The U.S. Senate is currently debating its tax plan and rushing to vote on it by the end of this week with the hopes of getting tax legislation to President Trump by the end of the year.
One new and concerning development is that some Republicans in the Senate are considering adding a “trigger” to the bill that would reportedly activate tax increases in 2022 if the promised positive economic effects of the bill have not materialized.
It is a sign that legislators are unclear of what the future will hold as the plan is implemented and the full impact of each detail is understood. Senator Tillis and Senator Burr should be very concerned about this development and oppose moving forward on a major tax overhaul that provides no protections from myriad harm for North Carolinians and is still not fully understood.
According to a new report, the trigger mechanism is deeply flawed and cannot undo the harmful fiscal impact of the bill’s unfinanced tax cuts. The Center on Budget and Policy Priorities points out:
“The details about the trigger mechanism are still emerging. Under one reported version, corporate tax increases would take effect if revenues in 2022 are below a “target” — the amount that the tax code is expected to generate that year under the tax laws in effect today (that is, before tax cuts take effect), minus the cost of extending a business tax break now in effect that is due to expire under current law. Under another version, the tax increases would be triggered if economic growth fell below a target rate. Regardless of the precise criteria, such a trigger mechanism is unlikely to result in tax increases going into effect.
Moreover, the triggered tax increases are limited to $350 billion over a decade, far less than the estimated revenue loss from the pending tax bill. Thus, even if the trigger took effect, the tax cuts still would fall far short of the standard of not increasing the deficit that various Republican senators have argued the tax bill will meet.”
The report is blunt by concluding that:
“If policymakers are truly concerned about the harmful impact of higher deficits and debt, they should address the problem head on: they should identify the revenues they will raise or the spending they will cut to offset the cost of tax cuts they evidently view as the nation’s highest priority. That’s how responsible major legislation has been designed in the past. The landmark 1986 tax reform legislation, for example, raised taxes on some businesses and individuals and cut taxes for others to create a more efficient tax code, without the large revenue losses in the current tax bill.
‘Trigger’ proposals, on the other hand, let policymakers sidestep the hard choices and still try to claim the mantle of fiscal responsibility.”
It is worth noting that Republican Senator Ted Cruz of Texas has said he’s working on a trigger provision that would apply two ways and bring additional cuts if there’s robust growth.
Luis A. Toledo is a Public Policy Analyst for the Budget & Tax Center, a project of the North Carolina Justice Center.