Retail sales may have risen for five consecutive months, manufacturing surveys may be rebounding after a skid and the labor market may still be in fine fettle, but each passing day seems to bring new evidence of economic panic at the White House.
Just hours after Donald Trump accused Democrats of “trying to ‘will’ the Economy to be bad” and charged the Fed with exhibiting a “lack of vision”, the Washington Post reported that senior administration officials are exploring a number of options for averting a downturn.
One potential plan includes a temporary payroll tax cut, which is described as something that might “arrest an economic slowdown”. A White House statement on the topic reads as follows:
As National Economic Council Director Larry Kudlow said yesterday, more tax cuts for the American people are certainly on the table, but cutting payroll taxes is not something under consideration at this time.
That, despite the fact that there was a discussion to that effect on Monday.
“The statement and the internal discussions over the payroll tax cut are part of a rapidly evolving effort by the White House to both exude confidence about the economy’s strength while simultaneously hunting for ways to bolster business and consumer confidence”, the Post writes, echoing the assessment of many commentators who have recently weighed in on the cognitive dissonance inherent in the president and his aides insisting on the strength of the economy while privately fretting about the outlook and publicly demanding rate cuts from the Fed.
The last cut to the payroll tax came in 2011 and 2012. It reset back higher the following year.
Of course, more tax cuts means a wider deficit at a time when the Trump administration has received a lot of bad press centered around the facially absurd idea of a purportedly Republican president with a notorious budget hawk as a Chief of Staff putting America on one of the most dangerous fiscal trajectories in history at a time when the economic rationale for stimulus was highly questionable.
Last year, some critics of the Trump tax cuts argued that the administration should save its ammo; that exhausting America’s fiscal capacity when it wasn’t necessary would saddle the country with a large deficit, leaving no breathing room when the economy finally decelerated. Now here we are.
“Workers pay payroll taxes on income up to $132,900, so cutting the tax has remained a popular idea for many lawmakers, especially Democrats, seeking to deliver savings for middle-income earners and not the wealthiest Americans”, the Post goes on to say of the proposal.
Any push to cut payroll taxes would also set up an interesting dynamic on Capitol Hill, where Democrats would likely support the effort, while Republicans could push back by resorting to their traditional aversion to tax cuts that help families as opposed to corporations and the wealthy.
One obvious problem here is that the more readily apparent it becomes that the administration is prepping contingency plans, the bigger the potential for the public to get spooked. Although consumer spending is very healthy currently, the latest read on consumer sentiment shows that the Fed cut rattled confidence, perhaps presaging retrenchment into the holiday shopping season. Trump nearly exacerbated that by slapping tariffs on consumer goods imported from China, before thinking better of it.
(Consumer sentiment plummeted in August to the second-lowest of the Trump presidency following the Fed cut)
The Post’s coverage of this dynamic proves it’s gone mainstream, which ironically could make the self-fulfilling prophecy even more likely to become… well, self-fulfilling.
“Some administration officials have felt that planning for an economic downturn would send a negative perception to the public and make things worse”, the article reads, underscoring the point.
The Post also flags consumer spending as “one of the US economy’s bright spots”.
(Retail sales rose a fifth month in July)
Democrats are taking the opportunity to pile on, but not in the way Trump suggested on Monday. Rather, instead of actively working to undermine the economy as the president charged, Democrats are in fact lamenting the possibility that he’s making things worse.
“Their panicking and flailing is palpable and adding more uncertainly to the economy and making a possible Trump recession more likely”, Bill Pascrell said. “They’re flying by the seat of their pants and don’t seem to have any real plan”.
Another example of fiscal irresponsibility
Should have just raised rates and unwind those bond holdings while they had the chance. Dumb stupid government always screwing things up and making them worse. Today’s rally like the others will be sold. Still holding on to my SQQQ’s, I’ll eventually get my price when the market realizes what matters is price earnings ratios Goldilocks and Pollyanna are running the show now but they won’t be running it forever…
Given the Total Fiscal irresponsibility to date that has ONLY benefitted the wealthy, let them at least throw a few crumbs to the middle class via a payroll tax cut….if they are worried about deficits let them roll back the tax cuts for the super wealthy and the corporates
Agree 100% vm1953 I did vote for the President only because the alternative was 10 times as bad. I want to keep the right to bear arms, drive my current vehicle not a gore mobile, he was elected by the skin of his teeth and promised to repeal and replace Obamacare which he has not done, he promised to drain the swamp which has not done, promised to lock her up which he has not done. He passed a budget and tax cut which has done nothing but makes the problems 10 times worse. The only reason things look good is because everything is being put on the credit card of the U.S.A. and which is why he calls for rate cuts everyday because the interest on all this DEBT would break the country in two….
