The race is on, it seems, to protect America from a sharp economic downturn. Of course, the surest way to stimulate the economy is to allow taxpayers to keep more of their money: In the age of rampant consumerism, such a measure has the most immediate effect. For this reason, President Donald Trump, on March 9, proposed cutting payroll tax. During a press conference, the president indicated the cut, or relief, would be “very substantial” and added that it would be “a big number.” The following day, Trump pitched it to Republicans: a 0% payroll tax rate, through the end of 2020.
According to a CNBC report, an unnamed official claimed that there was also a discussion about making this move permanent, though, even if true, it seems like something even most Republicans in Congress would oppose.
Additional measures reportedly being considered by the president include some form of assistance for the shale industry, as well as the airlines and the cruise lines, which have been hit particularly hard by the global spread of the Covid-19 coronavirus.
Not surprisingly, Democrats immediately opposed the payroll-tax-cut idea, arguing that the measure would do nothing to help those who lose their jobs as a result of private-sector cutbacks. “I see folks who are being devastated,” said Representative Gregory Meeks (D-NY), “who are either losing their jobs temporarily or their hours are being cut, and there is nothing being done to help them get back on their feet.”
Tax Less Versus Spend More
The dispute over the president’s proposal goes to the heart of the different approaches Democrats and Republicans take toward economic policy: the former generally believe that government can and should spend its way out of economic slumps while the latter understand that, when people have more money in their pocket, many of them will spend more, pumping that extra money back into the economy. The end of the year is more than nine months off – and that is a long time to enjoy a 0% payroll tax deduction.
House Ways and Means Committee Chairman Richard Neal (D-MA) thinks it better to boost the economy with expanded infrastructure spending. Covid-19 has presented a problem that makes such an idea entirely counterintuitive, though. The virus is disrupting global supply chains and may even result in the scaling back of domestic transportation of materials, so how much infrastructure is going to be built or restored under the current conditions and a possibly worsening future climate is questionable.
Trump’s proposals boosted confidence in the markets, at least. The S&P 500 on March 10 recovered most of the 7.6% plunge it endured the previous day. Marketwatch reported: “Stock-index futures found support Tuesday after President Donald Trump advocated for payroll tax relief and other measures to help businesses deal with the economic slowdown resulting from the coronavirus epidemic.”
One almost suspects that Democrats see the problem as a win-win: a chance to pour vast amounts of money into new projects while doing nothing to stimulate the economy in real-time. A significant economic setback could not have come at a better time for a party attempting to figure out how to defeat a president who has piloted such a robust economic surge. Allowing the American taxpayer to keep more of his or her money for at least the next nine months – a move almost guaranteed to offset, at least partly, the nation’s current difficulties – is perhaps the last thing Democrats would want to do.
Read more from Graham J. Noble.