Budget

The GOP's Deficit Trigger is a Self-Deceiving Budget Gimmick

Republicans want to create the illusion of deficit control.

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Ron Sachs/SIPA/Newscom

Securing the votes to pass a tax bill has always presented a dilemma for Republicans: On the one hand, they want to advertise the plan as a broad tax cut, and appeal to legislators who simply want to cut taxes and not worry about the budgetary effects. On the other hand, they want to avoid the appearance of raising the deficit too much in order to appease the party's deficit hawks. In its current form, the bill would raise the deficit by about $1.4 trillion over the next decade.

The strategy so far has been to pack the bill with budget gimmicks, like setting all of the individual tax cuts to expire in a decade (even while suggesting that they won't really go away), and to argue that the tax cuts will create sufficient economic growth to produce offsetting revenue, keeping the deficit in check.

The problem with this strategy is that the budget gimmicks are fairly transparent, and even the most favorable projections show that economic growth will only make up for a fraction of the lost revenue. So the party's deficit hawks have begun to wonder: What if the growth doesn't materialize, and the deficit balloons as a result?

In hopes of assuaging these concerns, party leaders appear to be negotiating what some see as a potential solution: a trigger mechanism that would raise taxes if government revenue falls too far and the deficit explodes as a result.

Deficit triggers have a long history in budget politics. In theory, a trigger acts as an accountability measure by offering a backstop against debt increases. In practice, it's a gimmick that almost certainly wouldn't work, and might backfire even if it did.

No details have been released so far, but the basic idea is to install a provision that would raise taxes automatically if certain growth targets aren't met. Roll Call reports that it could result in up to $350 billion in tax increases in 2022.

There are a number of ways this could go wrong. A trigger would inject uncertainty into a tax overhaul that is supposed provide more certainty about the tax code. In addition, raising taxes during a time of sluggish economic performance has the potential to depress it even further. But that is exactly what the trigger would do by forcing automatic tax increases if the economy slowed down. It would hit businesses with a heavier tax burden at a moment when they were already hurting.

Or at least that's what would happen if the trigger tax hike actually went into effect, which it probably wouldn't. To understand why, it helps to look back to the last time Congress considered a deficit trigger, in the early 00s, as Republicans pushed a major tax cut under President George W. Bush.

That tax plan was predicated on projections showing a $5.6 trillion budgetary surplus over the coming decade. But a group of legislators led by Sen. Olympia Snowe (R-Maine) were worried: What if those projections were wrong? What if the surplus didn't materialize. So they backed a proposal favored by Alan Greenspan, who at the time was the head of the Federal Reserve, that would delay tax cuts (and some spending cuts) until the budget was back on track to hit the target.

In an exchange with a Republican lawmaker at the time, Greenspan was asked about the potential for tax hikes in an economic downturn. What if, at that moment, Congress felt that tax cuts were called for instead? "Sure," Greenspan said, "but there's nothing to prevent the Congress at that point from doing that."

The trigger didn't make it into the final law. But Greenspan's response gets at the reality with any trigger mechanism: A trigger doesn't bind Congress or force it into action. Lawmakers can always ignore or override the automatic actions.

That is what happened in the 1980s, when Congress imposed a deficit trigger as part of a budget process reform. Passed in 1985, the Gramm-Rudman-Hollings Balanced Budget and Emergency Deficit Control Act came in the wake of record federal deficits. It wasn't precisely the same as the Greenspan proposal or the one we're seeing now, but it was, essentially, an attempt to control the budget via trigger: If budget deficits exceeded yearly targets, spending reductions would automatically kick in.

An initial version of the law was tossed out in court, but a new one was eventually passed, with a new timeline and budget targets. As Steve Bell, who was the senior budget adviser to Senate Republicans when the law was passed, said in a 2006 Senate history, "Gramm-Rudman-Hollings was so contrary to the culture and the Constitution and whole flow of legislative history, the first thing we did was to ignore it." The annual deficit exceeded the target every year, yet as The New York Times reported, the White House and Congress avoided ever making the called-for cuts "by fudging the numbers and moving the deficit goal posts."

The trigger was little more than a punt to future budget gimmicks. Congress didn't want to make the cuts, so it didn't. There's no reason to think that a tax-based trigger would be more effective now.

At least, that is, if you judge effectiveness by deficit management. Gramm-Rudman-Hollings didn't solve the problem of a high deficit. But it did solve the problem of legislators wanting to appear to be doing something about the nation's fiscal situation.

The trigger, if it ends up in the current legislation, would likely work in the same manner, solving a political problem while proving ineffective — and possibly counterproductive — as a policy measure.

