Donald Trump, the US president, said he was exploring a range of options for new tax cuts to stimulate the economy, revealing the administration’s fears of a slowdown in growth that would undermine his re-election bid next year.
Speaking at the White House on Tuesday, Mr Trump said he had been considering reductions in capital gains taxes as well as payroll taxes as he weighed new stimulus measures with his advisers. “We’re looking at various tax reductions,” he said.
But the president cautioned that no proposal was imminent, and said the US was “very far” from a recession. “We’re in such a strong economic position. We’re right now, the number one country anywhere in the world by far . . . Europe’s got a lot of problems. Asia’s got a lot of problems,” he said.
Mr Trump’s consideration of a new fiscal boost faces obstacles. Any new tax relief package would require approval by Congress, where Democrats control the House of Representatives and are likely to place roadblocks in the way of a White House proposal. Congressional Democrats have complained that big companies and the wealthy were the prime beneficiaries of Mr Trump’s income and corporate tax cuts in 2017 — and a new capital gains tax reduction would probably meet similar criticism.
Payroll tax cuts would offer greater relief to the middle class. But the levy is used to fund pension and healthcare benefits, so any reductions could raise Democratic concerns about the future of the social safety net for the elderly.
“The politics between the administration and House Democrats — who are absolutely required for any legislation — are at a nadir,” Chris Krueger, an analyst at Cowen Washington Research Group, wrote in a note. “Absent a more meaningful economic downturn, we believe the chances are very low.”
Jim Manley, a former senior aide to Democratic senators Harry Reid and Ted Kennedy, said the president’s “manoeuvre reeks of panic” because “every day he and his team are telling the American people that everything is OK”.
“I can’t imagine Democrats in Congress ever agreeing to this,” Mr Manley said. “If you cut the payroll taxes, it’s going to cut the money going into social security and Medicare, neither of which are in particularly good shape right now.”
Republican deficit hawks also might be uneasy about more tax cuts. When former president Barack Obama approved a payroll tax cut temporarily in the aftermath of the financial crisis, many Republicans — including Larry Kudlow, the current director of the National Economic Council — dismissed the measure.
Mr Trump said the administration was weighing a proposal to index capital gains taxes to inflation, which could be pushed through as an executive action without the approval of Congress. However, the impact of that plan would be limited.
The debate over new fiscal stimulus has come as White House officials have grown increasingly nervous that the US economy could be adversely affected by global turmoil, which has been partly triggered by Mr Trump’s multi-front trade wars.
On Tuesday, Mr Trump showed no signs of backing away from the commercial conflict with Beijing, which has led to the imposition of 25 per cent tariffs on $250bn of Chinese imports, and sweeping retaliatory tariffs on US exports to China. Between September and December, Mr Trump is planning to put a 10 per cent levy on $300bn of additional Chinese goods.
“The fact is, somebody had to take China on. 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,” he said.
As he has pressed his trade war, the president has intensified his calls for monetary stimulus by the Federal Reserve, defying the central bank’s independence. Although the Fed cut interest rates by 25 basis points last month, Mr Trump this week said he favoured 100bp of reduction, as well as a new bond-buying programme known as quantitative easing that was used to bolster the economy after the financial crisis.