When you think about who would ultimately benefit from a plan to cut the payroll tax in the interest of averting an economic slowdown ahead of an election, it’s pretty clear that such a move wouldn’t be Donald Trump’s first choice when it comes to additional stimulus.
Trump is all-in when it comes to handing out free money to the wealthy and corporations, but all bluff when it comes to the middle class, as we saw ahead of the midterms when he blindsided Republicans by announcing an imaginary 10% tax cut for middle-income families, a plan that unsurprisingly never materialized.
A payroll tax cut would benefit middle-earners, which almost by definition means Republicans won’t go for the idea, and will suddenly decide to care about the deficit again in the course of opposing it on Capitol Hill. That, in turn, means nobody should get too excited about the prospect of such a move, despite all the press it’s received since Monday evening, when the Washington Post first suggested the White House is considering it.
In remarks to reporters on Tuesday afternoon, Trump said he’s always looking at tax cuts, but was quick to insist that the economy doesn’t need them. “[The US] is very far from a recession”, he said. And he’s probably right, which makes one wonder why he’s so obviously concerned. Even if you take the yield curve to be an infallible indicator, history shows the recession still won’t show up until after the election.
In any event, there’s another reason to think Trump probably wouldn’t go for a payroll tax cut – namely, it’s not likely to garner enough publicity. “President Obama didn’t get credit for several tax cuts including a temporary reduction in the payroll tax”, Bloomberg recalls, on the way to quoting Dean Baker, a senior economist at the Center for Economic and Policy Research, who suggested that Obama would have been better off just sending checks in the mail as W. did. Of course, it could be that Obama was more interested in helping people than publicity, but we’ll just leave that for now.
For what it’s worth, Obama’s payroll tax cuts did help families. “The median household income in 2009 was $49,777 [so] lowering the tax rate by 2% reduced the tax burden for the median family by $996”, Politifact wrote of Obama’s cuts in 2011. “As for mean household income, it was $67,976, meaning that the 2% payroll tax cut would have left $1,360 extra in the pockets of the average family”.
Trump, though, is more interested in “big league” numbers, like the billion or so he and his family are rumored to have saved thanks to the tax cut he crammed through in 2017.
That’s why it comes as no surprise that, during the same remarks to reporters on Tuesday, he brought up indexing capital gains to inflation again.
“We’ve been talking about indexing for a long time”, the president said.
It’s true, he has. And we’ve covered it every, single time it’s come up, including less than two months ago, when reports suggested the administration was once again looking to move ahead with the idea, even if it meant going around Congress.
As a reminder, the indexing idea would effectively amount to a $100 billion windfall for the wealthy, and the notion of doing it without the approval of lawmakers is something the late H.W. Bush considered, but ultimately scrapped when the Treasury Department advised the White House that redefining ‘cost’ by regulatory fiat was probably illegal.
Illegal, maybe, but that’s never stopped Trump before, which means when it comes to what kinds of tax cuts you might expect to get from the administration if the president becomes really worried about the economy, indexing capital gains to inflation would check a lot of boxes: Trump wouldn’t necessarily need Congress, the move would disproportionately benefit the wealthy and Republicans would love it. (Stephen Moore and Larry Kudlow both support the idea.)
“Many people like indexing and it could be done very simply”, Trump reminded everyone on Tuesday. “It could be done directly by me”.