It would create the appearance of accountability, not only to the public, but to Republican legislators themselves, many of whom are uncomfortable with parts of the tax bill yet feel intense pressure to pass major tax legislation anyway. In that sense, the trigger may be best understood as a vehicle for politically convenient self-deception, allowing Republicans who don't care very much about the deficit and those who say they do to support the same legislation. It is a provision designed to let Republicans fool themselves.

Republicans end up gravitating towards elaborate policy charades like this in large part because they have declined to consider significant spending reductions along with tax cuts. They want tax cuts but not spending cuts, and want to limit the impact on the deficit at the same time. The trigger helps maintain the illusion that this combination possible. It is not really an accountability measure or a budgetary backstop. It is another self-deceiving budget gimmick in a bill that is already full of them.

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  1. Guess pete is losing his SALT.

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  2. What if the growth doesn’t materialize, and the deficit balloons as a result?

    The budget, such as it is, comes with no cuts, and this is a think to wonder about, is it? [/tongue click]

    1. Funny how he doesn’t question CBO’s static scoring.

    2. Yeah, I mean once you’ve established that cuts are impossible what is the expected outcome?

      They want tax cuts but not spending cuts, and want to limit the impact on the deficit at the same time.

      So, in short, Unicorns?

  3. JUST CUT SOME FUCKING SPENDING

    EVEN A LITTLE BIT

    FUCK IT CAN’T BE THAT HARD JUST CUT SOMETHING GODDAMN IT

    1. “OK, fine I guess we can go without the sexual harassment training”

    2. “We tried to cut funding to Planned Parenthood. Oh, you mean ‘other’ spending”

    3. As Americans of all stripes and creeds find every year, making and sticking to a budget is hard enough. Cutting a budget that you already have a hard time sticking to? Pretty difficult.

      So ignoring all the reasons we shouldn’t compare federal finances to a home, should we really be surprised that America (as a whole) is just as bad at budgeting and dieting as Americans (individuals) are?

    4. If you want to cut government spending then you need to endorse some kind of downward redistributive policy, because cutting spending by definition removes money from the economy, hurting GDP, while this tax scheme is upwardly distributive, which also takes money out of the economy. Republicans have no interest in causing a recession, which is why they can’t do both.

      1. And eating all of your seed corn means full fields next year. Tax cuts take no money out of the economy. Redistribution with its concomitant sticky government fingers destroys wealth and THAT takes money out of the economy.

        1. An economic hypothesis that fails at arithmetic. A tax cut can take money out of the economy if that money was otherwise being spent in the economy and is now going into a wealthy person’s savings. Since non-wealthy people tend to spend more of a proportion of their money, giving them money means more economic activity. Of course government simply spending the money itself is the most efficient way.

          1. …the fact you think that cutting government spending takes money out of the economy is basically declaring yourself to be a flat Earth believer.

            1. And furthermore if you think ‘wealthy people’ are just storing their wealth in holes for the winter (a savings account) you’re even dumber than a flat Earth believer.

            2. In Tony’s world if the government prints and spends 1TT a day the economy can grow forever and we’re all rich.

            3. Why is that even controversial? What do you think government is spending money on? Piles of burning money?

              1. You are a flat earther.

              2. Where do you think Government gets money from, Tony?

                1. Is this a new low for Tony? He just confirmed multiple times that he believes in magical thinking.

                2. Hopefully the (relatively) unproductive wealth of individuals and entities.

                  1. Taxes, which are taken out of the economy. If you believe taxes are taken out of unproductive wealth than you’ve come back around full circle from ‘taking money out of the economy is bad’ to ‘taking money out of the economy is good’.

                    Truly, you are a special needs ouroboros.

                    1. Well sometimes it is good, actually. Thankfully we have the Fed to sort of automate the process.

                    2. So there you have it, you’ve proven yourself wrong. Cool.

                    3. At first we were talking about a hypothetical situation in which lots of GDP suddenly disappears because it goes from being spent on useful things to being put in some offshore account, and in the context of today’s economy, which I’m not sure can handle something like that without causing a recession.

                    4. You’re sputtering like a fool now, that tends to happen with someone learns that they know so little about a subject that they defeat their own points.

                    5. Lots of government spending disappeared in 1946. Funny thing happened, the economy grew rapidly. And since you think government can spend money more efficiently than individuals then you should favor complete elimination of the welfare state and significant increases in defense spending since that is all direct government spending with no pesky individuals in the middle.

