Trump’s Coronavirus Tax Cut Falls Flat on Capitol Hill

Trump’s Coronavirus Tax Cut Falls Flat on Capitol Hill

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Plus: Why a coronavirus recession could be especially hard to fight
Tuesday, March 10, 2020

Trump’s Coronavirus Tax Cut Falls Flat on Capitol Hill

President Trump promised Monday evening that his administration would quickly announce “very major,” very “substantial” and “dramatic” steps to boost the economy in the face of the coronavirus threat.

That might not be so easy. When Trump made his announcement, the administration and Congress had not settled on any such steps, and reactions from Congress suggest that there’s no quick consensus on a plan, though lawmakers prefer measures to help hourly workers and affected industries.

Trump wants a payroll tax cut: The measures under consideration by the administration reportedly center on a temporary payroll tax cut as well as paid leave for hourly workers, targeted tax breaks for industries hit by the outbreak and loans for affected small businesses.

Trump on Tuesday met with Republican senators at their weekly lunch and reportedly told them he wants a payroll tax holiday to run beyond the November election because he does not want the taxes to rise back to normal just before voters decide whether to give him another term. "I was just with the Republican senators and they were just about all there, mostly all there and there's a great feeling about doing a lot of the things," he told reporters afterward.

The payroll tax funds Social Security and Medicare. Employees and employers each pay 6.2% on the first $137,700 of wage and salary income for Social Security and 1.45% of their income for Medicare, plus an additional 0.9% surtax for married filers earning over $250,000.

The proposed tax cut could reportedly amount to $40 billion a month, though that could change depending on the size and duration of the cut.

But Tuesday’s Senate GOP meeting ended without any specific plan for an economic stimulus package or agreement on how to proceed. Democrats, meanwhile, are working on their own plan and reportedly could start rolling out elements of their package as soon as Wednesday.

Adding to the uncertainty, lawmakers are scheduled to leave town Friday until March 23, making it unlikely that any plan gets enacted over the next two weeks.

That timeline would require any legislative action be done with extraordinary speed, and House Speaker Nancy Pelosi indicated Monday that it might not be possible, prompting an angry response from Trump on Twitter. But Pelosi met Tuesday with Treasury Secretary Steven Mnuchin to discuss a relief package.

Hesitation on Capitol Hill: While Trump wants to “go big” on a fiscal stimulus package, lawmakers were questioning the wisdom of a payroll tax cut even before Tuesday’s GOP Senate meeting with the president and his economic team.

Reactions to the proposal on Capitol Hill suggest it could be difficult to reach a quick consensus about the next steps to take. Democrats have essentially dismissed the idea of a payroll tax cut and have outlined a different set of priorities for a stimulus package, including paid sick leave and extended unemployment insurance for people put out of work. “The administration seems to believe that the answer to any problem is another tax cut,” Senate Minority Leader Chuck Schumer said.

Members of the president’s own party — and some of his own aides — are reportedly cool to the idea as well, though they generally agree that a stimulus is needed.

At a meeting with Trump on Monday night, Treasury Secretary Steven Mnuchin, National Economic Council Director Larry Kudlow and Acting Director of the Office of Management and Budget Russ Vought argued that it is too early to enact such a cut, according to Politico.

Some Republicans on Capitol Hill have also expressed hesitation about a payroll tax cut.

  • “Well, I usually love tax cuts, but I think it’s a little premature,” Sen. John Cornyn of Texas told Politico.
  • Sen. Lindsey Graham of South Carolina questioned whether the cost of the cut would be more effective if applied to specific sectors of the economy.
  • And Senate Majority Leader Mitch McConnell has reportedly made clear in private that he opposes the idea. “McConnell has made clear he ‘detests’ pursuing this particular policy, which would probably add to federal debt and deficits, and he has said many conservative GOP senators share his view,” The Washington Post reported.

Questioning the effectiveness of a payroll tax cut: Lawmakers and economists alike have expressed doubts about whether a payroll tax cut would do much to mitigate the economic fears and fallout stemming from the coronavirus outbreak.

“A payroll tax cut might be the correct response to an economic downturn, but it is far too broad to have a significant impact on the source of this potential crisis. It might help the stock market in the short run but it will be expensive,” Paul Winfree, the former deputy director of the Domestic Policy Council in the Trump White House told Politico. “Furthermore, it won’t help people who either can’t work because they’re home sick or are caring for someone who is sick. Nor will further incentives for people to work through supply-side policies to help contain the coronavirus epidemic.”

