Bush’s Tax Cuts May Be at the Mercy of Greenspan’s Trigger Proposal

If President Bush wants to pass a tax cut nearly as large as he’s proposed, he may have to break down and pull the trigger.

Since Federal Reserve Board chairman Alan Greenspan first floated the notion earlier this year, the trigger has become the buzzword du jour among deficit hawks in both parties, especially in the Senate. The idea would tie the tax cut and new spending to progress in paying down the $3.4-trillion publicly held national debt. Under the most commonly discussed plan, Congress would specify annual targets for reducing the national debt over the next decade. If the federal budget surplus doesn’t come in large enough to meet those targets, Congress would defer any tax cuts or new spending promised for that year.

This week, Sens. Olympia J. Snowe (R-Maine) and Evan Bayh (D-Ind.) plan to introduce a resolution embodying that plan with as many as a dozen co-sponsors, evenly split between the parties. “We already have the nucleus of a bipartisan group in place,” insists Bayh. If that group truly coalesces and holds together, it would be impossible to pass Bush’s tax cut through the Senate without the trigger.

Grafting that approach onto Bush’s tax proposal would be easy because he would phase in his cuts over five years. So if the government fell short of its debt reduction target two years from now, the trigger proposal wouldn’t revoke any tax cuts that had already gone into effect; it would merely put off the next scheduled stage of the reduction until the surplus again grew large enough to hit the debt reduction targets.

So far, the Bush administration has staunchly opposed the idea. But the politics--and implications--of the trigger proposal are more complex than they first appear. And although Bush probably won’t need this concession to push his tax plan through the House (which is likely to approve the core of the proposal on a virtual party-line vote as soon as this week), in the Senate the trigger could ultimately function more as a weapon in his hands than a gun at his back.

To understand why, the best place to start is with the political calculus behind the trigger. The moderates supporting it rank a balanced budget and debt reduction as their top priorities in the budget debate. But politically, most would also like to vote for as large a tax cut as possible.

That’s especially true for the idea’s GOP fans, almost all of them Northeastern centrists such as Sens. Lincoln Chafee (R-R.I.) and Arlen Specter (R-Pa.). “Bush has 70% strong approval ratings among Republican voters,” says GOP pollster Bill McInturff. “If you’re a Republican, those are numbers that give you long thought about not supporting a Republican president who wants to cut taxes.”

In that climate, the clamor for the trigger looks less like an assertion of strength among the deficit hawks than an acknowledgment of weakness. Moderates are moving to the trigger partly because they are reluctant to openly reject the Bush tax plan, even though many are worried it may be too big. In theory at least, the trigger would allow the moderates to have it all: to vote for a large tax cut, while also proclaiming they have safeguarded the surplus.

But would the trigger really ensure that debt reduction takes precedence over tax reduction?

In its opposition to the plan, the White House shares the moderates’ belief that a future Congress might actually use the trigger to shelve later stages of the tax cut if the debt targets aren’t met. And that’s exactly what the administration doesn’t like. If taxpayers are uncertain about whether they will get the full cut, Bush maintains, that doubt will dilute the jolt he seeks to give to consumer confidence. “Predictability in the tax code has a real value,” argues Office of Management and Budget Director Mitch Daniels.

Paradoxically, the trigger is drawing fire from deficit hawks outside of Congress precisely because they believe it won’t work. These critics have a stronger point: The risk that the trigger won’t be pulled is probably greater than the risk that it will.

As a general rule, trigger proposals begin with a strong presumption of political cowardice. Even without a trigger, a future Congress could vote to defer any tax reduction approved this year if it believes the cut would throw the budget back into deficit or endanger debt reduction. The trigger assumes those future legislators wouldn’t be bold enough to do that on their own, so it seeks to legislate courage by mandating action today through the trigger.

But any Congress too fearful to directly block a tax cut or spending increases would also probably find ways to jam the trigger. To many who lived through it, that was the lesson of the Gramm-Rudman bill in 1985, which mandated automatic spending cuts to eliminate the federal deficit by 1991. Congress missed that target by a mere $269 billion.

“When you establish triggers,” says Leon E. Panetta, chairman of the House Budget Committee during the period and later both budget director and White House chief of staff under President Clinton, “what you’re doing is saying you have to establish an automatic procedure because there isn’t any political will. But any time you do that, politics ultimately prevails.”

Bayh counters that a trigger would at least make it harder for a future Congress to avert its eyes if the tax cut or new spending endangers the balanced budget. He’s probably right. Gramm-Rudman did help slow the growth of domestic discretionary spending to half its rate in the previous five years, even if that wasn’t nearly enough to meet its larger aim of a balanced budget.

In this case, though, a trigger could have the unintended consequence of swelling the tax cut Congress approves now--thus increasing the risk of deficits later. Snowe flatly acknowledges that a trigger would make her and other Republican moderates “more comfortable” voting for Bush’s full $1.6-trillion proposal. “It would help to make sure that we don’t forsake the future financial security of our country,” she says.

Bayh and Snowe argue that a tax cut with a trigger is more responsible than one without it. That’s difficult to dispute. But if the moderates think the Bush tax cut is too large, a more straightforward response would be to vote only for a smaller reduction--rather than hoping that some future Congress will take political risks to defend fiscal discipline that they were unwilling to bear themselves.

*

Ronald Brownstein’s column appears in this space every Monday.

See current and past Brownstein columns on The Times’ Web site at: https://www.latimes.com/brownstein.