                  2. If it’s so unproductive why are their rates of return multiples of treasury notes?

          2. It’s a bit rich when a socialist tries to lecture on arithmetic. Spending is CONSUMPTION. Consumption destroys wealth. Wealth is created by PRODUCTION. Reducing forced consumption through redistribution does not destroy wealth. It’s the exact opposite. I know you krugtards just need to disbelieve reality but the whole notion of spending stimulus is laughable and a proven failure. Hell, you only have to go back less than a decade to see that.

            1. So when government spends money, the money just disappears into the void?

              1. And when government takes money it just magically materializes from the void?

                1. No, it gets spent on something other than what the taxed entity would have spent it on, because that’s how civilizations function.

                  1. So, to summarize, you state that taking money out of the economy is bad except when you cut a little off the top first and put a little back into the pool.

                    Tell me, do you believe that money spent by the government generates more economy activity than that same dollar spent by a lowly prole servant of the People’s Republic?

                    *takes a firmer grip on his state-issued rifle*

                    1. Government has the ability to direct large amounts of money for large-scale purposes, including economic stimulus when required. But money circulating is the same money regardless of who’s circulating it. You guys seem to believe that when government is the customer money does something differently from how it behaves coming from any other customer.

                      I get that your political beliefs favor fewer public services and less taxation, which is fine, but we have to tax to some degree, and the principle applies regardless of how much that is.

                    2. And your political beliefs favor theft and wishful thinking that the government can spend my money better than I can. I have a positive rate of return on my money. You can’t say the same for all of the money the government has stolen from me to pay fir its ponzi scheme and to make you feel better about your inadequacies.

                  2. Tony, you got it! The money is either spent by the government or spent/saved by the individual whose money it was in the first place.

                    You claimed above that cutting government spending “removes money from the economy”. But this is simply false. It just may not go to where you think it should go in your central-planning mind.

                    1. By “the economy” I mean “not in someone’s mattress.”

                    2. The mattress-style saving of cash is very rare. Almost all kinds of savings do good things for the economy.

                      Saved money provides the capital for a well-functioning lending system that isn’t as likely to get over-leveraged (as opposed to the fiat-money racket we have now). Saved money keeps people from spending money on non-productive investments. Money that is “saved” in stocks helps companies grow and prosper.

                      That is all stuff that is necessary in a healthy economy. The fetish with consumption over everything else for the last 4 decades has caused so much damage and all of the bubbles.

                    3. Well, some actually respectable economists agree with you on that point.

                    4. So you were arguing against a thing that no one does. Odd.

                    5. On the point that fixating on growth above all is the wrong approach (for both the economy and businesses).

                    6. See, now you’re back to the flat Earth shit.

          3. And savings support mortgages, auto loans, college costs and on and on. Meaningful jobs are created. The fallacy is that government spending creates either jobs that don’t create economic wealth or temporary jobs. FDR’s jobs programs proved the futility of that notion.

    5. Repealing the mandate is cutting spending.

    6. Every dollar has a loud angry constuency attached to it and photos of big-eyed suffering children at the ready. Voters don’t want to cut spending.

  4. I’m confused by a statement like this:

    “the bill would raise the deficit by about $1.4 trillion over the next decade”

    I want to make sure that there is precision in language and that deficit and debt are used correctly.

    A deficit is the shortfall in a budget in a particular year. It has no meaning over a period of time. So, currently, the deficit is about $0.5 trillion. Does the statement mean that in 10 years the deficit will be $1.9 trillion? That seems unimaginable to me, without massive inflation. So I don’t think that is it.

    It must be the cumulative additions to each year’s deficit that equals $1.4 trillion. But, then it is more accurate to say that “the bill would raise the debt by about $1.4 trillion over the next decade”

    I can’t figure out why people cannot be more precise in their thinking between these two words. I think politicians love this confusion.

    1. This might work
      If not, you can find the actual CBO report online.

      And that report has your answers. Everyone keeps repeating “deficit” because that’s what the CBO did, they talked about the total deficit ’caused by the plan over the entire ten year period, not the annual deficit (though that data is also in the report). So for the purposes of the debate, that $1.4 trillion increased deficit is also how much the debt would increase by over that period.

      That said, now that I’m looking at the CBO report, some things jump out. Specifically, the annual deficit increase peaks at an extra $251.3 billion deficit in 2020, though by 2027, when all the income tax changes have expired, it’s down to only $21.8 billion. So if the cuts don’t expire (one of the promises that was given to folks concerned about the middle class, in direct opposition to the promises that of course the cuts would expire given to the deficit hawks), we can expect the annual deficit to increase to about $750 billion, or $0.75 trillion.

