Tax-cut trigger: shrewd safeguard or gimmick?

Some lawmakers want an automatic 'off switch' if projected surpluses don't appear.

Passage of President Bush's income-tax-cut package could well depend on whether it includes some sort of automatic off switch meant to reverse the reductions if federal surpluses don't appear as advertised.

A pivotal group of Senate moderates supports this tax cut "trigger" concept, in the name of reducing fiscal risk. Lately, Bush advisers have been signaling a willingness to at least consider the idea - Treasury Secretary Paul O'Neill said as much last Wednesday at a meeting with the Senate Centrist Coalition.

But Congress has seldom been successful at tying its own hands. History shows that it is unlikely any tax trigger would work exactly as intended, say experts.

Consider the most famous recent autolegislate example - the Gramm-Rudman budget law of the 1980s. Its spending-cut triggers were largely ignored, in part because there was no penalty for doing so.

"The members of the Budget Committee weren't carted off to the federal penitentiary," said one of the law's authors, former Sen. Warren Rudman (R) of New Hampshire, recently.

The political point of the current trigger talk is arguably to provide cover for self-proclaimed Senate centrists skittish about the tax cut's projected size.

A bipartisan group of 11 senators officially endorsed the approach earlier this month. In general, they said, a trigger should allow each annual installment of Mr. Bush's tax cut to take effect only if federal surpluses keep piling up and the national debt correspondingly keeps going down.

Administration officials initially scoffed at the trigger idea. But in recent days, they have been sounding more receptive - though they would be more likely to favor a trigger package that covers spending as well as tax cuts.

This shift may show they've been busy counting supporters. With the partisan split in the Senate at 50-50, every vote for the president's self-proclaimed top legislative priority counts. Eleven votes could make the difference between a nail-biter roll call and easy victory.

"If our centrist coalition could agree as a group, it would be weighed very seriously by the White House," said Sen. Arlen Specter (R) of Pennsylvania.

But would a trigger really work? That's the $1.6 trillion question.

Some states already use them, to good effect. But in most cases - Ohio is a good example - state triggers automatically reduce taxes when surpluses are unexpectedly large. The proposed federal trigger would operate the other way round.

After a tax cut is passed, it would be very difficult for any future Congress to stand back and do nothing if lower-than-expected tax receipts endanger the reduction, say some experts.

Triggers are "just a way to let people vote for a much bigger tax cut than they would otherwise support," says William Gale, a senior fellow in economic studies at the Brookings Institution here.

Others note that while the concept sounds simple, designing an effective trigger might be devilishly difficult.

Would it take effect when surplus forecasts dipped? If so, whose forecast would be the benchmark? Or would it only click in the year after actual receipts showed a smaller surplus than expected? What if Congress shrinks the surplus by spending more than the Bush administration wants? Would that be a back-door way for Democrats to repeal tax-cut enaction?

"The numbers involved here could be manipulated easily," says Stan Collender, managing director of the Federal Budget Consulting Group at Fleishman-Hillard Inc., here.

The uncertainty involved could prevent, or delay, any tax-cut-related boost in consumer spending. And it's just such a boost that administration officials say is the tonic the current economic slowdown needs.

"A trigger will hamper any economic effect you get from a tax cut," says Eric Schlecht, director of congressional relations at the National Taxpayers Union in Alexandria, Va.

For these and other reasons, the Senate leadership has so far resisted attempts to add a trigger mechanism to the income-tax-cut legislation currently before the chamber. Senate majority leader Trent Lott of Mississippi has said he is a trigger opponent - but that he might be open to some sort of mid-course review of a tax cut.

This would differ from a trigger in the sense that it would not purport to be automatic. It would instead be an opportunity for Congress to consider changes to the tax cut on an expedited basis.

Actually, lawmakers already have a review mechanism in place, point out budget experts. It's called the legislative process.

Future Congresses are free to change or undo most of the work of their predecessors. Consider what happened to President Reagan's tax cut. After it passed in 1980, Congress almost immediately began partially undoing it - voting for a significant tax increase in 1982, followed by a smaller hike in 1984, and a tax-simplification reform in 1986.

"On Capitol Hill, there's a mid-course review every day," points out Mr. Gale.

(c) Copyright 2001. The Christian Science Monitor