Can Trump Do That?

By Yuval Rosenberg

Trump's Coronavirus Relief Orders Spur Confusion,
Criticism

President Trump said the series of executive orders he signed on
Saturday were intended to bypass stalled negotiations in Congress
and deliver some economic relief to millions of Americans hurt by
the coronavirus recession. Trump said the orders — which he called
bills, a term for legislation considered by Congress — “will take
care of, pretty much, this entire situation.”

That's clearly not the case. For one thing, one or more of the
orders — a new federal unemployment benefit, a temporary deferral
of payroll taxes, an eviction moratorium and student loan relief —
could still face legal challenges. House Speaker Nancy Pelosi
(D-CA) called them
“absurdly unconstitutional,” though she and Senate
Minority Leader Chuck Schumer (D-NY) both stopped short of saying
whether they would sue to block them.

Even leaving potential legal challenges aside, the effects of
Trump’s actions were not as straightforward as the president made
them out to be, casting doubt as to how much relief they might
ultimately provide. CNN reports that “a close read of the
actual text of executive actions [the president]
signed Saturday suggests that even if they are deemed
constitutional, they will not quickly deliver the aid Trump
promised. They may not deliver much at all.”

Far less questionable is that the president’s unilateral
actions — not bills, but three memoranda and an
executive order — collectively represent another Trump
administration challenge to the constitutional tax and spending
powers of Congress. Experts also warn that one of the actions, a
deferral of payroll tax collection, could threaten funding for
Social Security and Medicare, exacerbating the long-term cash
shortfalls the programs already face.

Here’s a breakdown of the executive actions and what they really
mean.

Unemployment benefits: The Trump memorandum would provide
$400 in enhanced unemployment benefits to eligible workers, down
from the $600 provided by the CARES Act passed in March. The Trump
plan also has strings attached that could limit the number of
people who get the benefit. Unemployed workers must receive at
least $100 a week in other unemployment benefits in order to
qualify for the $300 federal benefit, potentially leaving many
low-income workers ineligible for the federal assistance. And
states, many already financially strapped, must agree to cover 25%
of the cost, or $100 per payment.

Trump said that states would be able to cover their costs by
using money provided under the CARES Act or other state funding,
but some states may not be able to afford the additional cost.
States that don’t enter into the agreement with the federal
government or don’t have the funds to cover their share of the
payments would see the unemployed get no extra federal benefit.
Treasury Secretary Steven Mnuchin suggested on “Fox News Sunday”
that the president would be willing to waive the 25% contribution
from states.

States will also have to set up new systems to deliver aid under
Trump’s plan, which reportedly could take months. “This is a brand
new program, it's an assistance program for lost wages, it requires
the creation of an entirely new administrative system. The states
that don't get the program set up as quickly as other states aren't
going to get any funding because it will run out,” Michelle
Evermore, an unemployment expert at the National Employment Law
Project,
told CNN.

Federal funding for the program is also a question. Trump said
he would use $44 billion allocated for disaster relief, but
economists cited by
The Washington Post project that would only cover
some five weeks of payments based on current unemployment
levels.

Payroll tax deferral: Trump ordered collection of the
employee portion of payroll taxes — 6.2% for Social Security — to
be deferred from September through the end of the year for
Americans earning less than $104,000 annually. That means workers
could eventually
get hit with a big tax bill. As a result, and
given the complexities involved, employers may continue to withhold
the money to cover the taxes when they’re due.

Trump pledged Saturday to forgive the taxes and make the cuts
permanent if he wins reelection. That pledge may give him a tax cut
he can campaign on, but experts and critics warn that making such
cuts permanent would weaken the finances of Social Security. “He is
putting Social Security at grave risk at a time when seniors are
suffering the overwhelming impact of a pandemic he has failed to
get under control,” Joe Biden, the presumptive Democratic
presidential nominee, said. “He is laying out his roadmap to
cutting Social Security.”

Mnuchin claimed Sunday that the suspension of payroll tax
collections would not mean a reduction in benefits and that the
shortfall in revenue to the Social Security Trust Fund would be
made up by a transfer from the Treasury Department’s General
Fund.

Eviction moratorium: The executive order addressing
housing doesn’t reinstate an earlier moratorium on some types of
evictions, which lapsed in July. Instead, it calls on the leaders
of Health and Human Services and the Centers for Disease Control to
“consider” whether such a ban is “necessary to prevent the further
spread of COVID-19.”

What’s not covered by Trump’s actions: Trump’s actions
don’t cover many of the other relief programs lawmakers had
considered, including another round of $1,200 stimulus checks;
funding for schools, election security and the U.S. Postal Service;
an extension of the Paycheck Protection Program of loans to small
businesses; and aid to state and local governments.

