Chinese shipping containers are unloaded at the Port of Long Beach in California. (Mark Ralston/AFP/Getty Images)
Jared Bernstein, chief economist to former vice president Joe Biden, is a senior fellow at the Center on Budget and Policy Priorities.

The Trump administration, in its predictably weird way, is flailing because of the idea that a recession might someday strike. White House officials told The Washington Post this month that they hadn’t yet done anything to prepare for this eventuality. Then President Trump added that “we’re very far from a recession” and claimed that any talk of one was a media conspiracy to hurt his reelection prospects. But he also said he was considering a payroll tax cut to protect against the downturn he’d said wasn’t possible. The following day, he reversed himself: That move was now off the table.

Perhaps the president is right and the threat is not imminent; no one knows for sure when it will hit, but based on a broad range of indicators, the risks are rising. At least his aides now seem to be mulling the possibility that the U.S. economy may fall into a recession on their watch — and considering the actions they might take if it does. The smartest thing they could do is cancel Trump’s China tariffs. (Waging a trade war while fighting a downturn is like punching the economy in the face while treating its bruises.) But given Trump’s victory-at-any-cost attitude, and the joy he evidently takes in contradicting expert opinion on this matter, the tariffs will probably remain. 

What, then, can the administration do to soften the blow, whenever it lands? When I was the chief economist to Vice President Joe Biden — the implementer in chief of the 2009 Recovery Act — my colleagues and I divided preparations for a downturn into three parts: diagnosis, prescription and politics.

First, the type of recession informs the response. A freeze-up of the credit system when a swath of home loans (and bets on those loans) goes bad requires a different answer than a downturn caused by disrupted global supply chains and collapsing business and consumer confidence. The magnitude of the problem matters, too. The $800 billion Recovery Act passed in 2009, for instance, would have been an excessive stimulus to treat the much milder 2001 recession. 

It is too soon to accurately diagnose the cause or depth of the next recession, but there are some hints worth minding. There’s no obvious bubble in credit markets, and most banks appear less exposed to a 2008-style crisis. The bigger problem appears to be trade-sensitive sectors like manufacturing and farming (which have less access to export markets that buy their goods) along with the increasing insecurity of the business community, which is causing executives to halt the kind of investment in jobs and structures that stimulates growth. Business investment declined slightly last quarter, down 0.6 percent. One producer of ear buds and headphones told The Post this month, for instance, that he suspended hiring after Trump tweeted his intention to slap another round of tariffs on Chinese imports. 

Second, the prescription is already somewhat baked-in. Our system has a set of “automatic stabilizers,” programs that, without any new legislation, ramp up to help economically vulnerable people when the market fails. Unemployment insurance, which is a joint federal/state program, and the Supplemental Nutrition Assistance Program (SNAP) are examples of services that answered needs during the last recession. One similar but overlooked tool is the tax code itself. Because it is still progressive (income tax rates rise with income), if your salary takes a big enough hit, you can be pushed into a lower bracket and thus pay less in taxes. 

Yet these automatic responders can offset only the mildest of recessions, and actions by the Trump administration have weakened their effect even more. By reducing personal and corporate tax rates, the 2017 tax cut has dampened the stimulus inherent in the code, as tax expert Bill Gale has noted (a less-progressive code means smaller changes in liabilities as people move between income brackets). Also, Trump’s approval of work requirements for health care and various low-income programs have restricted the number of people eligible to use them. A good recession plan would help restore access to such programs for the people who suddenly need the most help. Another problem, not of Trump’s doing, is that 18 state unemployment insurance coffers — including in highly populated states like California, New York, Texas and Illinois — do not meet the minimum Labor Department standard for recession readiness.

In other words, the administration and Congress need to get to work on a package of temporary measures that would pick up where traditional unemployment insurance and SNAP leave off.

One such measure should be state fiscal relief. Unlike the federal government, states must balance their budgets, even in recessions, and their actions typically involve layoffs and higher charges (like college tuition hikes). In the last recession, fiscal relief to states worked well and garnered bipartisan support. Plus, it’s administratively straightforward: Congress can temporarily bump up federal matches to federal/state programs, like Medicaid. Lawmakers would also need to move speedily to send states money to supplement their unemployment insurance systems. In the last crisis, lawmakers dithered while people’s unemployment checks ran out. In 2010, I battled with Congress for an extension as the job market was just beginning to recover and as many as 7 million unemployment insurance recipients were at risk of losing benefits. In later rounds, such squabbling caused millions more unemployed people to lose checks that they later received retroactively, a big administrative hassle that could have been avoided with planning. 

Another tool, one often preferred by Republicans (and the only one Trump has touted so far), is tax cuts. About one-fourth of the 2009 Recovery Act went to tax cuts, and they can be useful in terms of putting money in the pockets of people who need it. But such plans make sense only if they’re well-targeted and temporary. Giving a tax cut to rich people who don’t need it, even in a recession, is a waste. Because they’re not income-constrained in the first place, they won’t increase their spending, delivering no extra stimulus.

The Trump administration has already floated a few tax cuts in this context, though it’s not clear if these are serious proposals. One idea his team has mentioned — cutting capital gains taxes — is a good example of a cut that wouldn’t help. Because 86 percent of its benefits would go to the top 1 percent, whose average income is north of $2 million, this cut wouldn’t do anything to offset the downturn. It would also be a permanent change that would cost the Treasury at least $100 billion over 10 years.

The third step in recession prep is political. Because lawmakers control the purse strings, it is impossible to fight recessions without congressional support. The administration must get to work now to line up votes on both sides of the aisle on behalf of an anti-recession package. That requires compromises of the kind we don’t see much anymore. I recall President Barack Obama’s team having to toss a Recovery Act program I strongly supported — refurbishing public schools — to get the crucial support of a Republican senator.

One potentially serious constraint is that, because of the deficit-financed tax cuts and spending bills under Trump, we’ll be entering the next recession with a debt-to-GDP ratio that’s more than twice the historical norm (about 80 percent vs. 30 percent). That will surely make some Republicans skittish about expensive stimulus plans. But an inadequate fiscal response to a recession is totally counterproductive, meting out economic pain for no gain. Temporary anti-recessionary measures don’t hurt our long-term fiscal outlook (research by budget analysts Kathy Ruffing and James R. Horney shows that as of 2014, Recovery Act measures were contributing almost nothing to deficits). It’s the more permanent ones — unpaid-for tax cuts and spending bills — that do.

You fix your roof when the sun shines, and you plan for recession while you’re still in recovery. No question, economic clouds are gathering. But the sky remains at least partly sunny. Now is the time to get ready.

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