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”.