Diane Rodgers found a lot to like in the president’s fiscal policy speech, but also had some concerns, among them about his proposed debt trigger mechanism:
[P]roposes a “fail-safe” trigger that I worry would be either ineffectual because of its exemptions (Social Security and Medicare, and “emergency” situations) or even economically damaging because of its procyclical nature (cutting spending during recessions).
According to the information the White House sent around about the proposal, they’re allegedly avoiding the pro-cyclicality issue. Their bullet points say:
— A debt failsafe that will ensure that our nation’s debt is on a declining path as a share of our economy. If by 2014, budget projections do not show that the debt-to-GDP ratio has stabilized and is declining in the second half of the decade, the failsafe will trigger an across the board spending reduction, including on spending through the tax code.
— The trigger will ensure that deficits as a share of the economy average no more than 2.8% of GDP in the second half of the decade.
— Consistent with prior fiscal enforcement mechanisms put in place by Presidents Reagan, George H.W. Bush and Clinton, the trigger should not apply to Social Security, low-income programs, or benefits for Medicare enrollees.
— The trigger should also include a mechanism to ensure that it does not exacerbate an economic downturn or interfere with our nation’s ability to respond to a national security emergency.
Obviously the problem here is that to the extent that you allow for discretionary fiscal policy as a tool of macroeconomic stabilization, you’re undermining the efficacy of the caps. But that’s more or less inherent to the issue and I don’t see what the president can say or do to resolve the tension. What I think is actually promising here is the reference to tax deductions as being part of the trigger. That means that insofar as members of congress are aware that these loopholes should be closed but don’t actually want to vote for closing them, the trigger mechanism will give them a way to vote for something that makes closure inevitable and then just passively fail to vote to restore the loophole. Our existing tax code, after all, contains plenty of provisions that nobody would put in were they not already there but that few people feel bold enough to specifically try to take out.