Will Congress Make Tax Cuts Temporary to Appease Bob Corker?

To win support from deficit hawks, Senate Republican leaders pushing tax reform might have to include a provision that some experts say would blunt the benefits of the tax cuts.

At issue is a “trigger” that would reverse some of the tax cuts if the economy does not grow quickly enough. Sen. Bob Corker (R-Tenn.) has said he got an “agreement in principle” to add the trigger when the bill reaches the Senate floor later this week. His support was necessary for the Senate Budget Committee to advance the bill Tuesday.

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In theory, the trigger could head off a flood of red ink. In practice, according to opponents of the idea, it could deter businesses from making the investments that tax cutters hope the bill will inspire in the first place.

“I’ve never been a fan of triggers,” Americans for Tax Reform President Grover Norquist told LifeZette.

But Norquist added that some concession to senators like Corker and Jeff Flake (R-Ariz.) may be necessary to push the Tax Cuts and Jobs Act across the finish line.

But how valuable would that bill be if businesses do not have the confidence that promised tax cuts will materialize? Adam Michel, a policy analyst at the conservative-leaning Heritage Foundation, said it depends on the details of how a trigger would be structured.

“My gut reaction is putting triggers like this in negates the gains of corporate tax cuts in the first place,” he said.

Michel noted that both the Senate and House versions of the tax bill make the corporate tax cuts permanent but the personal income tax reductions — at least on paper — temporary. It is a fact that Democrats have seized on, but Michel said the reason is that companies need certainty in long-term planning.

“The idea of adding a trigger that would increase tax rates — especially on businesses and high-income earners — essentially becomes a self-fulfilling prophesy,” he said. “It creates a cloud in the distance.”

At a news conference Wednesday, a group of Republican senators and conservative activists also expressed skepticism about the idea of a trigger.

“We think it’s a bad idea. We were clear on that yesterday,” said Tim Phillips, president of Americans for Prosperity. “But we do see a path forward. We’re optimistic. And we think that this is going to get done.”

Sen. Thom Tillis (R-N.C.) told reporters that a trigger risks freezing the business activity that the tax cuts are designed to fuel.

“Then the market won’t respond as favorably because you’ve narrowed the horizon for possible, for making a decision about capital deployment, and you’ve created uncertainty,” he said.

Added Sen. Dean Heller (R-Nev.): “There’s one word. It’s called certainty.”

Phillips said a trigger could make a recession even worse.

“The last thing you’d want to do if there were some sort of downturn, economic downturn, would be to raise taxes,” he said.

Michel, the Heritage Foundation expert, told LifeZette that recessions are an inevitable part of the business cycle and have causes far beyond tax policy.

“The outcome could be far worse without tax reform, but there probably isn’t something nuanced enough for models to pick up on,” he said.

At the news conference, Tillis said calls for a trigger are “well-intentioned.” But he added that growth projections in the bill are modest.

“I don’t think it’s necessary … We’ve built in enough conservatism that we don’t need a trigger,” he said.

Tillis said that when he was speaker of the state House of Representatives in North Carolina, lawmakers built a different kind of trigger into a tax reform package. It called for deeper corporate tax cuts if revenue to the state government exceeded a certain point. And that has happened, he said.

James Davis, executive director of Freedom Partners, cited estimates from the Congressional Budget Office that adding 1 percentage point to economic growth would generate an additional $270 billion in revenue over the next 10 years. If the bill succeeds in producing average growth of 3 percent, it would mean an additional $1 trillion over a decade, he said.

“Plus, there are other areas where you can look at to claw back additional corporate welfare … This has been a good step forward in that process through the legislative process,” he said.

Related: Tax Bill Approved by Senate Budget Committee, Clearing Path to Floor Vote

Sen. David Perdue (R-Ga.) said he, too, opposes adding a trigger. As a businessman before joining the Senate, he said, certainty was an important factor in making investment and hiring decisions.

But Perdue added that passing tax reform is important enough to allow for compromise.

“I come from a world where you really don’t ever get 100 percent of what you want,” he said. “And I don’t want to see this bill destroyed because of pursuit for perfection. And I think we’ve seen that before up here.”

(photo credit, homepage image: Jeff Flake, cut out, CC BY-SA 2.0, by Gage Skidmore; photo credit, article image: Jeff Flake, cut out, CC BY-SA 2.0, by Gage Skidmore)