Disarm Those ‘Trigger-Happy’ Tax Cutters

There’s a bunch of trigger-happy folks in an exclusive Washington club, but there’s no need to call the SWAT team. Call your accountant instead. The exclusive club is the U.S. Senate, and “trigger” is the political buzzword of the moment as senators try to figure out what to do with George W. Bush’s tax cut plan.

Intrigue over the size and scope of the tax cut is taking place in an evenly divided Senate. Putting aside the subplots of Vice President Dick Cheney’s heart problems, since he would be called upon to break a tie vote, or the health concerns for 98-year-old Strom Thurmond (R-S.C.), only a handful of undecided senators will decide the fate of Bush’s policy agenda centerpiece.

Whether there will be a tax cut is not at issue. Both political parties support some tax cut in the shadow of mountainous federal government surpluses. Debate over the president’s proposed $1.6-billion tax cut resounds with charges that the cut is too large, or too small, or really not $1.6-billion but even larger if you believe liberal Democrats, or smaller if you believe supply-side Republicans who say the dynamic effect of the tax cut has not been considered.

A few senators say the way to settle the arguments is to pass the tax cut but with controls. Republican moderates, led by Maine’s Olympia Snowe, and middle-of-the-road Democrats, led by Indiana’s Evan Bayh, are proposing that a mechanism be written into the law to adjust the tax cut if the projected surpluses are something different than those currently viewed in the budget office’s crystal ball. This mechanism is called a trigger.

While yet to be designed, in practice the trigger would be pulled--in other words, the tax reduction will stop in any given year--if annual debt-reduction goals are not met. Theoretically, this happens when surpluses are lower than expected.

At first blush, a trigger seems a sensible, prudent approach to dealing with the uncertainty of fiscal predictions. But there is trouble with triggers.

The size of the surplus depends on the size of government spending. No one in Congress is proposing that spending limits come with the trigger legislation. Last year, Congress boosted discretionary spending an extraordinary 8%--not so surprising considering the size of the surplus.

However, the ease of congressional spending is a flaw with any trigger plan. Increased spending runs down the size of the surplus, which reduces money available for debt reduction, which, in turn, sets off the trigger stopping the tax cuts. Under this scenario, Congress gets to spend on anything--except the taxpayers. Spending caps offer little safety. Past spending caps have been routinely repealed by Congress.

Living under trigger-adjusted tax cuts offers only uncertainty to taxpayers. They won’t know if the proposed tax cut will disappear in any given year. Certainty is a longtime principle in tax policy. In his classic 1776 work, “Wealth of Nations,” Adam Smith wrote: “The certainty of what each individual ought to pay is, in taxation, a matter of so great importance. (That inequality in taxation) is not near so great an evil as a very small degree of uncertainty.”

Not only would the confidence of the taxpayer be weakened by a trigger-attached tax-cut bill, but also a trigger-delayed tax cut even may be perceived as a tax increase. Paying more taxes than you thought you’d pay, for all practical purposes, is a tax increase.

Triggers are messy. Defining when and how they will operate is difficult. In the arena of an evenly split Senate they have life. It would be better if the Senate passed a straightforward tax cut, and if circumstances change in the future, then debate and vote for an adjustment.