Trump Teases Another Tax Cut

By Yuval Rosenberg

Trump Teases Another Tax Cut

President Trump said Monday he’s looking "very seriously" at
some new tax cuts.

"We’re looking at also considering a capital gains tax cut,
which would create a lot more jobs," Trump told reporters at a
White House briefing Monday. "So we’re looking very seriously at a
capital gains tax cut and also at an income tax cut for
middle-income families. We’re looking at expanding the tax cuts
that we’ve already done, but specifically for middle-income
families, and you’ll be hearing about that in the upcoming few
weeks, and I think it’ll be very exciting."

Trump has repeatedly teased middle-class tax cuts. Last
September he
said he would announce a "very substantial tax cut
for middle income folks" in the next year.

The capital gains tax cut is an idea that has been pushed by
some of his advisers but that Trump rejected last September, when a
spokesperson
said the president did not feel enough of the
benefits would go to the middle class. Trump himself said a capital
gains tax cut is "perceived as somewhat elitist."

Trump can’t just cut the 20% long-term capital gains tax rate on
his own. Congress would have to do that. But some Trump advisers
have pressed the president to enact an executive order allowing
gains to be indexed to inflation, a change that could dramatically
lower taxes due on sold assets that had been held for extended
periods. In such cases, no taxes would be paid on appreciation in
value tied to inflation.


Fox Business provides an example:

"For instance, if an individual purchased an asset for $100 in
2000 and sold that item 18 years later for $200, the nominal
capital gain would be $100, according to the
Tax Foundation. But inflation over that same time
period would have increased the price level by 49%. Under an
indexing proposal, the original selling price would increase to
$149 — meaning the individual would only pay a tax on $51, instead
of the full $100."

The benefits of such a change would mostly flow to high-income
households, with the top 1% receiving 86% of the tax cut, according
to 2018 estimates by the
Penn Wharton Budget Model cited by
Bloomberg News. The model projected at the time
that indexing gains to inflation would reduce tax revenue by $102
billion over a decade.

The Tax Foundation similarly found in 2018 that inflation
indexing would reduce federal revenue by $178 billion over a
decade, or by $148 billion once economic feedback effects were
factored into the calculations. But the Tax Foundation analysis
said the economic benefits of a cut would be limited, with
after-tax incomes rising by 0.2% on average for all taxpayers and
the largest increase going to the top 1%, who would see an increase
of 0.83%.

Tweets of the Day: Biden Picks His Running
Mate, Congress Is Quiet

1. Joe Biden announced that he has picked Sen. Kamala
Harris of California as his running mate on the Democratic
ticket:

2. And despite some rumblings about negotiators
returning to the suspended talks over the next coronavirus relief
bill, The Washington Post’s Erica Werner made the lack of progress
in Washington clear in the tweet below. Politico’s Jake Sherman
replied,
noting that the House, too, was basically in summer vacation mode:
"Neither of them are in session in a meaningful way, regardless of
what they may be saying!"

Governors Push Back Against Trump Unemployment Plan

The nation’s governors are expressing concerns about the costs
to states imposed by Trump’s effort to provide extra unemployment
benefits for the millions of workers who have lost their jobs due
to the coronavirus pandemic — and whose $600 per week in enhanced
unemployed payments expired at the end of July.

Trump signed a memorandum Saturday that attempts to allow states
to use disaster-relief funds to pay enhanced unemployment benefits
of up to $400 per week, with federal funds providing $300 and
states covering the remaining $100. But many state officials say
that with tax revenues plunging due to the crisis and social safety
net costs soaring, they don’t have the money to participate in the
plan as proposed.

"We appreciate the White House’s proposals to provide additional
solutions to address economic challenges," a
statement released Monday by the National
Governors Association said. "[H]owever, we are concerned about the
significant administrative burdens and costs this latest action
would place on the states."

As an alternative, the NGA — now led by Govs. Andrew Cuomo
(D-NY) and Asa Hutchinson (R-AR) — said that Congress and the Trump
administration should negotiate a relief package that does not
impose "new administrative and fiscal burdens on states," while
noting that the governors’ group has previously requested $500
billion from the federal government in unrestricted state aid.

Questions about the Trump plan: Treasury Secretary Steven
Mnuchin said over the weekend that the plan would be easy to
implement and that states could get it up and running immediately.
On Monday, he said that it might take one or two weeks to make
operational. But some governors doubt the plan will ever get off
the ground. "It’s not workable in its current form," Kentucky Gov.
Andy Beshear (D) said Monday.

Some states are waiting for further guidance from the Trump
administration on how to proceed, even as officials say they have
doubts about the proposal. "The program appears woefully
insufficient relative to the scale of the crisis, unworkable in its
proposed form, and a bad deal for workers, employers, and states,"
said a spokesperson for Washington Gov. Jay Inslee (D).

Money is an issue: Aside from the important legal and
logistical questions about Trump’s memorandum, most state officials
are worried about how they could pay for the new benefits, which
would operate outside of the existing unemployment system.

California Gov. Gavin Newsom (D) said the plan would cost his
state about $700 million a week, which it could not afford. Cuomo
said the additional cost — which he pegged at $4 billion through
the end of the year for his state — was like "handing a drowning
man an anchor."

