Jacquelyn Martin/AP Photo
Trump arrives at the CPAC conference in Maryland, February 29, 2020.
When I heard that Donald Trump was floating a payroll tax cut as an economic response to the coronavirus outbreak, and when I heard that he wanted to carry it “through the election,” I will admit my skepticism that he was truly responding to the current crisis, rather than trying to shove money into voters’ hands before his re-election! I guess that’s also because Trump first floated the payroll tax cut more than six months ago.
“Several senior White House officials have begun discussing whether to push for a temporary payroll tax cut as a way to arrest an economic slowdown,” wrote Damian Paletta of The Washington Post on August 19, 2019, months before anyone contracted COVID-19 (the disease caused by the coronavirus). The White House disputed at the time that it was under consideration, but Paletta had three separate sources saying otherwise.
Last August there were rumblings about another recession, based on a couple indicators. That failed to materialize, as the economy continued its lumbering march forward. But COVID-19 has put the economy in a terrible spot, and pushed the Trump administration back to the exact same tools it had mused about before. The payroll tax cut, then, was plug-and-play, which could be why it’s proving such an ill fit, both for Congress and the economic moment.
There’s nothing wrong with a payroll tax cut as a stimulus measure: Progressive economists like Dean Baker like it because of its simplicity—just don’t take the tax out of people’s paychecks—and its progressivity. Payroll taxes end at the first $137,700 of income, so a cut gives more relief to lower-wage earners.
The Obama administration cut payroll taxes by two points in 2011 and 2012, and reimbursed the trust fund for the lost revenue. Social Security advocates fear that Trump won’t comply with that, making this gambit both an election booster and a means to damage social insurance programs. But there are several other reasons why a payroll tax cut doesn’t make the most sense right now.
First, the coronavirus is unique. You want a payroll tax cut to boost demand in the economy, to give people more money that they can spend at businesses. But closures, cancellations, and quarantines reduce supply in the economy: People don’t go to restaurants or shops, don’t travel, don’t stay in hotels. The extra cash won’t do much to boost revenue among the businesses hardest-hit by the crisis in the near term.
Second, the payroll tax cut only affects those with a salaried job. We can expect significant layoffs in the travel, hospitality, retail, and restaurant industries as a result of this crisis, not to mention the crash of jobs in the oil patch. Those people need the most help, and they get nothing from a payroll tax cut. If the oil collapse seizes up the financial system, more layoffs could ensue, leaving more people on the outside of stimulus.
Third, if Americans get sick, fear infection enough to stay home, or are forced to care for their children in the event of school closures, only a policy guaranteeing them some form of leave will help, so they’re not cut off from their income source. This crisis is tailor-made for instituting paid sick leave, so nobody infected by COVID-19 feels compelled by financial circumstance to make their workplaces vulnerable to an infectious disease. And childcare policies are urgently needed, or at least some kind of paid family leave, so parents can keep young children under watch should schools shut.
I haven’t always been Pelosi and Schumer’s biggest cheerleaders, but they have done an excellent job as the coronavirus response debate kicks off.
Finally, we have the overhanging fear in America of high medical bills accompanying sickness, and if we want everyone tested and treated for a contagious disease, we have to remove that fear. Free testing and treatment for COVID-19 must be part of the mix as a public health and national security issue, as well as ways to rapidly expand medical provider capacity and a steady flow of the necessary supplies like facemasks and ventilators.
These issues match almost precisely with the plan House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer rolled out last Sunday night; paid sick leave, enhanced unemployment benefits, more protective equipment for frontline workers, free testing and reimbursement for treatment, and increased medical system capacity. They correctly added food security, because if schools close, free school breakfast and lunch programs close with them, leaving poor children without what are often their only decent meals of the day.
I haven’t always been Pelosi and Schumer’s biggest cheerleaders, but they have done an excellent job as the coronavirus response debate kicks off. This press conference on Monday hit all the right notes, stressing the need to respond to the near-term crisis rather than an untargeted stimulus that leave those most affected behind. This has united the party; even Bernie Sanders’s COVID-19 proposal follows along largely the same lines. While more could be done, this immediate response meets the moment and has virtually all Democrats in agreement.
Meanwhile, when you add in what else Trump’s team has floated to deal with the coronavirus, you see the tendency toward rewarding cronies rather than solving problems. He has proposed short-term lending to businesses hit by the crisis, and effective bailouts for the cruise ship, hotel (no self-interest there), and shale oil industries, which includes major Trump supporter Harold Hamm of Continental Resources, whose net worth fell below $1 billion after the stock crash this week. (Pour one out.) The Trump public health response has been a disaster, and the economic proposal is just as scattershot.
Republicans appear to know this. Trump left a meeting with the Senate GOP Tuesday without making an announcement. Senators seem more interested in paid sick leave and help for quarantined workers, and even the Trump administration is conceding that might have to be part of the package.
In fact, the political pressure is feeding back into pressure on corporate America to show some responsibility for their workers. Companies like Darden Restaurants, the parent company for Olive Garden, have changed their policies to offer paid sick leave to all workers. McDonald’s has earmarked paid leave for two weeks for quarantined workers for corporate-owned restaurants, about 5 percent of the total franchises. But companies responding one-by-one can’t be where this ends.
Pelosi is negotiating with Treasury Secretary Steven Mnuchin right now, and with recesses scheduled next week, we may not see action until the end of the month. But Democrats appear to have the upper hand. Their ideas have more resonance in the current crisis, and the Republican brick wall is showing cracks.
Even if the payroll tax cut is put up as a non-negotiable, that has to be paired with paid sick leave that is made permanent. The threat of sick people going to work and infecting others doesn’t go away even if COVID-19 does. America is one of the only countries that doesn’t mandate paid sick leave, and we’re seeing now why that’s so tragic. Other automatic stabilizers, like expanded unemployment insurance kicking in whenever unemployment spikes, should be negotiated as well, so Republicans cannot deny relief in recession, solely to harm the political prospects of a Democratic president.
Democrats have put their personal interests aside and want to address growing public need as the economy tips into recession. Permanent policies to prevent these pitfalls from happening again are the key to a successful response.
