News, New York. Transcript provided by NPR, Copyright NPR.

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