Trump's cure for recession woes is more tax cuts for the rich. It won't work
The Trump administration has floated a new round of tax cuts for the rich and slashing the payroll tax used to fund Social Security and Medicare to ease worries of a recession, which the White House insists is not happening despite dire warnings from economists and the stock market.
Despite the stock market plummeting over concerns of a looming recession and a survey finding that 74 percent of economists expect a recession to hit in the next two years, President Trump and his aides have have flippantly dismissed concerns of an economic downturn. Trump adviser Kellyanne Conway called recession the “Sesame Street word of the day” and Trump himself has argued that the bad economic outlook is just a conspiracy by economists and the media to make him look bad.
The Washington Post reported last week that Trump aides “acknowledge that they have not planned for a possible recession” but The New York Times now reports that the president’s team is scrambling to come up with ways to alleviate the hit the economy has taken from Trump’s trade wars.
Top White House advisers, including National Economic Council director Larry Kudlow, are pushing for a capital gains tax cut, which would allow investors to pay lower taxes on profits when they sell their shares, according to the Times. According to the Penn Wharton Budget Model, 86 percent of the benefits of such a cut would go to the top 1 percent while costing the government more than $100 billion in revenues.
Trump’s team is also considering a payroll tax cut, The Washington Post reported. The Obama administration also used a two-year payroll tax cut to help recover from the 2008-9 recession, but it was not until years after the recession ended. Such a cut could boost consumer spending, which is actually the only economic indicator still doing well, but would drain the revenue sources of Social Security and Medicare. White House officials denied that a payroll tax cut is “under consideration” but said that more tax cuts “were on the table.”
One thing not on the table is changing course in Trump’s trade war, the Times reported. Trump’s tariffs on China and other countries have not helped reduce the U.S. trade deficit but have contributed to manufacturing falling to a decade low, farmers in the Midwest going bankrupt at record rates, and consumers being hit with huge cost increases.
Instead, Trump is expected to go forward with a new round of tariffs on Chinese goods next month. JPMorgan Chase said the existing tariffs are already costing the average American household $600 more per year and the next round would increase that cost to $1,000 per year.
The Trump administration is giving farmers hit by his trade war a taxpayer-funded bailout (which will cost more than the revenue raised by the tariffs), and Kudlow floated the idea of a bailout for taxpayers hit by the trade war in an appearance on Fox News Sunday.
“Tax cuts 2.0, we are looking at all that,” Kudlow said. “By the way, Sen. Rick Scott of Florida, very smart guy, made an interesting idea — a proposal on another network last week. He said, ‘Look, why don’t we take the tariffs from the China trade and turn those back to the taxpayers in the form of tax cuts?’ That’s an idea.”
Kudlow also said capital gains tax cuts were “good ideas,” though he insisted that the economy was in “pretty good shape” and that there is “no recession in sight.”
Kudlow made a similar prediction right before the recession hit in 2008.
“There’s no recession coming. The pessimistas were wrong. It’s not going to happen,” Kudlow wrote in an op-ed in December 2007. “The Bush boom is alive and well. It’s finishing up its sixth consecutive year with more to come. Yes, it’s still the greatest story never told.”
After joining the Trump administration, Kudlow denied that that the deficit was growing as a result of Trump’s tax cuts and bizarrely claimed that the deficit was “coming down rapidly.” The deficit is already higher this fiscal year than it was through all of last year.
Kudlow offered another can’t-miss prediction in an interview with NBC News Sunday.
“I sure don’t see a recession,” he told “Meet the Press” host Chuck Todd. “The second half of the economy is going to be very good in 2019.”
“OK, you say that, but you actually said that in 2007 right before the second-worst downturn in American history,” Todd replied. “I admire your optimism, but the data is pointing in another direction.”