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Trigger-Happy Taxers
Congress can raise taxes anytime. It shouldn't be able to do so automatically.
BY PETE DU PONT
Wednesday, March 14, 2001 12:01 a.m.
Washington is trigger-happy this week, and it has nothing to do with guns. It has to
do with putting fiscal policy on autopilot, tying the implementation of stimulative tax
cuts next year to the spending habits of Congress this year. Sound strange? It is.
A tax trigger is a law providing that enacted tax cuts will become operative in future
years only if budget surplus numbers reach or exceed a predetermined target.
What's wrong with that? Four things: Automatic triggers have not worked in the
past. They won't work in the future because Congress or the White House can easily
manipulate the numbers to get the desired result. Triggers could distort the intended
results of the Federal Reserve's monetary policies. And, most important, they
subvert an important goal of tax cut policy by signaling to taxpayers to wait before
they make economic decisions.
The Gramm-Rudman-Hollings law of 1985, which was supposed to reduce deficits by
limiting congressional appropriations, contained a spending trigger. The idea was
that if specified deficit-reduction targets were not met in a given year, spending cuts
would be automatically imposed on the budget. Great idea, but it never worked
because the Congress in its passion to spend simply evaded the law, moving
expenditures from one year to another, using accounting gimmicks to change the
way spending was scored, and so forth. Gramm-Rudman-Hollings was full of good
intentions but an unsuccessful policy. Why would we expect a tax trigger to work any
better?
It wouldn't, because the same manipulation could occur. If the trigger depends on
projected surpluses, the administration's Office of Management and Budget or the
Congressional Budget Office could massage the data to present a rosier scenario to
insure next year's tax cut happens. Alternatively, Congress could adjust the way
spending is scored to decrease the surplus and thus ensure that next year's tax cut
is canceled. If the trigger depends on actual budget results, Congress can simply
shift the timing of billions of dollar in expenditures by one day, from one fiscal year
to another, and pull the trigger.
Which raises another question: once the trigger is pulled, what actually happens?
Congressmen are unlikely to repeal a tax cut in the current year--can you imagine
asking the American people to give money back to a government that has a large
surplus, but not quite large enough under the trigger law? But how late in the year
can the trigger cancel next year's tax cut? What if the tax cut is canceled in
December but the economy surges in April? Do we get next year's tax cut back
retroactively? No one seems quite sure how a trigger would work.
As for the Federal Reserve, I would think Alan Greenspan would be worried about a
tax trigger. He seems to have said he is for it, but suppose we are heading into a
recession in November, so a tax cut is needed to spur growth, but the surplus
targets are not met, and the tax cut scheduled for January is canceled? Do we really
want locked-in counter-cyclical influences on fiscal policy? Or consider the reverse:
inflation is ticking up, so the Fed wants to raise interest rates. Higher interest rates
will raise government spending and decrease the surplus, and perhaps pull the
trigger on the next tax cut. The Fed will know that, so should it bend monetary policy
to take into account the trigger's impact, or should it cede monetary policy decisions
to the automatic Congressional trigger?
Finally and most important is the impact on families as they plan for the coming
year. An important goal of a tax cut is to stimulate work, saving and investment.
Suppose a wife plans to use the tax cut to help pay the tuition at college to get the
degree she needs to get a better job. It's September; tuition is due. But
congressional spending is close to pulling the trigger. Will she get her tax cut or
won't she? Should she go ahead or wait a year until she is sure? The trigger can
affect decisions on education, investment and the purchase of houses, cars and so
forth, so the trigger's effect is 180 degrees out of sync with the objective of the tax
cut.
With all this complexity and manipulation why would anyone be for a trigger? If you
are a politician, it's easy to see why you might. If you are a liberal against tax cuts
your constituents are for, the trigger gives you a fig leaf to hide behind; if the trigger
amendment fails, you can vote against the tax cuts and claim you would have been
for them if it had passed.
If you are a believer in bigger government, Republican or Democrat, who wants to
spend more money under all circumstances, a tax trigger is your friend. For the
trigger is a spending guarantee; it allows you to maximize spending this year and
then automatically repeals next year's legislated tax cut, increasing taxes so that you
will be able to keep right on spending. And the beauty of it is that you never have to
vote for the increase; automatic tax increases allow you to spend and spend and
spend. Do you suppose that thought might be behind all this trigger talk?
Of course we already have a trigger. It's called Congress. It meets every year and
has the power to raise taxes any time it wants to.
Mr. du Pont, a former governor of Delaware, is policy chairman of the Dallas-based
National Center for Policy Analysis. His column appears Wednesdays.
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