WASHINGTON, Nov 29 (Reuters) - A proposal to amend a tax bill in the U.S. Senate with a trigger to automatically reverse tax cuts if new revenues fall short of forecasts could further pressure businesses and the economy if the economy slows, critics said on Wednesday.
The trigger, championed by Republican Senator Bob Corker, is meant to allay concerns about the estimated $1.4 trillion that the tax bill would add over 10 years to the $20 trillion national debt.
Under the proposal, tax cuts in the bill would be scaled back to recapture lost federal revenues if the strong economic growth and fresh revenues promised by the bill’s supporters fail to materialize in coming years.
The trouble is that the trigger would most likely kick in during an economic downturn, said critics and even some Republicans, who warned that would further weaken businesses and consumers just when a boost is needed.
“That is exactly the wrong time to raise taxes,” said William Gale, a senior economics fellow at the Brookings Institution, a Washington think tank.
Among Republicans who criticized the proposal, Representative Tom Cole said: “I don’t like it very much. ... You may end up having a tax increase in a down economy.”
Unlike programs such as unemployment insurance that add to household incomes in bad times and support consumer spending to offset a weak economy, the trigger would squelch business and household spending, reinforcing a downturn.
“These triggers are not innocuous. They are dangerous,” Gale said.
Details of how the trigger would work were sketchy. It was not certain it would even make it into the legislation that senators are to begin debating on Thursday. But knowledgeable sources said the bill likely will include a trigger that would reverse a deep corporate income tax cut.
President Donald Trump, his advisers and many of Trump’s fellow Republicans in Congress say the tax bill, which includes slashing the corporate tax rate from 35 percent to 20 percent, would boost the economy and raise new tax revenue sufficient to offset deficit increases.
Many Republicans believe tax cuts can pay for themselves because they would fuel greater economic growth. Democrats dismiss this notion and some Republicans have expressed doubts.
Corker, a conservative on fiscal policy, lobbied for the trigger to try to ensure that the tax cuts do not blow out the national debt.
Senator Jeff Flake, a Republican who has not committed to voting for the tax bill, said on Wednesday he was more comfortable with the legislation because of indications that trigger provisions would protect against raising the deficit.
Because Republicans hold only a 52-48 majority in the Senate, they can afford to lose few votes among their own on the tax legislation.
Most economists and business leaders advise against raising taxes in a recession when the economy typically needs to be stimulated.
David McIntosh, president of the conservative lobbying group Club for Growth, said in a statement, “Any senator who understands basic business principles and truly cares about the deficit should understand that this trigger is an automatic tax increase and will actually harm economic growth.” (Reporting by Lindsay Dunsmir adnd Howard Schneider; Additional reporting by David Morgan; Editing by Damon Darlin and Leslie Adler)