Well-designed triggers, the foundation says, "limit the volatility and unpredictability associated with any change to revenue codes, and can be a valuable tool for states seeking to balance the economic impetus for tax reform with a governmental need for revenue predictability." Well-designed is the key.
"Most tax triggers rely on actual revenue, not projections," the report notes. "By relying exclusively on year-over-year general fund balance projections, triggers like those employed in
The first problem cited has already occurred. Why did lawmakers rely upon projections rather than concrete collections? Likely as not, they did so because of the second problem noted by the foundation -- the ability to play political games.
At the time the trigger law was passed, some critics argued it was primarily designed to allow state lawmakers to claim credit for a tax cut without actually cutting taxes. If so,
The foundation report suggests tax triggers passed by
Yet the foundation notes, "By pegging triggers to year-over-year revenue growth, without regard to any static baseline,
So what is an ideal design? The foundation report argues, "Well-designed triggers ensure that benchmarks reflect meaningful revenue growth, rather than capturing a rebound from a year of weak revenues or the effects of inflation."
It makes sense to dedicate a portion of future revenue growth to tax relief. But the foundation report makes clear that such tax triggers should be based on valid figures and serious financial planning, not short-term political calculations.
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