I’ve been grousing all year that tax cuts and tax reform are jeopardized by the failure to restrain the growth of federal spending.
At the start of the year, I pointed out that it would be possible to both balance the budget and approve a $3 trillion tax cut if spending grew each year by an average of 1.96 percent.
That modest bit of fiscal discipline apparently was asking too much. When Trump’s budget was released in May, he proposed that spending should increase by an average of 3.5 percent annually.
But neither Trump nor Republicans on Capitol Hill have done much to hit even that lax target (which is especially disappointing since they actually did a good job of restraining spending when Obama was in the White House). So the federal budget instead is operating on auto-pilot and spending is now projected to increase by 5.2 percent annually, more than tw0-and-one-half times faster than needed to keep pace with inflation.
Sigh. No wonder I’ve fretted that GOPers can’t be trusted to do the right thing.
The net result of all this is that there’s very little leeway for tax relief under congressional budget rules. This is why Republicans are looking at tax reform proposals that only have a modest tax cut in the first 10 years and no net tax cut after the first decade.
But even that may be too much to hope for.
Republicans on Capitol Hill are now considering an automatic tax hike as part of tax reform legislation. I’m not joking.
Senate Republicans are considering a trigger that would automatically increase taxes if their sweeping legislation fails to generate as much revenue as they expect. It’s an effort to mollify deficit hawks who worry that tax cuts for businesses and individuals will add to the nation’s already mounting debt. …The trigger would be a way for senators to test their economic assumptions, with real consequences if they are wrong. “Do we have realistic numbers and is there a backstop in the process just in case we don’t?” asked Sen. James Lankford, R-Okla. “We should build in the ‘What if?’ What if this doesn’t work?” Lankford said. “What changes might be needed in the tax code in the days ahead to be able to adjust in what scenario?” Sen. Bob Corker, R-Tenn., said the Trump administration and Senate Republican leaders are open to some kind of a trigger to increase revenues if the tax plan falls short. Neither Corker nor Lankford spelled out exactly how the trigger would work, noting that senators are still working on the proposal.
This is discouraging beyond words. I’m almost at the point of wanting the whole exercise to collapse.
But I don’t want to lose sight of two very important goals: Lowering the corporate rate and getting rid of the deduction for state and local income taxes (and I’m still fantasizing about a third goal of death tax repeal).
So let’s contemplate what a tax-hike trigger would mean.
First, what tax hikes would be imposed by a Trigger?
Any automatic tax hike is a bad idea, but not all tax increases are equally bad. If politicians insert a provision that automatically increases the corporate tax rate, that’s a very bad recipe for uncertainty and the result will be less growth. If the standard deduction for households is reduced, by contrast, the resulting increase in taxable income will give politicians more tax revenue but not cause as much harm.
Second, would a Trigger be linked to projected revenue(s)?
Based on the article, it appears that politicians are focused on potential revenue shortfalls. But are they looking at overall revenue, or revenue by category? This raises important questions, such as whether businesses should get hit by an automatic tax hike if individual tax collections fall short – or vice-versa.
Third, is a Trigger linked to deficit projections?
Early last decade, some politicians wanted tax-increase triggers based on what happens to deficits and/or debt. This approach would create a perverse scenario where taxpayers are punished when politicians over-spend. And what happens if there is a recession, which would mean falling tax revenues? Do politicians really want an automatic tax hike in a faltering economy?
Fourth, is a Trigger symmetrical, meaning automatic tax cuts are possible?
If taxpayers are punished when revenues fall short, simple fairness requires that they benefit if revenues rise faster than projected. Since the bean counters at the Joint Committee on Taxation almost surely will underestimate the pro-growth impact of a lower corporate tax rate, this is especially relevant when looking at specific sources of revenue.
Fifth, why not a spending-cut Trigger?
Since America’s long-run fiscal problems are entirely caused by excessive government spending, politicians who claim to be concerned about fiscal balance should support a provision to automatically restrain spending. Such a mechanism already exists, and it works very well. It’s called sequestration.
Sadly, the fifth option is not very likely. Under current law, there are partial spending caps as a result of the 2011 Budget Control Act. But big-spending Republicans cancelled the sequester in 2013, and then cancelled another sequester in 2015.
So I won’t hold my breath for a sequester in 2017.
perhaps it isn’t a conspiracy… simply an abundance of useful idiots with the desire to “make the world more open and connected”… media and communications professionals have largely been indoctrinated to espouse socialist and left wing views… the deck is stacked against reality… in favor of never-never land… the world of peter pan… tinker bell… and the lost boys… a mystical paradise… a place where hard science and exponents are shunned…………. as racist…
and to get there…. all you have to do is believe…. “So come with me, where dreams are born, and time is never planned. Just think of happy things, and your heart will fly on wings, forever, in Never Never Land!”
― J.M. Barrie, Peter Pan: Fairy Tales
[…] area on the Senate tax bill that does require scrutiny is the rumored “revenue trigger.” The Senate is possibly adding a provision to its bill that would automatically raise taxes […]
I don’t think there’s a conspiracy. For politicians it’s just public choice. For voters it’s just placing short term redistribution gains (and even those are questionable) over much bigger perpetually and exponentially ballooning growth gains. I think most voters don’t understand the fundamental nature of simple exponents, even though they live in them every day. So they opt for the fixed and finite but immediate benefit of redistribution.
[…] However, one area on the Senate tax bill that does require scrutiny is the rumored “revenue trigger.” The Senate is possibly adding a provision to its bill that would automatically raise taxes […]
it seems that the democracies are perusing a policy of managed decline… the political class is deliberately destroying the vitality and prosperity of their nations and I have no idea why… I am sure the conspiracy theorists have worked it all out… but I suspect it’s the usual… power and profit for the ruling class and their cronies… it’s time to seriously consider a state mandated Article V Convention… focused on establishing TERM LIMITS and a SPENDING CAP…
let’s send the power back to the states… let’s see how that works out… we are what 20 trillion in debt? the entitlement programs are nearing collapse… and our members of congress spend their time playing grab-ass… TERM LIMITS… and a SPENDING CAP couldn’t hurt….
So instead of an automatic spending cut we now risk getting an automatic tax increase. That’s depressing.
With growth in developed democracies now unable to match even half the average world growth– voters of developed democracies will sleep in the bed they make. Most developed democracies are past the point of no return, and have thus set the stage for their decline. The relative prosperity advantage that developed democracies once enjoyed compared to the world average has shrunk, and is now continuing to decline at an accelerated pace, as virtually none of the developed democracies can match average world growth rates.
Seems like the citizens of developed democracies have forgotten elementary arithmetic. They forgot that their countries climbed to the top of the worldwide prosperity scale by achieving — and then sustaining — growth rates above the world average for a long time.
Virtually all discussion in politics should be “How does our growth rate compare to the world average? Are we exceeding it or do we lag? In other words, are we prospering or are we declining?”
When voter-lemmings get to this point in the vicious cycle their societies become even less efficient than authoritarian regimes — and soon Genghis Khan shows up at the gates in one form or another.
A wonderful world awaits future humans. With prosperity and technology that is virtually incomprehensible to us today. But the leverage of technology will inevitably widen the prosperity differences between those individuals and countries that maintain motivation to excellence and those who do not. Family, city, state, and country ascents and declines that used to take centuries will now conclude in mere decades, as everything human keeps accelerating. The time span where voters have to face the consequences of their actions will keep shrinking.
Keep mobile.