clock menu more-arrow no yes mobile

Filed under:

The Senate tax bill’s mysterious, shape-shifting “deficit trigger,” explained

Republicans in search of a deficit trigger are ignoring the one already in place.

Senate Foreign Relations Committee Holds Hearing On Authority To Use Nuclear Weapons
Deficit hawks Sens. Bob Corker and Jeff Flake confer.
Win McNamee/Getty Images

As Senate Republicans barrel toward a tax vote, lawmakers worried about the national debt are in search of some kind of last-minute fix — except no one knows what that fix will be.

The idea is still in a conceptual stage: If the rosy deficit forecasts from this tax bill prove to be inaccurate, and the economy does not grow as fast as Republican leaders are saying it will, then they want a trigger mechanism in place to in some way address that.

Matt Yglesias explained how that would work in theory, but “in practice, the economic impact of some kind of backstop provision is going to hinge on the implementation details.” Those details are far from final.

"Anything you've heard you can take off the table because it's evolving," Sen. Bob Corker (R-TN), one of the leading deficit hawks in these talks, told reporters Wednesday night.

The Senate tax bill has made deficit hawks uneasy in recent week. The proposal offers massive tax cuts for corporations, reduced rates, and a doubling of the standard deduction — all of which is difficult to square with the reluctance to make sweeping changes elsewhere to pay for the cuts.

All told, the bill would increase the deficit by $1.4 trillion in the first 10 years, and then uses budget gimmicks and rosy math to make it seem like the national debt is untouched in the long run. Though many have waved away concerns in favor of getting a tax bill done, some conservative purists, like Sens. Jeff Flake (R-AZ), James Lankford (R-OK), and Corker, have signaled that the plan isn’t fiscally conscious enough.

And so they’ve floated a deficit trigger plan — one that in the past 24 hours has taken many shapes, from budget cuts to increasing the corporate tax rate.

“Nothing has been set, and at this point I don't even see consensus on the Senate side of the Capitol,” Rep. Mark Meadows (R-NC), who has been in talks with the Senate about the idea, said.

Wednesday night, Corker left the Capitol saying the whole trigger idea had “difficulties.” Here are some of the proposed fixes.

The many forms of a “deficit trigger”

So far, there have been upward of three versions of the deficit trigger publicly floated. It’s possible any — or none — of them will be brought up as an amendment to the Senate tax bill. Here’s the rundown.

1) One proposal would increase the corporate tax rate from the Senate bill’s 20 percent to 21 percent should the economy fail to grow by an average of 0.4 percent over a five-year period. In effect, this proposal is guarding against truly catastrophic, and unrealistic, economic times.

But it goes to show just how limited the politics around the corporate tax rate is. Anything more extreme would be met with major consternation in the House and Senate — and even in the White House. President Donald Trump has reportedly said he is against raising the corporate rate, even by 1 or 2 percentage points.

2) There’s another proposal that would trigger as much as $350 billion in tax increases, starting in 2022, if revenue failed to meet expectations, which also targets corporations — either by increasing the corporate tax rate or by cutting some deductions that corporations benefit from.

3) The third idea would leave tax rates untouched but trigger federal budget cuts, much like a sequester, targeting discretionary spending — which funds everything from science research to education to transportation.

Needless to say, the politics of cutting federal funding for education and research in order to maintain a massive tax cut for corporations would be highly contentious.

There’s already a deficit trigger in existence that Republicans are ignoring

As Yglesias wrote, implementing some kind of trigger in the bill would ask Republicans “to put their money where their mouth is.”

“That approach successfully reconciles the stated GOP debt concern with the stated GOP belief in the growth-boosting magic of tax cuts,” he writes.

But it’s not the only deficit problem Republicans are facing. In fact, there’s already a deficit trigger in place.

The Congressional Budget Office has said a $1.5 trillion tax bill would trigger a sequestration across some major mandatory spending programs, like Medicare, federal student loans, and agriculture subsidies, and even some funding for customs and border patrol — unless Congress passes a law to stop it.

It all comes down to the “pay as you go,” or PAYGO, rule — a 2010 law that says all passed legislation cannot collectively increase the estimated national debt. In other words, if Republicans want to pass a tax cut, they have to pay for it with mandatory spending cuts — or, inversely, if Congress boosts funding for entitlement programs, it has to increase taxes.

If Congress violates this law, the Office of Management and Budget, which keeps the deficit scorecard, “would be required to issue a sequestration order within 15 days of the end of the session of Congress to reduce spending in fiscal year 2018 by the resultant total of $136 billion,” the CBO said in a letter to Minority Whip Rep. Steny Hoyer (D-MD).

Because PAYGO is a law, Congress would have to pass another law to change it. They aren’t allowed to do this through budget reconciliation — meaning Republicans would need to get at least 60 votes in the Senate to mitigate this sequestration. Already they have made clear that they aren’t interested in allowing a sequestration.

So in a bizarre twist, if Republicans did choose to add some kind of trigger plan in their tax bill to appease deficit hawks, they would still have to bypass a separate deficit management trigger that was put in place to stop massive tax cuts from passing without offsets.

Sign up for the newsletter Today, Explained

Understand the world with a daily explainer plus the most compelling stories of the day.