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110 IRET Congressional Advisory 1 (2001)

handle is hein.taxfoundation/iretcgadv0107 and id is 1 raw text is: Advsory February 13, 2001 No. 110 THE TROUBLE WITH TRIGGERS Defn.: Trigger. Proper noun: Roy Roger's horse, now stuffed. Defn.: trigger. Improper tax policy: making rate cuts conditional on future surpluses. Treat as above. Some Members of Congress want to impose a trigger on President Bush's proposed across the board cuts in marginal tax rates. Under a trigger, the various installments of the rate This trigger, cuts would only go into effect surplus, woul if projected budget surpluses the tax cut i arise as forecast. A trigger much... [W hj would make the tax rate cuts posed a tr less effective in strengthening spending inste the economy and could lead to the bad budget outcome its advocates claim to fear. tied Ilet( Ist by hay. igger 'ad of 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 that the deficit would be a drag on the economy, and had to be cut. They came up with a bizarre trigger formula, which 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 asinine proposal for Treasury Secretary Don Regan. I assigned probabilities to these four outcomes of .3, .3, .2, and .199999, with an additional branch of probability .000001 that an to the budget asteroid would collide with ongress block Earth and make the other spending too branches moot. The Secretary en 't they pro- took the diagram to a cabinet on federal meeting! I went into shock. tax cuts? 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. In 1999, Stockman's intellectual heirs forced Ways and Means Chairman Archer and Speaker Hastert to accept a trigger on that year's abortive effort to cut tax rates across the board. That trigger would have been tied to declining interest payments on the public debt, effectively handing control of the tax cut over to the Federal Reserve. 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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