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The Agenda

NRO’s domestic-policy blog, by Reihan Salam.

The Case of the Missing Tax Trigger



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A week or two ago, Matt Yglesias referenced a fascinating CNN.com article from March of 2001 that described President George W. Bush’s efforts to win support for his tax cut proposal. The article opens by describing how the president had traveled to Maine to rally the public, and to nudge the state’s two moderate Republican senators:

Snowe has expressed particular concern about the tax package, saying that “triggers” may be necessary to halt the tax cuts if the economy deteriorates.

Bush seemed to signal — for the first time — that he may be open to discussing triggers, which would take hold if the projected $5.6 trillion federal government surplus upon which Republicans are counting does not materialize.

“There’s a lot of ideas now being floated out in the Congress, and I’m open-minded to any good idea,” said Bush, who previously has said he is against the notion of triggers on tax cuts.

In light of Charles Blahous’s recent Economics 21 article detailing the impact of the Bush-era tax cuts on the deterioration of the U.S. fiscal position, which we’ve discussed, one wonders how a tax trigger might have worked in practice. A tax trigger tied to changing revenue projections would have helped account for the growth slowdown that followed the collapse of the late 1990s technology bubble while a tax trigger tied to the size of the deficit might have created a political incentive to constrain spending, though this latter scenario is admittedly somewhat unlikely. It is easier to imagine that Congress would have simply overridden the trigger, just as it has overridden the aggressive reductions to Medicare reimbursements passed as part of the Balanced Budget Act of 1997. 



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