The U.S. Senate passed a tax bill Saturday morning but not before shunting aside the idea of setting a “trigger” to raise taxes if economic growth did not provide enough revenues to avert a growing budget deficit. The idea of a “trigger” to deal with an unsolved deficit was once adopted by the California legislature, which approved the “trigger” concept to pass a budget in the early 1980s.

In December 1982, Legislative Analyst Bill Hamm told newly sworn in legislators that the budget would fall $1 billion short. Retiring governor Jerry Brown called a special session for the legislature to deal with the problem. The package that was cobbled together was a $1.6 billion combination of tax increases and spending reductions. However, the measure failed to pass.

Then a new governor was sworn into office in January. George Deukmejian was not keen on including tax increases in the budget fix.

Governor Deukmejian proposed a combination of budget freezes and reductions along with transferring monies in various special funds into the general fund. He also advocated carrying the remaining deficit forward into the next budget. The legality of the latter move was questioned until Attorney General John Van de Kamp, a Democrat, issued an opinion that a carry-over deficit was constitutionally permissible.

A compromise bill was worked out that contained many components including carrying forward part of the deficit, short-term borrowing and various other revenue reductions and revenue accelerators. It also included a provision for a tax increase if certain circumstances occurred.

The conditional increase of the sales tax by 1-percent for six months would be triggered if either receipts received by the state controller by October 12, 1983 fell below a specified amount; or the governor estimated on January 10, 1984 that the general fund surplus for 1983-84 would be less than $100 million.

However, with an improved economy, charged in part by the federal tax cuts championed by President Ronald Reagan, the California treasury gained more revenue than expected and the trigger was never pulled.

Whether the new federal tax plan, when it is finally passed, will overcome budget deficits is still hotly debated. The bipartisan Joint Committee on Taxation claims the bill will result in a $1 trillion deficit even after economic growth. However, the Wall Street Journal editorial board argues that the Committee’s model considered a relatively closed U.S. economy rather than considering the effects a global market would have on dealing with deficits.

However it plays out, there will be no tax trigger as a back-up as California once tried.

(Much of the history recalled here came from David R. Doerr’s California’s Tax Machine. A more complete history of the period is included in Doerr’s book.)


(Update: Craig Brown, Director of Finance under Gov. Pete Wilson reminded of another example of use of a trigger: Triggers were also used to “step up” the car tax reduction that Pete Wilson enacted in the late 90’s.  The initial reduction was 25% with subsequent annual  increases in the reduction amount  triggered by state General fund revenues exceeding certain set amounts.)