The Washington PostDemocracy Dies in Darkness

Trump pitches payroll tax cut through election to skeptical GOP senators

Congressional leaders and White House seek quick action to address financial turmoil, but solutions differ

President Trump about the coronavirus outbreak at the White House with Surgeon General Jerome M. Adams, from left, physician Deborah Birx Vice President Pence. (Carolyn Kaster/AP)
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President 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 businesses and voters as he heads into the November presidential election.

But his proposal was not warmly received by Republicans, and it was also panned by Democrats, leaving policymakers searching for any common ground as the coronavirus’s outbreak continues to take its toll on the economy. 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. But in the past the two sides have taken different approaches, and it’s not clear whether 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, but some of the ideas appear not to have been carefully vetted. One senator at Tuesday’s lunch meeting 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.

The scramble for policy options is an attempt to address the coronavirus’s economic fallout, which — in Trump’s public statements — has become as high a priority as dealing with the virus’s spread. Hints of policy progress sent the Dow Jones industrial average markedly higher Tuesday, as it climbed 1,167 points, or close to 5 percent, regaining some of its steep losses from the day before.

In addition to large tax cuts, Trump talked with Republican senators about what steps they could take to extend emergency aid to U.S. oil and gas companies hurt by the drop in oil prices. He is also seeking to help airlines, cruise companies and hotels, though he has not said how he would do that or pay for it.

The policy changes could have a giant price tag, and it’s unclear what impact they would have on falling stock prices. The payroll tax 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, which would cause the budget deficit to grow by about 40 percent.

Democrats, meanwhile, are crafting their own proposals, which they say would more squarely address problems caused by coronavirus. They are working on a plan to offer expanded unemployment insurance for affected workers and free coronavirus tests in legislation they hope can be completed by the end of this week.

The disunity left it uncertain how or whether Congress and the administration will be able to come together on any economic proposal to help boost consumer and investor confidence. A number of economists believe fallout from the outbreak could drive the world economy into a recession.

Several major airlines have moved to slash routes, redraw their financial outlooks and even slash executive pay. Delta Air Lines said Tuesday it was cutting international flights by as much as 25 percent and domestic routes by 10 to 15 percent. Airline company stocks have tanked in the past month as many Americans have either canceled travel plans or refused to book new flights. American Airlines’ stock price has fallen almost 50 percent since Feb. 12.

A huge contraction in travel and entertainment spending, in part because people and businesses are wary about putting their health at risk, could have spillover effects on a range of other businesses, particularly social venues like restaurants.

Lawmakers in both chambers were uncertain about the path forward.

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.”

But inside the Senate GOP lunch, according to lawmakers and aides present who spoke on the condition of anonymity to discuss the private gathering, Trump faced some skepticism as he pitched a payroll tax cut that could cost hundreds of billions of dollars.

Sen. Lamar Alexander (R-Tenn.) suggested that any payroll tax cut should be reserved until the situation grew 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.

Payroll taxes are a combination of taxes paid by employers and employees that fund Social Security and Medicare. In the past, payroll tax cuts have targeted the 12.4 percent tax that finances Social Security, with 6.2 percent paid by employers and 6.2 contributed by employees. President Barack Obama cut the employee portion to 4.2 percent for two years. Some senators interpreted Trump’s remarks Tuesday as a desire to cut the taxes completely, and permanently.

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 probably would add to federal debt and deficits, according to two veteran Republicans briefed on the discussions who were not authorized to speak publicly.

After the meeting, McConnell told reporters that he had faith in Treasury Secretary Steven Mnuchin coming up with a deal with Pelosi on some kind of economic package, as the two have had recent success in negotiating bipartisan budget deals.

“We’re hoping that he and the speaker can pull this together so that we end up not playing partisan games, at a time which seems to me to cry out for bipartisan, bicameral agreement. That’s what I’m hoping to see, and hoping to see pretty soon,” McConnell said, without endorsing or even mentioning the payroll tax cut.

During the meeting with GOP senators, Mnuchin emphasized that Congress needed to act to help the airline industry in particular. He then went to meet with Pelosi, emerging to say, “We’re going to work together on a bipartisan basis to figure out how we can get things done quickly that are going to help the Americans that are most impacted by this and small- and medium-sized businesses that are impacted.”

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Of all the ideas Trump floated, the payroll tax-cut plan seemed to receive the most lukewarm reception. A payroll tax cut would do little, for example, for people who have lost their jobs because of the economic fallout of the outbreak. And it would deliver benefits for people who are in fields or parts of the country that have not been affected by the virus at all.

“Different people have a different idea about what would really make a difference,” said Sen. John Thune (R-S.D.), the No. 2 Senate Republican. “Right now more than anything else, you want to try to lessen or minimize as much as possible the adverse economic impact caused by the virus. And the key is what are the best levers, really the best tools to do that?”

Wall Street faced one of its worst days in history March 9, amid crashing oil prices and the global spread of the coronavirus. (Video: Reuters)

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Top House Democrats, meanwhile, said Tuesday they planned to move quickly on a relief package that narrowly targeted individuals and families affected by the coronavirus outbreak.

The measures floated by Pelosi and other leaders included an expansion of unemployment insurance, food stamps and other public assistance programs as well as allowing for more sick and family leave. The legislation could be released as soon as Wednesday with a vote coming as soon as Thursday.

“One thing is clear. The American people are the ones who will need the relief if Congress acts — not the millionaires, not the billionaires, not the multinational corporations,” said Rep. Hakeem Jeffries (D-N.Y.). “We need to put families first.”

Action in the House this week on a major economic package would require unusual speed, and Pelosi had suggested Monday night that a vote this week might not be possible, depending on how long it takes to draft text of the legislation and determine its cost.

That timeline prompted an irate response from Trump.

“Nancy Pelosi just said, ‘I don’t know if we can be ready this week.’ In other words, it’s off to vacation for the Do Nothing Democrats. That’s been the story with them for 1 1/2 years!” Trump wrote on Twitter before traveling to Capitol Hill.

Mike DeBonis, Jeff Stein and Paul Kane contributed to this report