Senate Republicans’ plan to include a debt backstop in their tax plan drew criticism from key outside conservative and business groups Tuesday and threatened to create a new division within the party as it moves to enact tax cuts.
The plan, advanced by Sens. Bob Corker of Tennessee and James Lankford of Oklahoma, would entail undoing some tax rate cuts or planned rate cuts if the debt rose faster than projected following the passage of the tax bill. That trigger would kick in if the tax cut did not boost economic growth as Republicans hope it will.
Corker and Lankford have justified the idea on the grounds that they are worried about the possibility of tax cuts increasing the federal debt.
Texas Sen. John Cornyn, the number-two Republican in the chamber, told reporters at the Capitol that Republicans had agreed on including a trigger of some kind in the bill earlier in the day. That compromise was needed to secure the votes to advance the bill through the Budget Committee Tuesday afternoon. “We’re talking about a whole range of possibilities,” he said. “We haven’t decided on how that trigger would work.”
Without details available, though, key outside groups criticized the idea, warning that it could lead to tax increases at the outset of a recession.
“It’s hard to imagine a more counterproductive policy than imposing automatic tax hikes on an economy that isn’t growing as fast as expected,” said Nathan Nascimento, executive vice president of Freedom Partners, a Koch-backed free-market group that has backed tax reform.
Grover Norquist, the anti-tax activist who heads Americans for Tax Reform, outlined his opposition in a statement. “The key to pro-growth tax reform is permanence and certainty. This encourages job creating investment. No one invests in response to ‘maybe,’” he said. “A trigger that threatens tax hikes is a self-fulfilling threat to kill jobs.”
The U.S. Chamber of Commerce, the biggest business group, also took aim at the trigger idea as it began developing Monday night, with chief economist J.D. Foster writing in a blog post that it is “a terrible idea.”
Lankford said he was aware of the possibility that the trigger could undermine certainty about the tax code, putting a drag on business investment, and that Republicans were trying to design the plan to defuse that problem.
“No one ever wants to see tax policy be unstable, I don't either,” he said. “But neither do I want to end up in a situation where we regret a tax change and we have to come back in and re-change it later. That destabilizes things as well."
A debt backstop could work in concept, said Marc Goldwein, senior policy director for the Committee for a Responsible Federal Budget, a group that advocates lower deficits and has criticized the GOP tax bills for cutting taxes by about $1.5 trillion over 10 years.
Although it would be better for the plan to be revenue-neutral in the first place, “a well-designed trigger would certainly be an improvement to the bill,” Goldwein said, cautioning that the details would determine whether the trigger worked. Several states have used triggers in tax reform measures.
Republicans are counting on the tax cuts boosting economic growth enough to generate at least $1 trillion in “dynamic revenue” — that is, new tax revenue created because more people are working and business is booming. There is “no evidence it can get even close to that,” Goldwein said.
Corker said Tuesday afternoon that details about the proposed trigger likely wouldn't be available until Thursday, when Republicans put an amended bill on the Senate floor. He declined to provide any further details about it, fearing "potshots" from outside groups.
But even with a well-designed trigger, Republicans will face resistance from within their own ranks. Sen. Pat Toomey of Pennsylvania, for instance, panned the idea Monday.
On Tuesday, Sen. John Kennedy of Louisiana said that, while he was willing to allow Lankford to win him over the the provision, he didn't like it. "I just have a philosophical problem with automatic tax increases," he said.
Kentucky's Rand Paul, a proponent of bigger tax cuts, said that he also disliked the idea, but that its inclusion wouldn't necessarily cost him his vote. He said that he favored an idea brought up among Republicans Tuesday that would also cut taxes more if revenues came in higher than expected, providing counterbalance to the trigger.
Other Republicans were more direct.
“I can’t think of a worse way to tank the economy than to raise taxes,” Rep. Jeb Hensarling, R-Texas, said of the trigger idea on Fox News Tuesday afternoon.
Rep. Tom Cole, R-Okla., called the trigger a "crazy idea."
"I don't think it would be a very popular idea," Cole said, suggesting it might prove a tough vote in the House. "Surrendering your voting card on a tax increase doesn't seem to be the logical thing to do.
In the Senate, however, the trigger could be critical to lining up 50 Republicans for the bill.
"You gotta have some kind of backstop, I think," said Arizona senator Jeff Flake, one of the Republicans who has so far withheld support for the bill out of deficit concerns. "We can’t just say, 'hey our economy isn’t doing as well, we’re just going to pile on debt.'"
Even with the backstop, Flake indicated, he isn't ready to sign onto the bill.