Well, there you have it! YOU voted for him so how about just shutting the FU? BTW, what would have ‘locking her up’ done for anyone, when, it seems, by your own words, that DT would be a better candidate?
Moral Hazard and lack of respect for the rule of law is something you can’t seem to understand. We have an awful lot of that both in politics, criminal and civil court proceedings, and no real fear of being prosecuted for anything. The rule of law doesn’t mean anything to many people anymore because enforcement is selective based on your status or standing. If enforcement was equally applied to everyone the world would be a much better place. Not saying DT is perfect far from it and his rants about cutting rates are dead wrong, rates need to be increased BIG LEAGUE but having HRC would in office have made matters much worse.
Don’t you worry. Trumplforskin will figure out a way to help all those poor rich folks.
I am reminded of the Jason Statham movie “Crank.”
“Après nous, le déluge.” — DJT
More corporate welfare.
If the trump mafia were running just their line of caviar skincare products, I’d probably just ignore them and anything insane they do, but when they run the country like a bankrupt skin care product, it does make me worry!
Cutting payroll taxes would
1. Cut Medicare funding, which fits Republican desire to undercut the ACA aka Obamacare.
2. Cut Social Security funding, which fits with desire to cut so-called “entitlements”.
3. Benefit employers as much as employees (the 15% payroll tax is paid 1/2 by employees via paycheck deduction, 1/2 by employers).
With these effects on mind, I think the chances of Trump proposing a payroll tax cut are higher than one might think.
SS and Medicare payments could be exempted from the tax cuts. I believe they are talking about the taxes paid on your earnings due by April of the following year.
All the reporting refers clearly to payroll taxes, the deductions from every paycheck denoted with FICA and MEDI (or something like that) which are about 7.5% of gross pay up to around $130K. The payroll tax is actually 15%, the employer pays half &.5%) and the employee pays half (7.5%).
I believe you’re referring to income taxes.
“The Fed Rate, over a fairly short period of time, should be reduced by at least 100 basis points, with perhaps some quantitative easing as well. If that happened, our Economy would be even better, and the World Economy would be greatly and quickly enhanced-good for everyone!”
8:26 AM – 19 Aug 2019
And finally, in the midst of charting a course for monetary policy to pursue their mandates, policymakers also must take into account influences of commodity and financial markets that can provide headwinds or tailwinds to economic activity and inflation dynamics.
Agenda will be forthcoming.
ttps://www.kansascityfed.org/publications/research/escp/symposiums/escp-2019
Negative and record low yields make sense for reasons that have nothing to do with investments in negative and record low yields. You have to see these assets as balance sheet tools, repo reserves whose entire purpose is to allow a firm to weather a market storm which disrupts the normal characteristics of how the world truly operates. The cost of holding those reserves is immaterial to the survival characteristics which are contained within them.
https://www.alhambrapartners.com/2019/08/19/collateral-reserves-what-is-behind-record-low-and-negative-yields/
And the more QE the more shortage of these repo reserves? E.g. bunds
https://www.bundesbank.de/en/publications/research/research-brief/2018-21-bond-purchases-repo-market-761744
I knew that the EU’s government debt/GDP and fiscal deficit/GDP is much lower than the US. I hadn’t realized that government bonds are much scarcer in EU than in US, and especially so in Germany.
“Highlighting how scarce top-rated euro assets are, ECB policymaker Ewald Nowotny recently noted that in the United States, the pool of “strong safe assets” amounted to 74 percent of gross domestic product but was just 11 percent of GDP in Germany.
Even after taking into account other EU countries, the figure is 30 percent, Nowotny said.” https://www.reuters.com/article/us-eurozone-bonds-scarcity-analysis-idUSKCN1QI4JH
Reduction to capital gains taxes are also being actively-discussed-but-not-officially-under-consideration.
This might be by changing the tax rate, or by indexing to inflation. There’s been some speculation that the latter could be done by Treasury without Congressional approval.
This would be a way to give high-wealth donors another gift, nicely timed at the top of a cycle.
Now more signs of fear in the White House. https://www.businessinsider.com/white-house-mulls-reversing-some-tariffs-amid-recession-fears-report-2019-8
Trump makes his staff into liars by confirming he’s considering the payroll tax cut idea. https://www.cbsnews.com/news/trump-says-hes-thinking-about-a-payroll-tax-cut-hours-after-his-staff-denied-it/
I’d guess wage expense for the S&P500 must be around 15% of revenue, the employer share of payroll tax should be roughly 7.5% of that or 1% of revenue.