President Trump said Tuesday that his administration is considering a push to cut the payroll and capital gains taxes, but he insisted that such moves aren’t imminent and would not come as the result of rising recession fears.
“I’ve been thinking about payroll taxes for a long time,” he said. “Whether or not we do it now, it’s not being done because of recession.”
Mixed messages: Trump and others in the administration have been sending conflicting signals regarding the economy and potential measures to prevent a recession. While they’ve publicly touted an ongoing boom, they’ve reportedly been scrambling behind the scenes for ways to bolster business and consumer spending. The New York Times reported that, driven by concerns about the economy ahead of the 2020 elections, the White House was also considering reversing some of the president’s tariffs.
In response to a Washington Post report Monday evening that senior officials had held early discussions about a potential payroll tax cut, the White House said that the idea “is not something under consideration at this time.” White House spokesman Hogan Gidley then told Fox News on Tuesday morning that officials had “talked about all types of options,” adding that the administration is “always looking to give people back their hard-earned money and that’s what the conversation was about.”
Trump himself has touted the strength of the economy in recent days while simultaneously calling on the Federal Reserve and its chairman, Jerome Powell, to slash interest rates by a full percentage point — the kind of move the central bank might take in response to a pronounced economic downturn.
On Tuesday, Trump told reporters that the economy is “doing fantastically” and that “we’re very far” from a recession. But he again pressed the Fed to “be proactive” by slashing interest rates and resuming the extraordinary “quantitative easing” it undertook to inject more money into the economy during the last downturn.
A payroll tax cut is highly unlikely: Unless the economy takes a severe turn for the worse, a payroll tax cut is only slightly more probable than the U.S. buying Greenland. It would require congressional approval, and while Democrats have in the past supported payroll tax cuts more than Republicans, they might see a push at this point as being driven more by election politics than economic necessity.
The cost would likely be an issue for some lawmakers as well. The Committee for a Responsible Federal Budget estimates that a temporary cut in the employee-side payroll tax would cost $70 to $75 billion a year in lost revenue for every percentage point reduction. Lawmakers would have to decide whether that revenue loss would hit the Treasury or the Social Security Trust Fund.
And it might not do much anyway: The Obama administration cut the payroll tax for employees in 2011 and 2012, lowering the rate from 6.2% to 4.2% as part of an effort to stimulate the economy in the wake of the Great Recession. Bloomberg’s Laura Davison reports that those cuts “reduced the tax burden for a median-income family by about $996, according to Politifact. Spread over a twice-a-month pay days, that meant about $41.50 extra in each check.” Economist Dean Baker of the Center for Economic and Policy Research tells Bloomberg that the boost was so small that people largely didn’t notice.
Expect the White House to float plenty of other ideas: “The President seems increasingly animated by reports of a potential recession as he continues to drop haymakers via @realDonaldTrump at Jay Powell, the news media, and everyone in between,” analyst Chris Krueger of the Cowen Washington Research Group wrote to clients. “In this vein, we continue to believe stories like this payroll tax trial balloon are just the beginning; Trump will throw every stimulative policy kitchen sink at Capitol Hill and the Twitter universe for the next 442 days.”