President Trump confirmed Tuesday that he is considering cuts in payroll taxes and capital gains taxes to spur more economic growth, but said such action wouldn’t be necessary if the Federal Reserve would “do its job” by cutting interest rates further.
While insisting that the U.S. is “very far from a recession” as he prepares for his reelection bid, the president said the government must take extra steps to guard against an economic slowdown and remain competitive.
While Mr. Trump blames the central bank for holding back the economy, his tariff war with China is also weighing on businesses, especially in the agricultural sector. The president gave one of his most strenuous defenses yet on his protracted trade war by saying he has no choice but to stop China from “ripping off” the U.S. with unfair practices.
Economic growth in the second quarter slowed to an annual rate of 2.1%, down from 3.1% in the first three months of the year. But consumer spending remained strong in July, and the unemployment rate is near historic lows.
Some economists and Wall Street analysts, pointing to trade tensions and a global economic slowdown, are predicting a recession by sometime in 2021. U.S. stock markets suffered their biggest one-day loss of the year last week, highlighting investors’ concerns.
Although the president and his advisers say the economic outlook remains strong, some White House officials floated the idea Monday of a temporary payroll tax cut to boost the economy. White House economic adviser Larry Kudlow said Sunday that a payroll tax cut wasn’t “on the table,” but the president told reporters at the White House on Tuesday that he has been considering it.
“We’re always looking at the capital gains tax [and] payroll tax,” Mr. Trump said. “Payroll tax is something that we think about, and a lot of people would like to see that.”
Workers pay a 6.2% payroll tax on the first $132,900 of their income, a fee employers must match, to fund Social Security programs.
A proposal to index capital gains for inflation, long considered by the White House, also is picking up momentum. The move would lower taxes primarily for wealthier individuals, and Mr. Trump said one of the attractive features is that he could take the action unilaterally.
“We’ve been talking about indexing for a long time,” he said. “It can be done directly by me. Indexing is something that would be very easy to do. It’s something that I’m certainly thinking about.”
But the president said neither of those moves is imminent, and he made clear that he views more rate cuts by the Fed as the quickest way to provide the broadest, most significant help for the economy.
“I’m not talking about doing anything at this moment,” Mr. Trump said. “I’ve been thinking about payroll taxes for a long time. Whether or not we do it now or not — it’s not being done because of recession. Because legitimately, if we had a cut in interest rates by the Fed … you would see growth like you’ve never seen in this country.”
The Fed cut a key lending rate by one-quarter of a percentage point last month, its first rate reduction since 2008. The president has criticized the central bank and Chairman Jerome Powell repeatedly for raising rates four times last year. He said the rate hikes prevented the economy from growing faster.
Mr. Trump said Tuesday that the central bank should cut rates by at least 1 percentage point “over a period of time.”
“If the Fed would do its job, we’d have a tremendous spurt of growth,” the president said. “We’re looking for a rate cut.”
The Fed’s next meeting is scheduled for mid-September.
Cutting payroll taxes that fund Social Security programs “should not be cut except in extreme situations,” said Steve Wamhoff, director of federal tax policy at the Institute on Taxation and Economic Policy.
In 2011 and 2012, Congress and President Obama reduced the part of the payroll tax paid directly by employees from 6.2% to 4.2%.
“The last Social Security payroll tax cuts were enacted during cataclysmic economic conditions inherited by President Obama and were opposed by many congressional Republicans,” Mr. Wamhoff wrote in a blog post Tuesday.
The Committee for a Responsible Federal Budget estimated that a temporary cut in employees’ share of the Social Security payroll tax would reduce revenue by $70 billion to $75 billion annually for each percentage point.
The group said indexing capital gains would reduce revenue by $100 billion over 10 years.
“There is absolutely no argument for adding another $100 billion to the national credit card — certainly not through administrative fiat,” said President Maya MacGuineas, president of the Committee for a Responsible Federal Budget.
Conservative economist Stephen Moore, who has served as an informal adviser to the White House, told The Washington Times on Monday that officials were discussing the use of revenue from tariffs on China — $30 billion to $40 billion per year — to partially offset a payroll tax cut.
As the administration seeks ways to jolt the economy ahead of the presidential election, Mr. Trump and his advisers are criticizing Democrats and the media for rooting for a recession.
“I think the word ‘recession’ is a word that’s inappropriate because it’s just a word that … certain people in the media are trying to build up, because they’d love to see a recession,” the president said. “We’re very far from a recession.”
Trump campaign manager Brad Parscale slammed MSNBC hosts for having “giddily talked about a recession … and even said a recession would be OK!”
“The liberal media is so deranged by President @RealDonaldTrump that they’re now cheering for the economy to tank,” Mr. Parscale tweeted. “Sorry to disappoint Democrats, but the economy has never been stronger!”
The president acknowledged the political risk he is taking by persisting in his trade war with China. But he said China has lost 2 million jobs in the trade war and will lose “a lot more jobs” if Beijing doesn’t reach a deal with the U.S.
“Somebody had to do something with China,” he said. “Obama should have done it, Bush should have done it, Clinton should have done it. They all should have done it. Nobody did it. I’m doing it. My trade deals aren’t causing a problem. This is something that had to be done.”
He added, “I could be sitting here right now with a stock market that would be up 10,000 points higher, but I didn’t want to do it. I think we have no choice to [confront China], and a lot of people that really know, people that love our country, they’re saying, ‘Thank you very much.’ … And we’re winning because they’re having the worst year they’ve had in decades, and it’s only going to get worse.”
Secretary of State Mike Pompeo said Tuesday on CNBC that Beijing and Washington will continue to communicate, at least by phone, in the next week or 10 days about trade issues.
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