Bayh Release on 'Trigger' Mechanism to Preserve Surplus While Cutting Taxes

NEWS RELEASE FROM THE OFFICE OF SENATOR EVAN BAYH

[2] Joining Bayh in presenting the trigger idea to President Bush are Senators Mary Landrieu (D-LA), Arlen Specter (R-PA), Lincoln Chafee (R-RI) and Dianne Feinstein (D-CA). The bipartisan group today sent a letter to President George W. Bush and congressional leaders endorsing the idea of a broad-based tax cut and urging them to consider a trigger mechanism. The trigger would protect against deficits and runaway spending by making future tax cuts contingent upon the realization of projected surpluses at acceptable pre-determined levels.

[3] "This approach guarantees that all Americans share the benefit of a tax cut," Bayh said. "It also ensures that we continue to practice fiscal responsibility, balance the budget and pay down the debt. A trigger mechanism will help us avoid runaway spending and future tax increases by putting pressure on Congress to control spending or face the consequences."

[4] "The clear advantages of this approach are that it makes tax cuts contingent upon continued fiscal discipline, and it provides a brake against runaway spending. It also renders the tremendous uncertainty implicit in the Congressional Budget Office (CBO) projections much less of a problem because broad-based tax reductions would be contingent upon ACTUAL, not projected, surpluses," the group wrote.

[5] "Most economists say they can predict economic growth with near certainty for the next 6 months, and that they will feel comfortable predicting as far as two or three years down the road," said Senator Landrieu. "However, a majority of the proposed $1.6 trillion tax cut being discussed does not kick in for at least five years, with most of the cuts coming ten years from now. A 'trigger' mechanism that ties the tax cuts to the actual surplus -- not an estimated surplus based on long range predictions -- is the only way we can be sure we are voting for fiscally responsible tax cuts."

[6] The trigger would require that a minimum on-budget surplus remains intact at the close of each fiscal year before certain phased-in elements of a tax cut can take effect the following year. If surpluses drop below the agreed upon level, then the next increment of the tax cut would be implemented when adequate surpluses return.

[7] Earlier this week, the CBO projected a ten-year budget surplus of $2.7 trillion (excluding Social Security and Medicare). The growing surplus estimates have led some in Congress to call for larger tax cuts. However, Bayh and his bipartisan group of moderates cautioned that surplus estimates are "fraught with uncertainty." The group pointed to 1995 CBO projections that missed the mark on the Year 2000 surplus by $578 billion. "Why not base our fiscal policy on real numbers, rather than hazy estimates?" Bayh asked.

[8] "In our view, such a 'trigger' mechanism offers a safety valve to protect against what many senators fear: a return to deficits should economic conditions -- and budget projections -- change in the years ahead," the bipartisan letter continues. "It acknowledges the uncertainty implicit in ten-year estimates and ensures that we will not return to chronic deficits."

[9] Federal Reserve Chairman Alan Greenspan endorsed such an approach in last week's testimony before the Senate Budget Committee. "It is important that any long-term tax plan, or spending initiative for that matter, be phased in," Greenspan said. "Conceivably, (a tax cut) could include provisions that, in some way, would limit surplus- reducing actions if specified targets for the budget surplus and federal debt were not satisfied."

[10] Editors Note: The letter from Bayh, et/al to President Bush and the Congressional leadership is attached. Should you need a copy with signatures, please contact Mark Kornblau at (202) 224-6807.

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February 5, 2001

[12] While we support tax relief that would benefit every American, we are concerned that the uncertainty inherent in any multi-year estimate could lead us back to a period of deficits and increasing national debt. Therefore, we suggest that any broad-based tax cut proposal include a mechanism to ensure that the nation's fiscal house remains in order.

[13] Simply put, the idea is to require that a minimum on- budget surplus (excluding Social Security and Medicare) remains at the close of a given fiscal year in order for certain phased-in elements of a tax cut to take effect the following year. Should the surpluses drop below the level set in the legislation, then the next increment of the tax cut shall be delayed a year. The clear advantages of this approach are that it makes tax cuts contingent upon continued fiscal discipline, and it provides a brake against runaway spending. It also renders the tremendous uncertainty implicit in the CBO projections much less of a problem because broad-based tax reductions would be contingent upon ACTUAL, not projected, surpluses.

[14] In our view, such a "trigger" mechanism offers a safety valve to protect against what many senators fear: a return to deficits should economic conditions -- and budget projections -- change in the years ahead. It acknowledges the uncertainty implicit in ten-year estimates and ensures that we will not return to chronic deficits. An automatic trigger that allows the next stage of a tax cut to go into effect only if a surplus exists is a much more fiscally responsible approach than passing a large tax cut now, with the possibility that taxes will be increased should anticipated surpluses not materialize.

[15] As you may know, Federal Reserve Chairman Alan Greenspan endorsed such an approach in last week's testimony before the Senate Budget Committee. Chairman Greenspan said:

In recognition of the uncertainties in the economic and budget

Sincerely,