Close Close

Financial Planning > Tax Planning

Trump Floats Payroll Tax Cut to Bolster Economy After Market Plunge

Your article was successfully shared with the contacts you provided.
President Donald Trump talks about a payroll tax cut after markets plunged on Monday. (Photo: Stefani Reynolds/Bloomberg)

President Donald Trump said Monday he will seek a payroll tax cut and “very substantial relief” for industries that have been hit by the virus, reversing course on the need for economic stimulus hours after markets posted their worst losses in more than a decade.

Trump, speaking at a White House news conference, said that he plans to announce “very dramatic” actions to support the economy at a press conference on Tuesday following discussions with lawmakers. “I will be here tomorrow afternoon to let you know about some of the economic steps, which will be major,” Trump said.

Trump said he wants to help hourly wage earners who could lose pay by staying home “so they don’t get penalized for something that’s not their fault.”

Pressure has been growing on Trump to take more decisive action in response to the coronavirus, as the number of cases in the U.S. and worldwide continues to grow. U.S. stocks plunged more than 7.5% on Monday — the worst day on Wall Street since the financial crisis — as a full-blown oil price war rattled financial markets already on edge over the outbreak.

(Related: Global Market Carnage Fueled by Coronavirus, Oil Price Fears)

Trump’s statement marks a reversal from his administration’s recent position on the need for economic stimulus.

Last week, Treasury Secretary Steven Mnuchin said the administration isn’t considering a payroll tax cut as part of its response to the coronavirus. He added that the virus sell-off isn’t comparable to the financial crisis a decade ago. “We will get through this,” he told reporters on Mar. 3. Market swings are happening because “the markets struggle to assess new risks.”

It’s unclear whether the plans being discussed at the White House will be enough to stem the sell-off as the private sector, particularly airlines and cruise companies, clamor for more relief.

Mnuchin, speaking Monday at the White House news conference, reiterated that the recent turmoil in markets “is not like the financial crisis” and pointed to “an unprecedented move in the oil market” as the source of gyrations in the U.S. stock market. Mnuchin added that he has daily conversations with Federal Reserve Chairman Jerome Powell, and that the president is committed to using “all our tools” to help the economy.

Bank chief executives will be coming to the White House later this week, Mnuchin said, adding that the administration is focused on workers who need to be at home and small businesses that need liquidity.

Republicans in Congress have begun floating their own ideas but had been waiting to hear from Trump before making specific proposals. The idea of cutting payroll taxes has been gaining traction in Congress among some GOP lawmakers. But it’s drawn objections from Democrats, including House Majority Leader Steny Hoyer.

“The president’s answer for almost everything is a tax cut,” Hoyer said after emerging from a meeting of Democratic congressional leaders. “I think we need to make sure that people and health facilities and health insurance companies and others can have confidence that they’re not gonna be bankrupt by this and they will have some support from the government”

“There are other things we can do that have more immediacy,” said Representative Richard Neal, chairman of the tax-writing Ways and Means Committee.

But Senator Roy Blunt, a member of the GOP leadership, said a payroll tax cut would be hard for Congress to oppose.

“I don’t recall a time when a president’s proposed a payroll tax cut that it didn’t happen,” Blunt said Monday. “It’s a pretty hard thing to stand in the way of if it’s designed as an economic relief issue.”

Democrats and some Republicans also have endorsed taking some action to protect workers who don’t have any or enough paid sick leave to be able to self-quarantine for 14 days as health officials recommend.

More than a quarter of private U.S. workers don’t get any sick leave with their jobs, including more than half of part-time workers and about 40% of service employees. About one-third of private U.S. workers don’t get medical benefits via their employment, according to government data.

House Speaker Nancy Pelosi and Senate Democratic leader Chuck Schumer are calling for expanded paid sick leave, enhanced unemployment insurance for those laid off because of the virus crisis, expansion of food stamps and school lunches, anti-price gouging protections and free virus testing. They also want the government to reimburse virus treatment costs not covered by insurance. The exact details how these goals are to be achieved have yet to be worked out.

Congress is scheduled to take a one-week break starting Thursday and putting together a piece of legislation would be a difficult task in the time they have. Both sides said they want to act quickly, but they would have to overcome disagreements about what should be included.

Trump on Monday added that the administration is working with the travel and hospitality industries to contain the spread.

“We want people to travel to certain locations and not to other locations at this moment,” Trump said, without elaborating.

Vice President Mike Pence, who Trump tapped to lead the administration’s response to the outbreak, reiterated the position that “the risk of contracting the coronavirus to the American public remains low, and the risk of serious disease among American people remains low.”

Pence said that 21 people who had been aboard the Grand Princess cruise ship that docked Monday in Oakland, California, are in proper isolation. He said they hoped to disembark California residents by the end of the day. Other passengers will be sent to air force bases in Texas and Georgia, he said.

(Related: Global Market Carnage Fueled by Coronavirus, Oil Price Fears)

Copyright 2021 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.