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Trump Administration Considers Moves to Bolster Economy
By Maggie Haberman, Jim Tankersley and
White House officials have begun preparing options to help bolster the American economy and prevent it from falling into a recession, including mulling a potential payroll tax cut and a possible reversal of some of President Trump’s tariffs, according to people familiar with the discussions.
Mr. Trump continues to insist the economy is “doing tremendously well,” and he and his advisers publicly dismiss any notion of an impending recession. But behind the scenes, Mr. Trump’s economic team is pulling together contingency plans in the event the economy weakens further.
Officials inside the administration have drafted a white paper exploring a payroll tax reduction, which would seek to boost the economy by immediately injecting more money into workers’ paychecks. In 2011 and 2012, the Obama administration employed a two-year payroll tax cut in an effort to stimulate what was a sluggish recovery from the recession that ended in 2009.
The payroll tax discussion was first reported Monday by The Washington Post.
Such a cut would require congressional approval. Administration officials said the idea had not been pushed with Mr. Trump and tried to tamp talk of it down.
A White House official said more tax cuts were on the table, “but cutting payroll taxes is not something that is under consideration at this time.” Another senior administration official cautioned that a payroll tax cut was not under serious consideration. And a third official said that discussions of what tools could be deployed to offset a recession, based on examining what had been done in previous slowdowns, were hypothetical and not being explored with urgency.
It is also unlikely that Mr. Trump would abruptly reverse course on the tariffs he has imposed on Chinese goods, which he has said repeatedly are hurting China but not affecting American consumers.
Still, the fact that the White House is even discussing ways to stimulate an economy that Mr. Trump on Monday called “very strong” underscores a growing concern in the administration about slowing economic growth. The United States is in its longest economic expansion on record, but economists are increasingly warning that a recession looms.
Stocks churned last week after the bond market flashed a warning signal that has historically presaged a recession. The manufacturing sector has fallen into a recession on its own amid a global growth slowdown that many economists attribute in part to Mr. Trump’s trade war with China.
Cutting payroll taxes would be an attempt to further strengthen consumer spending, which has been the driving engine of the American economy this year as businesses pulled back on investment.
Right now, workers pay a 6.2 percent tax on the first $132,900 of their earnings, and employers pay another 6.2 percent. That money is used to fund safety-net programs like Medicare and Social Security. Cutting the payroll tax for employees would put more money into consumers’ pockets, ostensibly giving the economy a spending shot in the arm.
A payroll tax cut is only one of the tools the administration has talked about. Top White House advisers, including Larry Kudlow, the director of the National Economic Council, are also pushing a move that would allow investors to pay lower taxes on profits they earn when they sell investments. And Mr. Trump and his advisers have been pressing the Fed to quickly cut interest rates and engage in other stimulus measures to put more money into the economy.
“Our Economy is very strong, despite the horrendous lack of vision by Jay Powell and the Fed,” Mr. Trump said Monday on Twitter, referring to the Fed chair, Jerome H. Powell. “The Fed Rate, over a fairly short period of time, should be reduced by at least 100 basis points, with perhaps some quantitative easing as well. If that happened, our Economy would be even better, and the World Economy would be greatly and quickly enhanced-good for everyone!”
While payroll tax cuts are popular with many Democrats because they tend to benefit middle-class workers, such a move is unlikely to be taken up in an election year by the Democrat-led House.
Calling for the cuts could give more political ammunition to Mr. Trump, who has already begun to blame Democrats for fanning the flames of a potential recession and could help the president put the onus on his opponents for failing to push through a tax cut if the economy weakens further.
Mr. Trump, in his insistence that the economy is doing well, said on Sunday that consumers are flush with cash from the $1.5 trillion tax cut he signed into law in 2017.
Asked by reporters on Sunday if he was preparing for a recession, Mr. Trump replied: “Honestly, I’m prepared for everything. I don’t think we’re having a recession. We’re doing tremendously well. Our consumers are rich. I gave a tremendous tax cut, and they’re loaded up with money. They’re buying.”
Some of Mr. Trump’s advisers are privately expressing worries about market gyrations and the effect of Mr. Trump’s tariffs, which are scheduled to escalate next month when he imposes a 10 percent tax on more Chinese goods. Researchers at JPMorgan Chase said on Monday that tariffs Mr. Trump has already imposed on $250 billion worth of Chinese imports amount to a tax of about $600 annually on an average American household. When the next wave of tariffs is fully in place, in December, the researchers said, that cost will rise to $1,000 per household.
The president and his advisers continue to blame any slowdown in growth on the Fed’s 2018 interest rate increases, even though rates remain well below where administration officials forecast they would be at this point in the expansion. The Fed has also shifted to cutting rates, ushering in a 25-basis-point cut this month and signaling additional cuts could happen soon.
That has not stopped the administration from considering other ways to inject more money into the economy. Mr. Kudlow told “Fox News Sunday” that the administration was considering a second round of tax cuts.
“Tax cuts 2.0, we are looking at all that,” Mr. Kudlow said. “By the way, Senator Rick Scott of Florida, very smart guy, made an interesting idea — a proposal on another network last week. He said, ‘Look, why don’t we take the tariffs from the China trade and turn those back to the taxpayers in the form of tax cuts?’ That’s an idea.”
White House officials are also discussing a plan to reduce capital gains taxes — which would largely benefit wealthy investors — without an act of Congress, a move Mr. Kudlow also seemed to nod to. “All I’m saying is there’s a lot of good ideas to create more incentives to work, save and invest,” he said.
The capital gains move would almost certainly be challenged in court, and it is opposed within the administration by the Treasury secretary, Steven Mnuchin. Any payroll tax cut would require the administration to work with Democrats, who control the House and who have enough votes to kill the measure in the Senate. House Democrats have shown no appetite to move tax cuts since assuming control of the chamber in January.
Under Mr. Trump, the economy is already receiving an unusual amount of fiscal and monetary stimulus, given its low rate of unemployment. Interest rates remain low by historical standards, and the Fed cut them by a quarter of a percentage point last month, as officials expressed concerns about the trade war dragging on business confidence and economic growth.
The fiscal boost has reversed belt-tightening policies in President Barack Obama’s second term that reduced the federal budget deficit. Mr. Trump’s tax cuts, along with several bipartisan agreements to increase military and domestic spending that he has signed into law, have swelled the deficit, at a moment when it would historically be shrinking. The deficit was up 27 percent in July for the 2019 fiscal year, compared with the same point in 2018, the Treasury Department reported this month.
Alan Rappeport contributed reporting.
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