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What's a 'Debt Trigger' Anyway?

Wednesday, April 13, 2011

In today's speech, President Obama proposed instituting a "debt trigger," or fail-safe mechanism, that would force the government to make substantial reductions in discretionary spending if deficits exceed 2.8 percent of GDP starting 2014. Entitlement programs would remain off the chopping block, but we've yet to see concrete details about where the cuts might fall.

This has actually been tried before; as seems to be the trend these days, just remember Ronald Reagan.

During the mid-1980s, Congress and President Reagan adopted the Gramm-Rudman-Hollings Balanced Budget Act, which scheduled automatic spending cuts called "sequesters" should specific deficit reduction targets fail to be met. It's pretty much exactly the same thing that President Obama proposed today.

Which begs the question: what happened to those sequesters?

They were in place and respected, sort of, for a little while. "From 1987-1990, there were budget targets," said Dr. Gregory Kroger, a professor of political science at the University of Miami. "But when it looked as if the targets were not going to be met, Congress did things make it appear as if they were making the targets.

"Let's say government employees are due to get paid on September 30th, the last day of the fiscal year. Well, what  if you move that pay date back one day? Then it's the next fiscal year and it doesn't count for this year."

Kroger characterized Congress' response to budget targets as "sleight of hand." By 1990, it had become clear that the government wasn't really meeting the rather optimistic targets set forth in Gramm-Rudman-Hollings, prompting new negotiations and fresh balanced budget legislation under President George H.W. Bush.

That's the difficult reality of attempting to legislate the future. It's hard for any Congress or administration to hold subsequent Congresses and administrations to anything. The threat of across-the-board spending cuts may loom, but politicians can either legislate around it, or do some really creative bookkeeping.

Essentially, Obama's debt trigger would amount to making an appointment to deal with spending issues—issues that many feel need to be addressed now. "We are promising today that we are going to make the tough choices," Kroger said, "and the tough choices are to promise that we will make tough choices in future years if they need to be made."

But Professor Kroger doesn't necessarily equate this with kicking the fiscal can down the road. Since Obama offered some specific deficit reduction measures in today's speech, we can think of a debt trigger as setting a date to re-evaluate the effects of those policies, not a date to get started.

"It's a promise that if these measures are unsuccessful or insufficient, or if Congress cheats, we'll still have to come back and do something to actually meet our budgetary goals," Kroger said.

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