Recently, Alan Greenspan testified before congress that any tax cut should have a trigger. Republicans on the right have said that a trigger should not be used, while moderates on both sides and Democrats say a trigger is a must. What is this trigger? Why are the President and the right Republicans so strongly against it? Why do the moderates and Democrats support it so much?
President Bush has asked for a 10-year tax cut plan worth between $1.6 and $2.6 trillion, depending on whom you listen to. In this plan, only about 11% of the tax cut money is seen by the American people before 2006, while 89% shows up between 2007 and 2011. The tax cut is based on the premise that the long term projected revenues would show up. Those tax revenue numbers are based on an economic growth rate in the economy that may or may not occur.
Alan Greenspan�s rate hikes last year and their impact on this year�s economy only show how unpredictable the economy is over as little as 12 months, much less 10 years. In hindsight, one would think that Greenspan would probably have had one or two less rate hikes, and maybe cut rates a month or two earlier. This is why Greenspan supports a �trigger� for tax cuts. The surpluses may not show up if the economic growth projected does not show up. The opposite may also be true. Economic growth may be greater than projected. The reality is no one knows for sure.
The Bush tax cut plan is designed to �phase in� the tax cuts with small rate reductions each year or two to each tax bracket. The �trigger� would be designed to halt the �phase in� reductions in a year where the �surplus� does not materialize. President Bush and proponents of the Bush tax cut plan respond that taxes can be raised later if the surpluses do not materialize. This is a smart political move for Bush. Since most of the tax cuts do not show up until AFTER he runs for President again, he would not have to be put in a position to worry about the impact on raising taxes on his campaign. Considering the history of midterm elections in congress, the reality that parties that aren�t in the White House usually pick up congressional seats, this would give him the scapegoat of a potentially Democrat filled congress. Therefore, he personally, would not have to take the blame for it, and he would not have it impact an election of his own.
While Bush�s tax cut plan is too long term and does nothing to help the economy now, the Bush administration is correct in their claims that a �trigger� should NOT be put into place. Whether Republican or Democratic control of congress is in place, Washington has not seen a dollar it would not like to spend. Even after the tax cut, President Bush�s own budget proposes a $100 billion increase over President Clinton�s last budget. Congressional Republicans are beginning to say that a 4% budget increase is too much of a �cut� for many programs. And Republicans are supposed to be the �smaller government� candidates.
A �trigger� based on the �surplus� allows for budgets to increase dramatically and halt the tax cut in order to make government larger. For example, after passing the tax cut, in next year�s budget, congress and the President could decide to increase government spending by 8% and explain that the surplus is not there for next year�s phase of the tax cut. This allows government to circumvent the actual promised tax cut for Americans.
To halt the phase in would gain less public acknowledgement and headlines than an actual tax increase, thus be easier to pass off and not justify the reasons for it. There would be little impact in terms of political ramifications for larger spending, and actually may be seen as beneficial for keeping the budget balanced. When in reality, politicians would not have actually balanced the budget by use of fiscal responsibility, but rather on the backs of taxpayers, yet again.
This is why a �trigger� should not be installed. It would force Washington to justify its increase in taxes to the public and force politicians to face the political impact of a tax hike head on. It would also force them to have more fiscal responsibility in the increases in the spending, as well as providing them the political cover necessary for actual budget cuts. Washington could use the claim of making a tough choice between a tax hike and spending that may not be absolutely needed, and they choose to let the American people keep their money. Especially since no one likes a tax hike.
American taxpayers are over taxed. Tax cuts are needed to spur the economy, if you believe what Republicans and Democrats are telling you. A tax cut will happen, the question is the size and shape of that tax cut. No matter how that tax cut is packaged, a �trigger� should not be put in place. It will be used as a means of circumventing the limiting use of a tax cut on the budget. Tax cuts can prevent government from getting too large.
Our government is already too large. Washington will spend about $2 trillion of taxpayer money out of about a $9 trillion economy. It is time to reign in Washington. Unfortunately, like an 18-year old with their first credit card, Americans have to keep the money away from Washington or they will spend it. A �trigger� lets Washington keep their credit card when they spend too much money. It is time to force Washington to live within their budget.
--Chris Knight 3/26/01
Return to Main Page
Chris Knight is a Sr. Fellow at the Global Freedom Institute
-News Sources
-Articles
-Policy Issues
-Hot Links for Info
-Main Page
-Email Us
