Coronavirus Puts Trump’s Economic Policy-Making to the Test
Treasury Secretary Steven Mnuchin emerges as key player amid internal administration disputes
As the coronavirus affects almost every aspect of business, a collection of Trump administration officials—at times at odds with one another—are seeking to coordinate government action to soften the anticipated blow to the economy.
So far, that coordination has been more ad hoc than organized or torn from the classic crisis playbook, which has administration policy makers acting in concert with the Federal Reserve and seeking buy-in from congressional leaders from both parties before announcing a policy response.
Treasury Secretary Steven Mnuchin is leading the economic effort alongside Mr. Trump’s top economist, Lawrence Kudlow. Mr. Mnuchin has good relations with Congress, where he appeared Wednesday, as well as with Fed Chairman Jerome Powell, according to people familiar with the matter.
Yet Mr. Mnuchin faces counter currents from inside the White House. President Trump has criticized the Fed in recent weeks, urging it to cut interest rates further. Meanwhile, senior staff have expressed divergent views about the best way to protect economic growth, which Mr. Trump and his campaign are counting on to propel his re-election efforts.
At a briefing Monday, Mr. Trump called for a large payroll-tax cut. It was a surprise to aides who hadn’t yet fleshed out a detailed proposal or discussed it in depth with congressional leaders, according to people familiar with the discussions. On Tuesday, lawmakers rebuffed the idea.
“We’ve seen this with the president in the past, where the announcement is made before the policy is decided,” said Andy Laperriere, a policy analyst at Cornerstone Macro who was previously a GOP policy adviser on Capitol Hill.
Mr. Mnuchin spoke Wednesday morning with House Speaker Nancy Pelosi (D., Calif.) and Mr. Trump and later urged lawmakers to approve a more modest package that includes relief for small- and medium-size businesses affected by virus-related disruptions.
“This package isn’t going to include everything,” he told reporters following a hearing before the House Appropriations Committee. “This is round one. We’ll be back for more.”
The administration is working on broader measures, including assistance for workers and industries hit by the virus, such as airlines, Mr. Mnuchin said. The Treasury also is planning to extend the April 15 tax payment deadline “for virtually all Americans, other than the superrich,” he said. He estimated the extension would provide about $200 billion of stimulus for the U.S. economy.
“I assure you and I assure the American public we will have a full economic plan to deal with this, and I believe there will be bipartisan support,” Mr. Mnuchin said.
In a nationwide address from the Oval Office on Wednesday night when he announced a 30-day travel ban from Europe, President Trump renewed his call for a payroll tax holiday. He also said he would seek $50 billion in funding to increase low-cost loans guaranteed by the Small Business Administration to certain companies.
The administration began exploring economic policy responses to the epidemic early last week, when Mr. Mnuchin tapped a handful of aides in Treasury’s legal, domestic and international finance teams to come up with a suite of options.
As Mr. Trump hosted Brazilian President Jair Bolsonaro at his Mar-a-Lago resort in Florida last weekend, Treasury aides hustled to assemble a package of 12 to 15 proposals to present to Mr. Trump.
Monday’s stock market plunge convinced Mr. Trump that he needed to act, people familiar with the matter said. The threat of the outbreak crystallized when Rep. Matt Gaetz (R., Fla.) was told as he boarded Air Force One that he might have been exposed to the virus. Immediately after Mr. Trump landed in Washington late Monday afternoon, he met with his economic advisers.
In a tense Oval Office meeting, Peter Navarro, Mr. Trump’s trade adviser, argued for an immediate payroll-tax cut to boost demand and shore up growth. Jared Kushner, the president’s son-in-law and senior adviser, and legislative affairs director Eric Ueland supported the idea.
Messers. Mnuchin and Kudlow, who last week said publicly that a payroll tax cut wasn’t under active consideration, argued against it. They recommended narrower measures, such as extended sick leave for workers.
Mr. Kudlow found himself defending the payroll tax cut at a Tuesday evening news conference at the White House, where reporters questioned him about the cost of the proposal. Mr. Trump has privately mused about permanently suspending the payroll tax, which funds Social Security and Medicare, though aides countered they were hoping to put it on hold through December.
Congressional Democrats and Republicans poured cold water on the proposal after a meeting Tuesday with the president and Messers. Mnuchin, Kudlow and Navarro. By Wednesday, administration officials acknowledged privately that a payroll tax suspension was unlikely to gain traction.
House Democrats were planning to release legislation Wednesday that mandates free testing for the coronavirus and extends unemployment insurance and paid sick leave to individuals who contract the virus or need to be quarantined. Some of those ideas have support within the White House.
Now, Mr. Mnuchin has been given the job of brokering a compromise measure that the president, House Democrats and Senate Republicans can support. It is a familiar role for Mr. Mnuchin, a 57-year-old former Goldman Sachs partner.
Last summer, he helped reach a two-year budget deal with House Democrats that also raised the government’s borrowing limit. In the fall, he negotiated a spending agreement to avoid a government shutdown. In the process, he developed a working relationship with Mrs. Pelosi.
At a weekly Senate lunch Tuesday, Mr. Trump and his advisers briefed Republicans but not Democrats, and Mr. Trump attacked Democratic lawmakers on Twitter.
“It’s not encouraging for getting a bipartisan deal,” said Mr. Laperriere.
That afternoon, Mrs. Pelosi said she met Mr. Mnuchin to see “where our common ground was as to how we go forward.” She declined to say if the two had made progress.
The House is aiming to vote on a package before lawmakers leave Washington on Thursday, likely a measure aimed at helping workers, a congressional aide said.
“If the Trump administration wants something actually stimulative in addition to that, like a large payroll tax cut, they need to decide and they need to sell it to everyone, to both parties,” said Ernie Tedeschi, an economist at Evercore ISI.
The efforts so far present a contrast to the last economic crisis, in 2008. President George W. Bush unveiled a $145 billion package of tax rebates after consulting congressional leaders from both parties. The House passed its own version of the package less than two weeks later, and the House and Senate agreed on a deal one week after that.
Meanwhile, the Fed cut rates twice, by a total of 1.25 percentage points. In the months that followed, as the economy swooned, the Treasury and Fed presented a united front. Any disagreements between the Fed and the White House never spilled into public view.
By contrast, Mr. Trump on Tuesday renewed his criticism of the Fed, calling it “pathetic” and “slow moving”—even after last week’s half-point emergency interest-rate cut. Investors expect the central bank to lower rates again at or before its March 17-18 policy meeting.
Fed Chairman Powell, a frequent social media target of Mr. Trump, nevertheless maintains a solid working relationship with Mr. Mnuchin, according to people who know both men.
Mr. Mnuchin backed Mr. Powell for the Fed chairmanship. They have a weekly breakfast and have met or dined together 32 times since January 2019, according to public calendars.
Mr. Mnuchin attended the only two White House meetings between Mr. Trump and Mr. Powell since he became Fed chairman in February 2018: a dinner at the White House residence in February 2019; and a 30-minute morning meeting, also in the residence, last November.
Mr. Mnuchin said he and Mr. Powell have been in daily contact during recent financialmarket gyrations. Their relationship could grow more important as the coronavirus crisis deepens.
In keeping with Fed practice, Mr. Powell has avoided commenting on specific fiscal policy debates. Still, if rates are lowered to zero, the Fed is likely to look to Congress and the White House to boost the economy.
“The virus outbreak is something that will require a multifaceted response,“Mr. Powell said at a press conference last week, including ”from fiscal authorities should they determine that a response is appropriate.”