The White House has hinted at workarounds on the cost issue.
Trump said Sunday that states could apply to have the federal
government cover the full $400 weekly cost, although that may
violate federal regulations. The Labor Department said Monday that
states could include their normal unemployment benefit payments as
part of the $100 contribution or use leftover Coronavirus Relief
Funds to cover the cost. But state officials say most of those
funds have already been obligated.

A short-term fix: The Trump unemployment plan revolves
around redistributing about $44 billion in unspent funds at the
Federal Emergency Management Agency. Critics have noted that if all
states participate, the money would last a little more than a
month.

"It’s going to take a long time to set up, and it’s not
going to last a long time at all," Josh Bivens of the left-leaning
Economic Policy Institute told The Washington Post.

Trumps’ Payroll Tax Deferral Creates
Headaches for Employers

Trump pitched his plan to suspend payroll tax collections
through the end of the year as a win for workers and a boost for
the economy. Employers see it differently. "[F]or companies large
and small, the
presidential intervention poses difficult legal
and logistical questions that only add to the uncertainty that
executives and workers are contending with during the pandemic,"
Alan Rappeport and Gillian Friedman write at
The New York Times.

The basics: Trump’s plan calls for a deferral of the 6.2%
employee share of Social Security taxes from September 1 through
the end of the year for workers earning up to $104,000 a year. But
the president doesn’t have the power to change tax laws, meaning
that his move would still leave workers on the hook for those
deferred payroll taxes starting next year. Trump has promised to
"terminate" the payroll taxes, but there’s no guarantee Congress
will forgive those deferred payments.

"Since employees must still pay those taxes next year, this
order is really an offer of a zero interest loan rather than an
actual reduction in tax liability," J.P. Morgan economist Michael
Feroli said in a research note Monday. "If every worker utilized
this offer, it would free up about $30-40 billion in liquidity per
month for the household sector."

What employers are worried about: Business are worried
that they’ll be on the hook for employees’ deferred tax payments.
"That is a particular risk in cases where employees change jobs and
employers can’t withhold more taxes from later paychecks to catch
up on missed payments," The Wall Street Journal’s Richard Rubin

reports. In some cases, employers could owe income
and payroll taxes on the payroll tax payments they have to cover,
compounding the cost. Marianna Dyson, a lawyer at Covington &
Burling LLP in Washington who specializes in payroll taxes, tells
Rubin: "Liability is going to stick to the employer like flies to
flypaper."

The bottom line: Employers are
generally awaiting further guidance from the Treasury Department
and IRS before deciding what to do. "Payroll experts said many
businesses would be hesitant to do anything until they had
assurances from Congress that they and their employees wouldn’t
have to make good on the deferred taxes next year," the Times
reports. Right now, it looks like any economic stimulus generated
by Trump’s unilateral move may be extremely limited.

What Happens to the Economy Without a Washington Lifeline?

A massive dose of government aid has been helping prop up the
U.S. economy in the face of the coronavirus pandemic and the
shutdowns it forced. But with any additional federal cash infusions
now caught up in stalled negotiations between the White House and
congressional Democrats — and with the executive actions signed by
President Trump this weekend expected to deliver
limited relief at best — the U.S. economy faces
significant risks, economist warn.

"We are increasingly concerned that this best-they-can do
stimulus from the White House will never make it fully to the
execution stage and the economy will be left to sink or swim on its
own," Chris Rupkey, chief financial economist at financial group
MUFG, told
Politico’s Ben White. "Washington is either unable
or unwilling to provide a lifeline to those who can't swim like the
bankrupt state and local governments and the millions of unemployed
who have no jobs to return to."

Rubeela Farooqi, chief U.S. economist at High Frequency
Economics, told Politico that, without further stimulus, the
recovery could get rocky: "Expiring support is coming against a
backdrop of virus containment that is already slowing down
activity. Without additional help, incomes and spending will surely
retrench. That in turn will have implications for business
profitability and jobs."

The White House is taking a far rosier view, with Trump and top
advisers still predicting a strong V-shaped recovery. "There is no
reason why the economy can’t grow at a 20% pace in the third
quarter," Trump
said at a Monday press briefing, adding, "It’s
going to grow at a very substantial pace, based on all of the
numbers we’re looking at, and probably a lot more substantial than
we originally thought."

Economist and New York Times columnist Paul Krugman argues that
Senate Republicans and the Trump White House are ignoring the
economic lessons of the Great Recession and its aftermath. "We
actually have a very good road map telling us which policies are
likely to be helpful and which will do great damage," he writes in
his
newsletter. Krugman argues that, while the Federal
Reserve can’t save us, government spending can — and deficit
concerns should be set aside for now since "in a depressed economy
deficits aren’t a problem." Enacting austerity measures, on the
other hand, is disastrous.

"But you can probably guess the punchline," Krugman
writes. "Donald Trump seems determined to take advice from people
who got everything wrong during the last crisis and learned nothing
from the experience. We have a very good road map to guide us, but
we’re being led by people dead set on driving us into a
ditch."

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