To keep the economy on its path towards a full recovery from the coronavirus pandemic, President Trump has said he started preparing an even “stronger” playbook than the one he used in 2017 as he took over as the leader of our country — a payroll tax cut.
One of the ideas that Trump continues to tout, most recently during an interview on Fox Business with Maria Bartiromo, is a payroll tax cut. Trump said he likes the idea because it provides a double benefit, both to the business owners and the workers.
“That’s one of the taxes that I want to see cut,” Trump said. “And by the way, we’ve already given – we’ve given the largest tax cut in history. If we weren’t so strong as a country, we wouldn’t even exist right now.”
As Republicans grow weary of further stimulus spending, including the latest Democratic proposal for an additional $3 trillion which Trump called “dead on arrival,” a payroll tax cut has become increasingly appealing. It is a way to help out the average worker without the government spending additional money.
How The Cut Works
The federal income taxes allocate payroll tax funds Social Security and Medicare separately. Both employers and employees pay 6.2% towards Social Security and 1.45% towards Medicare. Meanwhile, the highest earners pay an amount with an additional 0.9%.
Enacting the cut should help incentivize employers to do more hiring. It does so by reducing their payroll costs. At the same, it helps employees by taking a smaller tax bite out of their paychecks.
The Trump administration has also floated other ideas to boost the economy. This including allowing immediate expensing and reducing the capital gains tax rate. It also includes reinstating the full deduction for business meals and entertainment. More recently, taxing imports to the US like automobiles also became part of it.
One item that Trump repeatedly mentions is the idea of negative interest rates. He said in a tweet that they were a “gift” and would level the playing field with Germany and Japan. During a press conference Trump said “If they’re going to have the advantage of negative rates, we should too. I feel strongly we should have negative rates.”
Numerous members of the Federal Reserve have made it clear that it’s not happening anytime soon.
On Wednesday, Federal Reserve Chairman Jerome Powell said that the central bank is doing everything it can to avoid a “prolonged” economic slump, but for now, the solutions don't include below-zero rates.
Richmond Federal Reserve President Thomas Barkin said during a recent interview on CNBC that he still doesn’t expect negative interest rates to become official policy. “I think negative interest rates have been tried in other places, and I haven’t seen anything personally that makes me think they’re worth a try here.”
Even if Trump doesn’t get his negative interest rates, he’s still optimistic about our recovery in the next few quarters. He also expects a rebound to begin later this year.
“I think what’s going to happen is next year is going to be one of our best years,” Trump told Bartiromo. “I feel that we will transition in this third quarter; fourth quarter is going to be good. Next year’s going to be incredible.”