The GOP's Deficit Trigger is a Self-Deceiving Budget Gimmick
Republicans want to create the illusion of deficit control.
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.