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Obama's "Tax Trigger"<br> Takes Aim at Jobs and Growth


Posted by Ryan Ellis on Monday, April 18th, 2011, 12:13 PM PERMALINK


In his speech last week, President Obama called for higher taxes on the American people.  But just in case a reported $2 trillion over the next ten years isn’t enough to bring deficits under 2.8 percent of GDP (as they surely won’t be, since Congress will just spend all the new tax revenue), he also wants to impose an automatic tax hike “trigger” on top of that:

Now, in the coming years, if the recovery speeds up and our economy grows faster than our current projections, we can make even greater progress than I’ve pledged here.  But just to hold Washington -- and to hold me --- accountable and make sure that the debt burden continues to decline, my plan includes a debt failsafe.  If, by 2014, our debt is not projected to fall as a share of the economy -– if we haven’t hit our targets, if Congress has failed to act -– then my plan will require us to come together and make up the additional savings with more spending cuts and more spending reductions in the tax code.  That should be an incentive for us to act boldly now, instead of kicking our problems further down the road.  

What would this tax hike “trigger” look like?  One clue can be found in President Obama’s own Simpson-Bowles commission.  This model is also being considered by Senators Tom Coburn (R-Okla.), Saxby Chambliss (R-Ga.) and the rest of the “Gang of Six.”  Here’s how that report describes the “trigger”:

To ensure Congress moves quickly to enact comprehensive tax reform, the Commission recommends enacting a “failsafe” that will automatically trigger should Congress and the Administration not succeed in enacting legislation by 2013 that meets specified revenue targets. If Congress and the Administration do not act, the failsafe would impose either: 1) an across-the-board reduction of itemized deductions, above-the-line deductions, non-refundable credits for individuals, the income tax exclusion for employer-provided health care, general business credits, the domestic production activities deduction beginning in 2013 and increasing over time to raise $80 billion in FY 2015 and $180 billion in FY 2020; or 2) a trigger which reduced tax expenditures further and moved rates and expenditures down toward the levels specified in Recommendation 2.1, assuming such a trigger met the same revenue and progressivity targets.

What this means is that every deduction and credit in the code (including for those making less than $250,000) will face an across-the-board “haircut” in 2014 (2013 in the commission plan).  Nothing would be spared.  All Americans who claim the following tax deductions and credits would see their taxes raised without even a vote in Congress:

Mortgage interest deduction and the charitable deduction
State and local income, sales, and property tax deduction
Exclusion from wages of your employer-provided health insurance
Student loan interest deduction and teacher classroom expense deduction
IRAs, HSAs, and self-employed retirement plan deductions
All general business credits and the domestic production deduction (Sec. 199)

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