NCPA - National Center for Policy Analysis

CBPP Study: Tax Cut Spending "Trigger" Won't Work

March 9, 2001

If federal budget surpluses aren't as large as projected, some members of Congress want "triggers" to delay the phased-in tax cuts President Bush has proposed and cap sending. However, in addition to reserving Social Security and Medicare surpluses for those programs, Bush has proposed a $1 trillion contingency fund for unanticipated spending needs or revenue shortfalls.

Which approach is better, budget triggers or a reserve fund? The liberal Center on Budget and Policy Priorities says triggers haven't worked when tried, and may have unintended consequences. Thus a budget reserve is preferable.

The Gramm-Rudman-Hollings (GRH) law tried the trigger approach. Automatic spending cuts were supposed to occur if the budget missed specific deficit targets. However, the cuts didn't happen, due to widespread evasions and gimmicks that prevented its trigger mechanism from working.

GRH shows why any trigger mechanism, no matter how well designed, is likely to suffer the following problems:

  • If the trigger depends on budget projections for the coming fiscal year, the Office of Management and Budget can use a rosy forecast to produce the desired projected surplus.
  • If the trigger is based on results for the prior fiscal year, Congress can shift spending from one budget year to the next -- for example, more than $11 billion in expenditures were first shifted from 2000 into 2001 to make the 2000 budget look better, and then shifted back again to make the 2001 budget look better.
  • And even if a trigger mechanism is well designed, Congress may be unable to resist public pressure to deliver "promised" tax cuts or spending increases.

Furthermore, if a deficit is caused by a temporary economic slowdown, automatically delaying the tax cut might make a recession more likely, deeper or longer.

Source: Richard Kogan, "How to Avoid Over-Committing the Available Surplus: Would a Tax-Cut 'Trigger' Be Effective or Is There a Better Way?" March 7, 2001, Center on Budget and Policy Priorities, 820 First Street, N.E., Suite 510, Washington, D.C. 20002, (202) 408-1080.

For text

http://www.cbpp.org/3-5-01bud.htm

 

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