GOP should reject the left's pessimism and the deficit trigger

GOP should reject the left's pessimism and the deficit trigger
© Greg Nash

It is hard to imagine a worse idea than the automatic “trigger” being inserted into the GOP tax plan. This newest gimmick to corral reluctant senators is bad economic policy and bad tax policy.

The idea is that if the GOP tax re-write results in fewer revenues than anticipated and an unexpected rise in the nation’s deficit, a hike in the corporate tax rate of 1-2 percent would automatically occur.


The trigger was proposed by “deficit hawks” Sen. Bob CorkerRobert (Bob) Phillips CorkerCornyn: Relationships with Trump like 'women who get married and think they're going to change their spouse' Trump excoriates Sasse over leaked audio Has Congress captured Russia policy? MORE (R-Tenn.) and Sen. James LankfordJames Paul LankfordMcConnell says he would give Trump-backed coronavirus deal a vote in Senate Senators push for Turkey sanctions after reports Ankara used Russian system to detect US-made jets McConnell: Plan is to confirm Trump's Supreme Court pick before election MORE (R-Okla.), who are nervous that the tax bill won’t produce the buoyant economic growth its sponsors project and will instead lead to budget shortfalls.


It is astonishing to see Republicans adopt the profound pessimism of the left. Sen. Chuck SchumerChuck SchumerHouse Democrats introduce bill to invest 0 billion in STEM research and education Graham dismisses criticism from Fox Business's Lou Dobbs Lewandowski: Trump 'wants to see every Republican reelected regardless of ... if they break with the president' MORE (D-N.Y.) led Democrats in attacking the GOP tax plan before it even existed, deriding the prospect that lower taxes could spur economic growth and calling it a tax cut for the rich and for corporations.

The Washington Post has awarded Democrats "Pinocchios" for lying about the bill’s impact on middle-class Americans. The country, however, seems to be buying their characterization.

Republicans aren’t helping. Underlying Schumer’s negative take on the bill is the left’s assumption that the mediocre economic expansion of the past decade is the best we can hope for, that we have entered a period of “secular stagnation.” Their pessimism reflects a dour view of U.S. competitiveness and an essential distrust of the business community.

Republicans, who presumably celebrate individual enterprise and private-sector solutions, should not succumb to the left’s gloomy outlook. They should instead recognize that global business leaders consider the U.S. the No. 1 place to invest.

They are thankful for the United States' rule of law, educated workforce, proximity to the world’s biggest consumer market, generous supply of cheap energy and leading position in technology.

Because we offer so much, we cannot afford to trip over our own shoelaces; we must provide corporations every incentive to invest here, including a competitive tax regime. 

Democrats are terrified that the tax bill will go through. Success in passing the largest reform package in decades would eliminate the oft-repeated charge that President Trump has not accomplished anything in nearly a year in office.

Democrats worry that lower taxes for businesses will indeed produce the kind of job and wage growth that they have described as no longer possible in the U.S. Continued good economic news will for sure undermine their chance of retaking the House in 2018.

Republicans must persuade Americans that their tax reform will encourage business investment, the leg of the economic stool that went missing in recent years and that is responsible for boosting productivity and wages.

President Obama’s Chairman of the Council of Economic Advisers Jason Furman noted in a 2015 speech, “Labor productivity has grown only 0.7 percent per year since 2010, well below the 2.3 percent average from 1948 to 2007.”

Furman called the poor results an “investment-driven slowdown” and called productivity growth a “driver of middle class incomes."

Companies making new investments make economic and financial assumptions about the cost of borrowing, future wage hikes, product prices and demand, sometimes peering 10 to 20 years into the unknown future. Such predictions are fraught with uncertainty; it is the job of economic planners to reduce that uncertainty.

The proposed “trigger” mechanism does the exact opposite. Creating a system in which taxes might unexpectedly jump, in response to a terror attack or hurricane that temporarily disrupts the economy, would be entirely self-defeating.

Moreover, a slump in the economy would hardly be the time to raise taxes. If anything, as we saw during the financial crisis, Congress would likely move to up spending and lower taxes to prod the economy forward.

Adopting a trigger will not likely produce higher taxes down the road, because the revenue gains from the tax package will probably exceed forecasts. The Congressional Budget Office has projected revenues of $43 trillion over 10 years, based on expected economic growth of 1.9 percent.

If we score growth of 3 percent, the country’s historic norm, over only four years, the currently forecasted $1.5-trillion deficit would be reduced to only $500 billion. As the Wall Street Journal reported, average growth of 2.4 percent over 10 years, which is totally possible, would eliminate the deficit altogether.

Thus, the automatic mechanism would not come into play. Even so, introducing uncertainty into the plan is a mistake.

When he ran for the Senate in 2006, Corker said, “I know that U.S. competitiveness is more important than ever before. Businesses with emerging technologies can locate anywhere in the world. If we want them to be American firms, we must make America the best place in the world to start and grow a business.” 

He added: “By reducing the burden of taxation, litigation, and regulation, American entrepreneurs will be better able to create exciting new businesses and good-paying jobs.”


Millions of middle-class Americans voted for President Trump partly because they hadn’t seen their incomes rise in a decade. He campaigned on lower taxes and lighter regulation, which he promised would spur faster growth. The tax plan will do just that.

Liz Peek is a former partner of major bracket Wall Street firm Wertheim & Company. For 15 years, she has been a columnist for The Fiscal Times, Fox News, the New York Sun and numerous other organizations.