      Hope that helps.

    2. He meant debt. The deficit will go up an average of $140 billion per year for the next 10 years. Which would make it about 20% higher than it currently is.

      1. I figured he meant debt. But it irritates me so much. I wanted to lecture Suderman about it. You’re a libertarian: be fucking precise.

  5. If you don’t cut government- you get more of it. Larger government means more government employees that will vote for even larger government.

  6. Is there a scenario where Congress could cut taxes, and then the agencies would have to cut their own budgets internally, thus reducing the deficit, or is that crazy talk?

    1. You mean theoretically or practically?

      Theoretically? Sure. They can absolutely do that.

      Practically? Eh… compare the last time we actually had a big cut to spending: sequestration. It was part of a “compromise” deal and wasn’t expected to ever go into effect. And while it did cause some squeezing for a little while, ultimately it was overruled (by congress itself) piece by piece within a few years.

      So in that case, we had a deal that was expected to be the “Sword of Damocles”, forcing congress-critters to work with each other to come to a compromise, and when it did go into effect both sides were pointing at the other saying “it’s all their fault!” because no one wanted to take the blame.

      Given the current government, that kind of blame-game seems unlikely, so it seems unlikely that politicians are willing to risk being blamed for cutting grandma’s food stamps.

      1. Maybe they could cut cowboy poetry.

        1. … I can’t tell if this is a literal suggestion or you’re trying to make fun of the way I type/talk.

          Please elucidate so I can be properly nonchalant or offended, as appropriate.

          1. Literal.

            1. NEA’s 2015 budget: ……….$146,000,000
              FED’s 2015 budget: $3,688,000,000,000

              which is about 0.0039% of the budget.

              So sure, you could probably cut “cowboy poetry”. And it wouldn’t make a damn bit of a difference. You gotta think bigger.

              Which is the problem. Anything big enough to be worth fighting to cut is going to have entrenched stake-holders. Anything small enough to be an easy fight is going to be too small to matter.

              1. And yet, if they fail to cut even $146,000,000 of low hanging fruit then who’s to believe they would cut any ‘large’ amount (not that 146 million dollars is chump change).

                Not that I’m disagreeing necessarily, but rather I just don’t think they’re at all serious.

              2. Was there a point to your response? Did I claim that it would fix the problem? You asked if he meant it figuratively or literally (or literally or literally per our newspeak dictionary). I clarified that it was literal.

                But since we’re playing the what-makes-a-difference game, then you could say exactly the same thing for defense spending. Zero it out and we still go broke because ALL of the spending growth is in the welfare state. So let’s think bigger, right?

  7. For this reason I hope that the business community has stopped hoping for “certainty” from tax policy in the first place. The only way to get certainty is to do away with Congress’s most basic function or at least go to a dictatorship so that we don’t get anybody with different ideas in office.

  8. Republicans end up gravitating towards elaborate policy charades like this in large part because they have declined to consider significant spending reductions along with tax cuts.

    This, largely, the fault of the voters. Any politician who comes out and says something like “I want to cut entitlement spending by 50%.” is not going to be in office very long. And cutting entitlement spending is the only way to eliminate the deficit.

  9. You attack the spending by simply taking .01 off the top of every $1 spent by the Federal Government. You then do this every year thereafter, until your budget meets your revenues. Then when you get neutral, explore further spending cuts, reforms, or wholesale eliminations (Ed, FEMA, etc.) before tax cuts.

    1. Actually you cap growth of all programs including (and especially) entitlements at inflation-1%. You balance in about 5 years and then you cap growth at inflation. In about 100 years the debt is small enough as %gdp that you can contemplate paying it off if you want or wait longer and let it decay in value further.

      1. At this point caps seem the only possible way to control spending, as it’s a cut that the idiots won’t understand is a cut.

      2. Actually you cap growth of all programs including (and especially) entitlements at inflation-1%. You balance in about 5 years and then you cap growth at inflation.

        Exactly. You would think if a candidate ran on this, he/she would get support from voters. I would hope enough people would find that this approach is sensible and would actually solve the problem if implemented.

        1. Seriously? Because versions of that have been the message of GOP candidates in the past. What happens? Team Blue then shows them throwing grandma off a cliff. This isn’t new and the response from the socialists and the voters isn’t either.

  10. Real budget cuts aren’t politically possible.

  11. Can we get a trigger added to Obamacare that says the act is entirely repealed if every one does not get a $2,500.00 reduction in their insurance premiums? Or if they cannot keep their doctor? Or if they cannot keep their plan? Or if hell freezes over?

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