As the U.S. economy careens toward disaster, congressional talks about what to do appear to have ground to a halt. So on Saturday President Donald Trump — speaking at one of his golf courses, of course — announced four executive measures that, he claimed, would rescue the recovery.
Unfortunately, one of the measures was vacuous, one trivial and one unworkable. And the fourth may do substantial harm.
The vacuous measure simply calls on government agencies to “consider” helping renters facing eviction. The trivial measure waives interest and defers principal repayment on student loans.
The unworkable measure supposedly provides new aid to the unemployed, who have lost pandemic benefits because Senate Republicans don’t want to provide them; but the announced program would be an administrative nightmare that might take a long time to put into effect and would require partial matching funds that strapped states don’t have.
But the really substantive measure would direct employers to stop collecting payroll taxes on behalf of their workers.
This is pretty wild stuff from a legal and constitutional point of view. Can presidents just stop collecting duly legislated taxes whenever they feel like it? But put the law to one side and ask, what’s this all about? Who thinks a payroll tax cut, even if enacted through due process, would solve any of the problems we face?
No reputable economist I know considers a payroll tax cut a good idea. Even if the money went to workers, which it almost certainly wouldn’t, it would go to precisely the wrong ones — workers who haven’t lost their jobs in the pandemic, not those who have. It wouldn’t encourage hiring, because what’s holding employers back isn’t cost, it’s the shutdown of activities with a high risk of infection (like indoor dining).
Now, lots of bad economic ideas — like giant tax cuts for the rich — nonetheless have strong political support. But a payroll tax cut isn’t one of them. In fact, Senate Republicans have been dismissive, dropping the idea from their proposals.
Yet there it is, the apparent centerpiece of Trump’s new plan. What’s going on?
The answer is that a payroll tax cut is the hydroxychloroquine of economic policy. It’s a quack remedy that somehow caught Trump’s eye, which he won’t give up because sycophants keep telling him he’s infallible. There may be some ulterior motives — this move might end up undermining the finances of Social Security and Medicare — but that’s all secondary. Basically this is a tantrum from a president temperamentally incapable of owning up to his own mistakes.
Just to be clear, Trump isn’t actually cutting the payroll tax, which would require legislation. Instead, he’s just deferring its collection; workers will still owe the money a few months later. And knowing this, many employers won’t increase paychecks, they’ll just put the money in escrow on workers’ behalf. For workers, this may be a nonevent.
But maybe, just maybe, Trump will both win in November and find a way to retroactively cancel those tax obligations. If so, he’ll tear a big hole in the finances of Social Security and Medicare, programs that, whatever he may say, he has always wanted to kill.
The main point, however, is that we’re facing a moment of crisis. The emergency relief that sustained the U.S. economy through the coronavirus has expired. Unless very quick action is taken, consumer spending is about to collapse, bringing the whole economy down with it.
This would be a really good time for presidential leadership. But what we have instead is a pitchman hawking miracle cures at his country club. In the process he may well have undermined whatever slim chance there was of reaching an even halfway decent deal to avert disaster.
At a moment of crisis America is cursed with a president who is incompetent, deeply ignorant, yet so personally insecure that he surrounds himself with people who tell him he’s a universal genius.
Paul Krugman is a New York Times columnist.