The Atlanta Journal-Constitution
STOCKS REBOUND AMID TALK OF ECONOMIC AID
Trump, lawmakers discuss stimulus package in response to virus.
President Donald
WASHINGTON — Trump told GOP senators Tuesday he wants to dramatically reduce the payroll tax through at least the end of the year, a plan that could deliver a massive but — expensive boost to many busi— nesses and voters to help cushion the economic pain from the coronavirus outbreak.
Hints of progress on an economic stimulus sent the Dow Jones industrial average markedly higher on Tuesday, as it climbed 1,167 points, or close to 5%, regain
ing some of its steep losses from the day before.
The S&P 500 surged as much as 3.7% in the morning, only to see the gains evaporate by midday. The index then bounced up and down before turning decisively higher after Trump presented his ideas.
While they won’t cure illnesses or get quarantined workers back
into factories, spending and
stimulus programs would put cash into the hands of households and businesses while health experts try to corral the virus. That could stave off or at least moderate a possible recession.
But the president’s proposal to cut the payroll tax got a chilly reception from both Republicans and Democrats, leaving policymakers searching for common ground as the coronavirus’s outbreak continues to take its toll on the economy.
The payroll tax funds Social Security benefits, and it is covered with a 6.2% tax on employees and a 6.2% tax on employers. The last payroll tax cut was just for employees, in 2011 and 2012, and it temporarily lowered the rate to 4.2%.
Some senators came away with the impression Trump wanted to completely eliminate the payroll tax, permanently. If that happened, it’s unclear how the government would fund Social Security benefits in the future.
One area of consensus, though, could be around the issue of paid sick leave for employees, an idea Democrats support and in which Trump has shown some interest. In the past, the two sides have taken different approaches, and it’s not clear whether an agreement can be reached.
“I don’t think any decision whatsoever has been made,” said Sen. John Neely Kennedy, R-La.
Trump has so far laid out a broad menu of things he wants to do to try to arrest the stock market’s dramatic correction in the past month.
One senator at the lunch with Trump said the president also floated the idea of allowing Americans to delay filing their tax returns in April, reimbursing people or companies for sick leave, and providing aid to the travel industry. But there were not precise plans on how any of these things would work.
Trump also talked with Republican senators about what steps they could take to extend emergency aid to U.S. oil and gas companies impacted by the drop in oil prices. He is also seeking to help airlines, cruise companies and hotels, though he hasn’t said how he would do this or pay for it.
The policy changes could have a giant price tag and it’s unclear what impact they would have on stock prices. The payroll cut alone could reduce taxes by around $400 billion through the end of the year. White House officials would not say whether they had any plans to offset those losses. This would lead the budget deficit to grow by around 40%.
Democrats are at work crafting their own proposals, which they say would more squarely address problems caused by the coronavirus. They are working on a plan to offer expanded unemployment insurance for affected workers and free health tests in legislation they hope can be completed by the end of this week.
A number of economists believe that fallout from the coronavirus could drive the world economy into a recession.
In the past two days, Trump has taken on a more somber tone in talking about the economic fallout caused by the virus.
“Everybody has to be vigilant and has to be careful. But be calm, it’s really working out and lot of good things are going to happen,” Trump said. “The consumer is so powerful in our country with what we’ve done with tax cuts and regulation cuts and all of those things, the consumer has never been in a better position than they are right now.”
Sen. Lamar Alexander, R-Tenn., suggested that any payroll tax cut should be reserved until the situation grew even more dire. But Trump said he wants to do it now, and that if it were up to him it would be permanent, according to people with knowledge of what transpired.
A payroll tax cut has little to no chance of advancing in the Democratic-controlled House, where Speaker Nancy Pelosi, D-Calif., and her top lieutenants have spent the past day pouring cold water on it.
Senate Majority Leader Mitch McConnell, R-Ky., also views the idea with skepticism, privately making clear to allies in recent days that he “detests” pursuing this particular policy, which would probably add to federal debt and deficits, according to two veteran Republicans briefed on the discussions who were not authorized to speak publicly.