“The downside of executive orders is you can’t address some of
the small business incidents that are there,” White House Chief of
Staff Mark Meadows said. “You can’t necessarily get direct
payments, because it has to do with appropriations. That’s
something that the president doesn’t have the ability to do. So,
you miss on those two key areas. You miss on money for schools. You
miss on any funding for state and local revenue needs that may be
out there.”

What’s next: Democrats responded to Trump’s actions by
urging the White House to come back to the negotiating table and
meet them halfway. Trump
tweeted Monday that Schumer and Pelosi now want to make
a deal and have his phone number, but Democrats said there’s been
no contact with the White House since Friday. Mnuchin told CNBC
that the White House was “prepared to put more money on the table,”
to reach an agreement. “If we can get a fair deal, we’re willing to
do it this week,” he said.

The bottom line: There are no talks
scheduled and if negotiations don’t resume, Trump is making a pair
of risky bets, given all the questions surrounding his executive
actions. First, that the economy he desperately wants to recover in
time for the November elections won’t be further damaged by the
lack of a broader deal. Economists warn that more aid will be
needed. And as Jim Tankersley of The New York Times
suggests, if the aid doesn’t arrive and the
economy does slump toward recession again, Trump may well be
betting his political future on the idea “that it is better to tell
voters he tried to help the economy than to have actually helped
it.”

$600 Weekly Unemployment Boost Cost Nearly $250 Billion in
Total

The $600 boost to weekly unemployment benefits created by the
CARES Act cost the federal government nearly $250 billion from
early April to the end of July, according to Labor Department data

reported by The Wall Street Journal Monday.

The peak period for payments was the week ending June 26, the
Journal said, when $18.6 billion in benefits was distributed — the
rough equivalent of 31 million $600 payments. Unemployed workers in
the state of California received the largest total benefits ($38.4
billion), while those in South Dakota received the least ($177.1
million). Adjusted for workforce size, Michigan, New York and
Pennsylvania received the most, with Michigan getting about $2.9
million per 1,000 workers, nearly twice the national average of
$1.5 million.

Congress passed the enhanced benefit in March as large parts of
the economy were shutting down and millions of workers lost their
jobs. The boost — officially called Federal Pandemic Unemployment
Compensation — expired at the end of July.

Budget Deficit Rose to $2.8 Trillion Over 10 Months: CBO

The federal budget deficit in July was $61 billion, down from
$120 billion in July 2019, the Congressional Budget Office
estimated in a report
published on Monday. The decrease was the result of this year’s tax
day being pushed from April to July, resulting in much higher tax
receipts, up 124% compared to July 2019.

Still, from April through July, revenues were down 10%
from last year, CBO estimated, and the cumulative deficit for the
first 10 months of the fiscal year reached $2.8 trillion — $1.9
trillion higher than in 2019. Revenues for the 10 months fell by 1%
while spending rose by 51%.

Time-Traveling Tax Breaks, Thanks to Coronavirus

The coronavirus relief package signed into law in March gave
money-losing companies the right to carry losses backward for up to
five years, a move intended to help cash-strapped firms struggling
amid the coronavirus shutdown get larger refunds from the IRS.

The rule change enables companies to get refunds now on taxes
they paid at a 35% rate, before the 2017 tax cuts reduced it to
21%. This creates an opportunity for “rate arbitrage,”
says Richard Rubin of The Wall Street Journal, in
which companies load up on deductions today while pushing income
into future years, and claim refunds based on taxes paid in prior
years, when the tax rate was higher.

Here’s how Rubin describes the process: “For corporations with
past profits, current losses and little risk of insolvency, the
math is compelling. A $1 million deduction taken in 2020 is worth
up to $350,000 in federal tax savings. The same $1 million
deduction taken in 2021 is worth at most $210,000.”

Nearly two dozen publicly traded firms have already reported
benefits from the rule totaling more than $2 billion, and that
number is expected to grow. “We’re going to see some of the biggest
firms in the U.S. economy benefit,” Rebecca Lester, a Stanford
University accounting professor, told Rubin.

One example Rubin discusses is FedEx, which has recorded a tax
benefit worth $71 billion from the refund rule change and is
seeking permission to add another $130 million. It’s not clear how
much the company needs the cash, though. At the end of May, the
company reported holding $4.9 billion in cash and equivalents.

The arbitrage opportunity is not without critics, who
question the need to give tax breaks to companies sitting on
billions in cash. “The appetite for corporate tax breaks is truly
insatiable,” Rep. Lloyd Doggett (D-TX), told Rubin. “Now, it’s like
time travel.”

Send your tips and feedback to yrosenberg@thefiscaltimes.com.
Follow us on Twitter:
@yuvalrosenberg,
@mdrainey and
@TheFiscalTimes. And please tell your
friends they can
sign up here for their own copy of this
newsletter.

News

Views and Analysis