Conservatives push Trump tariff relief over payroll tax cuts

The best way for President Trump to boost the economy would be to roll back tariffs, not push for a payroll tax cut, according to right-leaning analysts and conservative groups.

Trump has made conflicting remarks this week about his desire for a payroll tax cut amid increased warning signs of a looming recession. His most recent position is that he’s not currently looking at it.

Economists and right-of-center groups argue that now is not the time to pursue a reduction in payroll taxes, mainly because that kind of tax cut wouldn’t fix the economy’s trouble spots.

{mosads}Instead, they argue, rolling back tariffs would be the most direct remedy for what ails the economy since American businesses are being hurt by Trump’s trade war with China.

“There’s no reason to do [a payroll tax cut] right now, but there is every reason to address tariffs right now,” said Alison Acosta Winters, senior policy fellow at Americans for Prosperity.

Trump said Tuesday that a payroll tax cut is “something that we think about.” But when he was asked about it the following day, he said it wasn’t being considered.

“I’m not looking at a tax cut now. We don’t need it. We have a strong economy,” the president said Wednesday. 

The following day, White House economic adviser Larry Kudlow said in an interview on Fox News’s “Bulls & Bears” that the administration is looking at a “tax cuts 2.0” package to help improve the economy in the long term, but isn’t considering any near-term cuts.

“The idea of a such short-term payroll tax-cut fix — it doesn’t work. It never works, it has no lasting impact,” he said.

Kudlow said a tax-cuts package could be rolled out before the 2020 election and might include lower individual tax rates, lower capital gains rates, changes for noncorporate businesses and relief for residents of high-tax states.

But the uncertainty about whether more tax cuts are definitely forthcoming and what might be involved has prompted frustration on the right.

The Wall Street Journal on Wednesday night published an editorial with the headline “Cut the Trump Uncertainty Tax,” arguing the “best stimulus policy would be to end his tariff campaign.” 

Some GOP lawmakers agree with the sentiment of Trump’s most recent comments, that the economy isn’t in bad enough shape to necessitate a payroll tax reduction.

{mossecondads}“If we’re going to do it because we’re concerned about the status of the economy, I just see in the numbers and the reports coming across my desk, the economy is still vibrant, it’s still strong,” Rep. Tom Reed (R-N.Y.), a member of the tax-writing House Ways and Means Committee, said Tuesday on CNN.

He added that the idea of using a payroll tax cut as a stimulus “should be out there as a tool in the toolbox down the road, but it should not be considered at the present time.”

Payroll tax cuts can stimulate the economy by boosting consumer spending, which accounts for almost 70 percent of the U.S. economy. 

However, consumer purchases have been a strong component of the recent economic expansion; the bigger worry is with business investment, experts said.

Conservative groups and economists say a rollback of Trump’s tariffs would be the best way to address business spending.

“Repealing the tariffs is about more than just providing tax relief, it’s also about removing economic uncertainty that will lead to investment and job creation,” said Brandon Arnold, executive vice president of the National Taxpayers Union.

Doug Holtz-Eakin, president of the American Action Forum and a former Congressional Budget Office director, said the tariffs are damaging, and “removing that damage is the most straightforward way to address the weakness.”

The U.S. has already imposed tariffs on about $250 billion of goods imported from China, and tariffs on another $300 billion of goods are slated to take effect later this year.

JPMorgan Chase & Co. estimated in a recent report that tariffs on Chinese goods are costing U.S. households $600 per year on average and that the per-household cost would rise to $1,000 per year if the additional planned tariffs go into effect.

Nixing the tariffs has long been a top priority for many business groups, particularly in the retail sector.

“The economic headwinds today are largely driven by the tariffs,” said Brian Dodge, chief operating officer of the Retail Industry Leaders Association.

David French, senior vice president of government relations at the National Retail Federation, said his group wants Trump to find another way to deal with China “and move away from an unhelpful and what we fear might be an unsuccessful strategy of unilaterally putting tariffs on China.”

The Trump administration has taken steps to address some of the negative consequences associated with the president’s tariffs, in part by providing financial aid to farmers. Earlier this month, Trump moved to protect consumers by saying tariffs on some goods will be delayed from Sept. 1 to Dec. 15.

But Trump seems committed to winning the trade war with China, the world’s second largest economy. He told reporters Wednesday that he has to take on China because the country “has been ripping us off for many years.”

“Somebody had to do it. I am the chosen one,” he said.

Club for Growth President David McIntosh said that while his group would prefer to pull back tariffs, that’s not something Trump would do.

From Trump’s perspective, delaying tariffs may be “the best way to weave through this,” McIntosh said, because that would allow the U.S. economy to keep moving while also putting pressure on the Chinese to come back to the negotiating table after the 2020 presidential election.

If Trump decides to push for a payroll tax cut in the near future, he would likely struggle to get it enacted before the 2020 elections. The move would require congressional approval, and Speaker Nancy Pelosi (D-Calif.) might propose offsetting a payroll tax cut with tax increases elsewhere that would be unpalatable to Republicans.

And conservatives aren’t the only critics of a potential payroll tax reduction.

Steve Wamhoff, director of federal tax policy at the left-leaning Institute on Taxation and Economic Policy, said there are more targeted ways to boost consumer spending among low- and middle-income people.

“It is inaccurate to think of a payroll tax cut as an entirely middle class tax cut,” he said.

The Penn-Wharton Budget Model estimated in a report Thursday that if a 2 percentage point payroll tax cut were enacted for 2020, about 43 percent of the tax change would go to those in the top fifth of income. Those in the top 10 percent of income, however, would see the smallest percent increase in their after-tax incomes.