Kudlow Floats Tax Breaks to Fight Coronavirus

Kudlow Floats Tax Breaks to Fight Coronavirus

Printer-friendly version
Plus: Just how big would Sanders' tax hikes be?
Friday, March 6, 2020

Trump Admin Considers ‘Targeted’ Tax Breaks in Response to Coronavirus

White House economic adviser Larry Kudlow said Friday that the Trump administration is considering tax relief for industries hurt by the coronavirus. Expressing confidence that the U.S. economy is “fundamentally sound,” Kudlow said that the White House is mulling “timely and targeted” relief for specific sectors of the economy that are vulnerable to a slowdown, such as travel and hospitality. Airlines have already cut back on flights and warned that the virus outbreak could cost the industry more than $100 billion.

“The story I am trying to tell is a story of timely and targeted microforms of assistance, not gargantuan, across-the-board, throw-money-at-the-problem, which has not worked in the past,” Kudlow said.

The discussions are preliminary, but there is a growing sense that the federal government will have to provide more economic assistance in the coming weeks and possibly months in the face of a potential downturn, above and beyond the $8.3 billion emergency funding package President Trump signed into law Friday. Here are some proposals that have emerged this week:

Guaranteed paid sick leave: Democratic lawmakers introduced a bill Friday that would require all employers to provide paid sick days. About 25% of U.S. workers do not have access to paid sick leave, and the legislation from Rep. Rosa DeLauro (D-CT) and Sen. Patty Murray (D-WA) would allow all employees to accrue seven days of paid leave for illness or to care for a family member who is ill, with an additional 14 days available in the event of a public health emergency.

“The lack of paid sick days could make coronavirus harder to contain in the United States compared with other countries that have universal sick leave policies in place,” DeLauro said in a statement.

A $1 trillion stimulus: CNBC’s Steve Liesman says Congress should pass a $1 trillion “conditional emergency stimulus” to boost the economy, which would include an increase in unemployment benefits, aid to small businesses and payments to cover the cost of more medical care. Liesman said the government should take advantage of low interest rates to pay for the stimulus. “With the 10-year government bond yield at 0.7% and falling as I write, the cost to the government would be as cheap as it’s ever been,” he wrote Friday. “In fact, all you have to do is ask whether the return on that money is greater than the interest rate, either in GDP that’s not lost, or even added.”

$1,000 for every adult: Jason Furman, who chaired President Obama’s Council of Economic Advisers and is now a professor at the Harvard Kennedy School, wrote an op-ed in The Wall Street Journal Friday calling for an “accelerated, big, comprehensive and dynamic” stimulus that would provide $1,000 to every American adult and $500 for every child, extend unemployment insurance and boost Medicaid funding. The cost of such a package would be about $350 billion, Furman said, though it would go higher if the slowdown extends into 2021.

Federal assistance for states: Claudia Sahm, director of macroeconomic policy at the liberal Washington Center for Equitable Growth, says it’s time for policymakers to prepare for the next recession, whether it’s caused by the coronavirus or something else. Writing at The Hill Thursday, Sahm is calling for Congress to pass an automatic cash assistance program that would send checks to American households — something like $1,600 for a family of four — as soon as the unemployment rate rises above a given threshold. The recession signal could also trigger higher federal payments for Medicaid and the Children’s Health Insurance Program, freeing states to spend more on unemployment benefits and food stamps.

Quote of the Day

"Oh, we’ll be cutting, but we're also going to have growth like you've never had before."

– President Trump, at a Fox News town hall Thursday night, after a moderator said that reining in the national debt would require cutting entitlement programs. Trump on Friday walked back the notion that he may cut programs including Social Security and Medicare. “I will protect your Social Security and Medicare, just as I have for the past 3 years," he tweeted before claiming that Democratic presidential candidate Joe Biden would “destroy” both programs.

Bernie Sanders’ Historic Tax Hikes

Richard Rubin of The Wall Street Journal confirmed on Friday what you probably already knew: Bernie Sanders is proposing some seriously large tax increases.

