The tax “trigger” being discussed in the Senate is fairly simple conceptually: If federal tax revenues come in lower than expected in the years following the passage of the GOP bill, automatic rate hikes will kick in to limit the size of the resulting deficits. Bob Corker (R-TN) said he has an agreement “in principle” with Senate leaders to include such a rule in the tax bill, potentially raising $350 billion over 10 years starting in 2022.
The trigger mechanism is meant to assuage a handful of deficit hawks, including Corker, James Lankford (R-OK) and Jeff Flake (R-AZ), who are concerned about the potential for the tax plan to add hundreds of billions if not trillions of dollars to the national debt. On Wednesday afternoon, Senate Finance Chairman Orrin Hatch (R-UT) said the tax bill will likely contain some kind of trigger, despite worries about how it will work: “We are probably going to have one but I prefer not having it. It depends on how the bill is written. There’s a way I would support it.”
Hatch is not alone in his concerns about the trigger. As simple as the idea may be in theory, it gets complicated in a hurry in practice. Here are some problems senators are wrestling with:
1. A trigger would be procyclical, making an economic downturn more severe. Many of the proposal’s critics have pointed out that a recession would likely set off the trigger, raising taxes at exactly the wrong time. According to a Wall Street Journal editorial Thursday, “The trigger is a bad idea on the policy merits. No one knows when there might be another recession, during which tax receipts invariably fall. A trigger could then be a tax hike on Americans at a tough economic time.” Some senators have echoed those concerns, including John Kennedy (R-LA), Thom Tillis (R-NC) and Chuck Grassley (R-IA).
2. It could undercut the goals of the GOP’s corporate tax cuts, upsetting some powerful conservative groups. The tax bill is supposed to provide a stable framework that corporations can rely on to make new investments, but the trigger brings that stability into question. Americans for Prosperity, backed by the Koch brothers, said, “Including a trigger mechanism in tax reform is antithetical to the principles of the unified tax framework. Such a provision would add unnecessary complexity and uncertainty into the tax code, stifle the economy and generate less revenue.” The Wall Street Journal warns that “Corporations won’t relocate to America at a 20% tax rate with a threat of a much higher rate in a couple years.”
3. It could violate Senate rules. Republicans want to pass their tax plan through reconciliation, which allows for a simple majority vote in the Senate, but to qualify, the legislation cannot contain provisions that lack direct fiscal effects. The Senate parliamentarian would have to decide whether a rule that may or may not take effect satisfies that requirement.