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Trump confirms he’s considering a payroll tax cut amid mounting economic concerns

President Trump on Aug. 20 said the word “recession” was “inappropriate” and again called for the Federal Reserve to reduce interest rates by 100 basis points. (Video: The Washington Post)

President Trump on Tuesday confirmed he is considering whether to push for a temporary payroll tax cut or other tax changes amid mounting concerns about an economic slowdown.

Trump tried to tout the economy’s strength while also spelling out a number of steps he might push for that are usually reserved for periods of significant economic weakness. In addition to tax-cut ideas that Trump said are under review, he continued Tuesday to push the Federal Reserve to slash interest rates.

Trump’s comments laid bare increasingly urgent White House discussions that have shifted from public denials that anything is wrong to a review process aimed at soliciting ideas to stimulate the economy. Few economists believe the country is in a recession, but most say it is slowing, and White House officials fear that a weak economy in 2020 could impair Trump’s reelection chances.

As a candidate, Donald Trump warned about the perils of President Barack Obama’s economic management. As president, Trump often fails to heed his own advice. (Video: JM Rieger/The Washington Post, Photo: Jabin Botsford/The Washington Post)

White House officials want to buttress business spending, which has already weakened sharply, and consumer spending, which has helped undergird the U.S. economy even as soft spots begin to emerge. A payroll tax cut would give most working Americans more disposable income and lead to more spending, but such proposals in the past has proved unpopular with Republicans. There appears to be little appetite to advance the idea on Capitol Hill, where Democrats control the House.

Trump’s acknowledgment that he is considering the idea came one day after The Washington Post reported that several senior White House officials had begun discussing such a move. At the time, the White House publicly denied it was under consideration.

White House officials eyeing payroll tax cut in effort to reverse weakening economy

Some administration officials had become concerned that if the public knew they were looking at new ways to stimulate the economy, it could actually hurt the economy by making more people worry. That caution was erased Tuesday, however, when Trump said he was open to new ideas.

“Payroll tax is something that we think about, and a lot of people would like to see that, and that very much affects the workers of our country,” Trump said Tuesday during an exchange with reporters at the White House.

Millions of Americans pay a payroll tax on their earnings, a 6.2 percent levy that is used to finance Social Security programs. The payroll tax was last cut in 2011 and 2012, to 4.2 percent, during the Obama administration as a way to encourage more consumer spending during the most recent economic downturn. But the cut was allowed to reset back up to 6.2 percent in 2013.

Trump said he was also looking at other ideas, including a change to capital gains taxes that would give many investors an additional tax cut. Some White House officials believe that Trump could authorize this tax cut without congressional approval, by adjusting how the capital gains tax takes inflation into account, but the Treasury Department has not signed off on the change yet.

Still, Trump’s comments pulled back the curtain on a freewheeling policy process within the White House. Senior administration officials are trying to assess the real weaknesses in the economy while also determining whether they should take any steps to intervene before the 2020 elections.

None of his senior advisers have experience navigating the government through a political downturn.

One of his top Democratic rivals, Sen. Elizabeth Warren (D-Mass.), has argued that Trump’s handling of the economy has been irresponsible and will push the United States into a recession. And former vice president Joe Biden has said Trump has botched a trade war with China in a way that has hurt many U.S. companies.

Last week, White House officials fervently rejected any sense that the economy was weakening, even in the face of numerous signals that the U.S. and global economies had begun to slow. Instead, they blasted the Fed, alleging that any weakness in the economy was the fault of central bankers who had raised interest rates last year.

In the past few days, however, a new process has kicked off within the West Wing. Top officials have met with Trump and one another to determine what is happening with the economy and what — if anything — they should do about it. Trump has also discussed the economy with a range of confidants and business leaders, though the content of those conversations has not always been shared with senior White House officials.

The analysis of a payroll tax cut centers on a belief among White House officials that they need to do whatever they can to ensure that consumers continue spending money. Consumer spending has been a bright spot of the economy this year, and consumer spending and retail sales have helped pull the economy through weaker business investment numbers.

But passing a payroll tax cut could be unpopular with lawmakers from both parties. Many Democrats traditionally support payroll tax cuts because they tend to disproportionately benefit middle-class Americans. But Democrats could be reticent to back another tax cut less than two years after Republicans pushed through a controversial $1.5 trillion tax-cut package that has had mixed effects on the economy.

And Republicans have long resisted payroll tax cuts, believing the impact of such changes to be inefficient and temporary. Also, the payroll tax cut put in place in 2011 and 2012 was costly, pulling away more than $100 billion in federal revenue each year. The deficit is already projected to hit $1 trillion this year and worsen next year.

On Capitol Hill, Republicans and Democrats are scratching their heads at yet another Trump effort they say is likely to go nowhere. After passage of tax reductions at the end of 2017, House Republicans proposed a second round they nicknamed “Tax Cuts 2.0.” But Democrats flipped control of the House in the midterms and have little interest in decreasing taxes at the behest of the president — unless it would mean securing their own wins in return.

A senior House Democratic aide said the chamber would perhaps consider a payroll tax proposal, if — for example — it was coupled with an infrastructure package and an increase in the minimum wage to $15 an hour.

“Obviously there are no details on what Trump is considering but his current economic policies are already hurting people from modifications to [unemployment benefits], Medicaid work requirements and [nutrition benefit] changes — changes to these programs all hurt the economy because this money is spent nearly instantly injecting demand into the economy,” said the aide, who like others interviewed was not authorized to comment on internal deliberations publicly and spoke on the condition of anonymity.

The bigger problem, however, might prove to be Trump’s own party. The prevailing wisdom in the Senate among Republicans, according to one top Senate GOP aide who follows the matter closely, is that there is little appetite for payroll tax cuts that could add to the more than $20 trillion debt. The administration could propose borrowing from the Social Security Trust Fund, this person said, but that would only make the fund’s finances more tenuous.

Additionally, aides say, many Republicans on the Hill are baffled at how Trump is denying that an economic recession is around the corner while also throwing out ideas such as this just in case. The two stances, they say, are at odds.

“Frankly, this sort of came out of nowhere — this is like a creation of bad economic news and the White House trying to figure out what to do about it,” said a second GOP aide. “If anything it shows that they’re concerned about the economy.”

The White House scramble comes as senior administration officials grapple with dimming economic projections ahead of the 2020 elections. White House officials had insisted that the economy would grow at a roughly 3 percent pace this year, a clip that many economists say is too rosy.

White House officials have not presented a coordinated plan for how to deal with the changing economy. Just a few hours before Trump confirmed that he has thought about a payroll tax cut, spokesman Hogan Gidley flatly denied it.

“It’s not being considered at this time, but he’s looking at all options out there to try to give people back so much of the hard-earned money they’ve made,” Gidley said.

One reason for the weakening economy, many business leaders and economists say, is the prolonged trade war Trump has launched against China. Trump has imposed tariffs against $250 billion in Chinese imports, and he plans to impose tariffs on an additional $100 billion in goods at the beginning of next month. And he has announced that he will impose tariffs on another large batch of Chinese imports — many of which are popular consumer goods such as laptops and phones — on Dec. 15.

“The fact is, somebody had to take China on,” Trump told reporters. “My life would be a lot easier if I didn’t take China on. But I like doing it, because I have to do it, and we’re getting great results.”