Donald Trump weighing payroll tax cuts, other steps on economy
WASHINGTON – President Donald Trump said Tuesday his administration is looking at a temporary reduction in payroll taxes and other proposals to lift the economy but he dismissed warnings from private economists about the threat of a U.S. recession.
Trump said he had been thinking about reduction payroll taxes “for a long time” and said he was also interested in a possible reduction in capital gains taxes. He also called again for the Federal Reserve to lower interest rates.
“If the Fed would do its job, we’d have a tremendous spurt of growth,” Trump told reporters in the Oval Office during a meeting with Romanian President Klaus Iohannis.
Private economists are warning there are signs of a possible recession on the horizon, pointing to trade tensions between the U.S. and China and yields on 10-year Treasury bonds that dipped below two-year Treasury rates last Wednesday, a phenomenon known as an inverted yield curve. It’s the first time that has happened since 2007 and could indicate investors have lost faith in the soundness of the U.S. economy.
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Trump has insisted the economy remains strong, but senior White House officials already have started preparing a contingency plan, including a temporary payroll tax cut, to put more money in workers’ paychecks and boost growth.
Trump said he believes the U.S. economy is “very far from a recession” even as he conceded that his administration is looking for ways to increase growth.
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Trump said the White House is looking at “various tax deductions,” including indexing capital gains taxes to inflation and temporarily cutting payroll taxes. But he stressed that it could take a while before any tax-cut package is unveiled.
“I’m not talking about doing anything at this moment,” he said.
Trump said “a lot of people” would like to see a payroll tax cut, which he said “very much affects the workers of our country.”
“Whether or not we do it now or not, it’s not being done because of a recession,” he said.
Payroll taxes come out of the paychecks of the vast majority of American workers and are used to finance Social Security and other social safety net programs. The payroll tax for Social Security was cut from 6.2% to 4.2% in 2011 and 2012 during the Obama administration.
The reduction added about a half a percentage point to growth in the nation’s gross domestic product in 2011 as the economy was still struggling to emerge from the Great Recession of 2007-09, said Mark Zandi, chief economist of Moody’s Analytics. Although the cut added about $225 billion to the federal deficit over two years, economists say the benefit for workers and the economy was worth the cost.
Now, however, the economy is on more solid footing and a payroll tax cut would add about $300 billion to the deficit – a tradeoff that makes less economic sense, said Mark Goldwein, senior vice president for the Committee for a Responsible Federal Budget.