Strategas Research said the “trigger” proposed by Sen. Bob Corker to limit deficits from the tax bill could essentially reduce the tax cut by half.
The Tennessee Republican voted to advance the bill to the Senate floor Monday after reaching a tentative agreement to include a fiscal “trigger” that would effectively raise taxes if U.S. growth doesn’t generate as much revenue as expected. Some GOP senators raised doubts about the plan Wednesday.
Dan Clifton, head of policy research at Strategas, said the Corker plan would basically be imposing an automatic tax increase if revenues do not reach a set goal by 2022 or 2023. Clifton also said he believes tax legislation has a better chance of getting approved, and he now sees odds of 75 percent in favor of a bill passing.
“Our read of the overall goal is that the ‘trigger’ will essentially cut the tax cut in half by imposing tax increases five years into the tax cut,” wrote Clifton.
The proposal is not likely to be popular with businesses, which are looking forward to a 20 percent corporate tax rate, from the current 35 percent.
“I don’t think the market would like a trigger like that. I don’t think business would like a trigger like that,” said Michael Materasso, senior vice president and co-chair of Franklin Templeton’s fixed income policy committee. “If it’s permanent [businesses] act very differently than if it is temporary. If we start putting in triggers, there’s uncertainty.”
“All these things that create uncertainty have less of a mulitplier effect than if it was straightforward,” he said. “All of these qualifiers and triggers, I think it waters down the effectiveness of the billion.”
Clifton said it had seemed Corker was trying to reduce the package to $1 trillion from $1.5 trillion. “He has essentially achieved this by setting up a five-year tax revenue test,” Clifton wrote.
The strategist said he studied other triggers and believes the trigger would kick in if the tax revenues do not meet the Congressional Budget Office 2022 or 2023 forecast for tax revenues. A tax increase would then be set to meet the gap between tax revenues collected and the CBO forecast. Under current law, a trigger could kick in with up to $350 billion in automatic tax increases.
Clifton said he believes the “triggered” tax increase would be targeted at corporations, not individual taxpayers.
“This deal is likely sufficient to win the support of Corker, [Nebraska Sen. Ben] Sasse, and [Oklahoma Sen. James] Lankford. Flake may want the provision to be more aggressive. The key will be how conservative Senators respond, in particular, Senator Toomey and members of the Finance Committee. The House is not likely to be pleased with these details. Conservatives who have avoided criticizing the legislation throughout the entire process are absolutely livid this morning,” wrote Clifton.
Some senators have already objected. Sens. David Perdue, R-Ga., Dean Heller, R-Nev., and Thom Tillis, R-N.C., said Wednesday they did not support the trigger mechanism. None of the senators signaled that including it in the bill would make them vote against it.
Tillis “believes it is unnecessary and could hamper economic growth, however it is not a deal breaker for him,” a spokesman for Tillis said in a statement.