How large? Rubin says that Sanders is talking about tax hikes “on a scale not seen since World War II,” when the staggering cost of saving the world from fascism prompted the federal government to extend the income tax to the middle class, roughly doubling the federal tax burden. While federal tax revenues were 9.9% of gross domestic product in 1942, they had risen to 20.5% by 1944.

Sanders’ tax plan would raise the overall tax rate as a share of GDP by about the same amount, from the current average of 17.4% expected over the next 10 years to a bit more than 28%. “His proposed tax increases top $30 trillion over a decade,” Rubin says. “That is more than 10% of gross domestic product and at least a 60% increase in taxes over what would happen otherwise.”

That would bring an end to the country’s status as a developed country with unusually low tax rates — and the wealthy would feel the biggest bite.

“Mr. Sanders’s combination of taxes on wealth, income, financial transactions, corporate profits, payrolls, estates and capital gains would hit rich Americans from every direction,” Rubin says. “If Congress were to pass all his plans, the total U.S. tax burden—including federal, state and local taxes—would resemble Canada’s or Germany’s rather than being near the bottom of the pack of rich nations.”

Medicare for All Would Help, Not Hurt, the Job Market: Think Tank

One of the main criticisms of Medicare for All is that its radical realignment of the health care sector would lead to millions of job losses as doctors and hospitals take a financial hit and the legions of administrators, coders and claims specialists that have arisen under the current system see their middle-class jobs streamlined out of existence.

Some health economists have argued that a reduction in the health-care workforce is a feature, not a flaw, in the Medicare-for-All plan — albeit one that policymakers must plan for to help minimize economic pain and dislocation. But a report released this week by the Economic Policy Institute, a left-leaning think tank, argues that the threat of job losses has been overblown and that the labor market churn created by a switch to Medicare for All would not be very large compared, for example, to the 21.5 million workers who got laid off in 2018.

“The number of health insurance and billing administration workers who would need to transition implies an increase in the rate of overall job market churn that is relatively small: Job losses for these workers would be equivalent to one-twelfth the size of economywide layoffs in 2018,” EPI economist Josh Bivens writes.

The 1.8 million health insurance and billing administration jobs expected to be lost based on one analysis is roughly the same as the number of layoffs in the finance and insurance sectors over the past four years, Bivens writes. Those job losses haven’t resulted in a shock to the economy. They’re just part of the normal labor market churn.

Bivens adds that the number of jobs in the health care sector overall is “almost guaranteed” to grow after a transition to Medicare for All as millions of Americans make use of their new coverage: “The number of jobs spurred by increased demand for new health care spending (including long-term care) will certainly be larger than the number displaced by realizing efficiencies in the health insurance and billing administration sectors.”

Beyond that, Medicare for All should actually boost wages and allow workers to switch jobs or start new businesses more easily, resulting in a better labor market.

Read the EPI report here.

After Spending $2 Billion, Air Force Bails Out on Planned Upgrades of B-2 Bombers

The Air Force has scrapped a planned upgrade of its B-2 stealth bomber fleet — even after spending $2 billion on the effort — because defense contractor Northrup Grumman didn’t have the necessary software expertise to complete the project on time and on budget, Bloomberg’s Anthony Capaccio reports, citing the Pentagon’s chief weapons buyer.

Ellen Lord, the undersecretary of defense for acquisition and sustainment, told reporters that the nearly $2 billion that had already been spent on the program wasn’t wasted because “we are still going to get upgraded electronic displays.”

Your Prize for Making It Through the Week

Looking for something to take your mind off the coronavirus? The Smithsonian Institution has just put 2.8 million images online, free for public use. You can search the massive database here, and take a look at 100 interesting examples from the collection here, courtesy of the Chicago Tribune.

Have a greet weekend! As always, send your tips and feedback to yrosenberg@thefiscaltimes.com. And please tell your friends they can sign up here for their own copy of this newsletter.


Views and Analysis