Some also worried that a payroll tax cut might incentivize virus-spreading behavior compared to other forms of stimulus. “We don’t want people having to choose between a paycheck and preventing the spread of the disease,” said Rep. Don Beyer (D-VA), vice chairman of the Joint Economic Committee, according to the Post.

Other possibilities for a coronavirus relief plan: Trump also said Tuesday that his administration would provide help to airlines and cruise lines, though he provided no details. And GOP senators variously suggested infrastructure spending and federal bailouts for the shale drilling industry hit by the sudden oil price war between Saudi Arabia and Russia. The administration is reportedly also looking at ways to enact a guarantee of paid sick leave without going through Congress.

Quote of the Day

“The truth is we have underinvested in health labs. There is not enough equipment, there is not enough people, there is not enough internal capacity ...”

– Dr. Robert Redfield, director of the Centers for Disease Control and Prevention, testifying before the House Appropriations Committee on Tuesday.

Number of the Day: 3.5 Billion

The U.S. maintains a Strategic National Stockpile of critical medical supplies, which includes antibiotics, vaccines, ventilators and other essential equipment. One item that’s supposed to be ready to go is the N95 respirator used by medical personnel to protect themselves from airborne particles — a piece of equipment that has all but disappeared from the market in the wake of the coronavirus outbreak. But according to The Washington Post, the stockpile hasn’t replenished its supply of N95 masks since the H1N1 pandemic of 2009.

“With a limited annual budget of about $600 million, officials in charge of the stockpile focused on what they say was a more pressing priority: lifesaving drugs and equipment for diseases and disasters that emerged before the new coronavirus, for which there is no vaccine or specific anti-viral treatment,” the Post reported Tuesday.

Gerrit Bakker of the Association of State and Territorial Health Officials, a group that pushed for a resupply of the masks, lamented the lack of attention to the N95 mask supply. “In hindsight, it appears to be shortsighted,” Bakker said.

The cupboard isn’t entirely bare, though. The stockpile has about 12 million N95 respirators and 30 million surgical masks on hand, the Department of Health and Human Services said last week. But that falls well short of the 3.5 billion masks the country is estimated to need in case of a severe epidemic.

Why a Coronavirus Recession Could Be Especially Hard to Fight

Moody’s economist Mark Zandi now thinks the U.S. economy has a 65% chance of entering recession this year due to the coronavirus outbreak and turmoil in the oil industry, a sharp jump from the 50-50 odds he calculated just last week. If a recession does arrive, it will be particularly hard to combat, says Annie Lowrey of The Atlantic, due to the unusual nature of the downturn. Here’s Lowrey’s analysis:

  • Extreme uncertainty: No one knows how long the outbreak will last, and it may take months for fears to subside and something like normal economic activity to resume.
  • Demand and supply shocks at the same time: The outbreak is simultaneously causing serious disruptions in the global supply chain and reducing demand for all kinds of goods, making a recession more difficult to address. “Both supply and demand effects are in play, and both are being amplified by tightening financial conditions,” an S&P Global report said last week.
  • Monetary policy near exhaustion: The Federal Reserve has already cut rates to near historic lows, leaving little room to maneuver in the coming months. Lower rates likely have limited effect in the current environment, too, since they can’t help U.S. businesses facing supply chain disruptions in China or public fears of going out to the mall.
  • Fiscal policy is contentious: Many economists say it’s time to turn to fiscal policy to boost the economy. Although there are plenty of suggestions from individual experts floating around – see here, here, here and here for examples – Congress and the White House are a long way away from developing a comprehensive plan.
  • Political polarization: A divided Congress with high levels distrust between the parties will make it harder to quickly develop and pass stimulus measures, and the fact that it’s an election year adds another layer of difficulty.
  • It’s a global problem: Even if policymakers can come up with a solid plan of attack against a complex recession, a global economy means that much depends on what happens in other countries. “COVID-19 came out of nowhere,” says Moody’s Zandi. “It may be what economists call a black swan—a rare and inherently unforeseeable event with severe consequences.”

Today is Super Tuesday II, with six states voting in primaries and 365 delegates at stake in the Democratic presidential contest. But both Joe Biden and Bernie Sanders have cancelled rallies tonight due to the virus.

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