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87 IRET Congressional Advisory 1 (1999)

handle is hein.taxfoundation/iretcgadv0084 and id is 1 raw text is: July 28, 1999 No. 87 PULL THE TRIGGER (out of the tax bill) Defn: Trigger. Proper noun. Roy Roger's horse, now stuffed. Defn: trigger. Improper tax policy tying tax cuts to falling interest outlays. Treat as above. There you go again. In the fall and winter of 1982-83, Budget Director David Stockman and moderate Senate Republicans tried to push President Reagan into a budget deal that would have made the pending 3rd year of his 3-year 1981 tax cut conditional on the deficit's coming down. They argued Each installm that the deficit would be a drag on the economy, and had to be would take e fought. payments on t each year (Jul They came up with a to 2009. The bizarre trigger formula, which, trigger are leg if memory serves (close enough for government work), went something like this. If the economy was strong (3%-plus growth) with a declining deficit, the 3rd stage of the tax cut would take effect. If the economy was strong, but the deficit was rising, the 3rd stage would not take effect. If the economy was only growing 1 to 3 percent, the 3rd stage would not take effect regardless of a declining deficit. If the economy was growing less than 1%, or was in recession, the tax cut would take effect to fight the slowdown. (Wait a minute, wasn't their twisted premise that deficits lowered growth?) I was Deputy Assistant Secretary for Economic Policy at the Treasury at that time. As a joke, I tree-diagrammed this hairbrained proposal for Treasury Secretary Don Regan. I assigned proba- bilities to these four outcomes of .3, .3, .2, and .199999, with an additional branch of probability .000001 that an asteroid would collide with Earth and render the other branches moot. The Secretary liked the diagram and took it to a cabinet meeting. I went into shock. The President said keister, and by the time his opponents had finished looking that up in the dictionary, the 3rd stage of the tax cut took effect and the economy boomed. CBO lowered its deficit forecasts, and the issue faded, at least for awhile. Stockman's intellectual heirs have forced Representative Archer and Speaker Hastert to agree to a trigger that could, and likely would, prevent the gradual 10 percent across-the-board reduction in marginal tax rates that is the centerpiece of the House tax bill. ent of the rate cuts feet only if interest he public debt drop) y to July) from 2002 absurdities of this ilon... Each installment of the rate cuts would take effect only if interest payments on the public debt drop each year (July to July) from 2002 to 2009. The absurdities of this trigger are legion: The trigger makes the tax cut cost more! Some tax cut opponents fret that the tax cuts would take up most of the on-budget surplus, adjusted for interest. The projected surplus includes savings from reduced interest outlays on the assumption that the surplus would be used to reduce the debt. If we cut taxes instead, that part of the on-budget surplus would vanish. The tax reductions would take up most of what is left, with only a little left over to retire gross debt. Institute for Research on the Economics of Taxation IRET is a non-profit, tax exempt 501(c)(3) economic policy research and educational organization devoted to informing the public about policies that will promote economic growth and efficient operation of the free market economy. 1730 K Street, N.W., Suite 910, Washington, D.C. 20006 Voice 202-463-1400 * Fax 202-463-6199 0 Internet www.iret.org

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