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Trump, Democrats duel over how to counter the economic damage of coronavirus

The president wants a payroll tax holiday, but his opponents have other ideas

President Trump again pressured the Federal Reserve to do more, calling the central bank pathetic.
President Trump again pressured the Federal Reserve to do more, calling the central bank pathetic.Stefani Reynolds/Bloomberg

President Trump and congressional Democrats staked out dueling positions Tuesday on how to help the United States weather the economic storm caused by the spreading coronavirus, as some congressional Republicans gave a lukewarm reception to the White House’s stimulus plans.

The president told a Senate GOP lunch meeting that he wanted “a payroll tax holiday” for workers and employers through the end of the year, said Larry Kudlow, his chief economic adviser. Trump also wants to assist hard-hit industries, such as airlines and hotels, through tax deferrals, provide aid to small and midsize companies, and ensure paid sick leave for workers affected by the outbreak, Kudlow said, declining to offer any details.


“The economy is strong, but we know that there will problems ahead,” Kudlow told reporters at a briefing by members of the White House coronavirus task force.

Democrats countered that they want to help workers, too, but rejected the payroll tax cut proposal. Instead, they are pushing measures including no-cost virus testing, paid family and sick leave, adequate unemployment insurance benefits, and food security, especially for low-income families whose children receive free lunch benefits at public schools.

“We know more needs to be done,” House Speaker Nancy Pelosi said after meeting with Treasury Secretary Steven Mnuchin. She said Democrats were working on stimulus legislation but didn’t offer specifics.

“If the Trump administration bothered to talk to experts, they’d say that we need targeted economic stimulus — including guaranteed emergency sick leave — that is equal to the challenges families are facing during this outbreak,” Senator Elizabeth Warren, a Massachusetts Democrat, said in a statement.

Even Senator Lindsey Graham, a South Carolina Republican and staunch Trump ally, said his fellow GOP senators had a “mixed” reaction to Trump’s plans.

“The payroll tax, as a general stimulus — I’ve got to think about that,” Graham said.


On Wall Street, the anticipation of Washington pumping money into the economy helped stocks recover some of their big losses on Monday. In a volatile up-down-up session, the Dow Jones and Standard & Poor’s 500 indexes each gained 4.9 percent, after plunging more than 7 percent on Monday. US crude oil prices rose 11 percent, chipping away at the 25 percent beating they took the day before.

Trump hasn’t publicly discussed details of his stimulus package. Kudlow called it a “bold plan," noting that the president would like to see payroll taxes eventually disappear for good. That seems unlikely, given it would cut something like $1 trillion in government revenue.

Senate majority leader Mitch McConnell didn’t endorse Trump’s proposals and said any payroll tax cut would require the support of Republicans and Democrats in both chambers. Trump could enact other measures through executive action.

“We’re hoping that he and the speaker can pull this together," the Kentucky Republican said, referring to Mnuchin and Pelosi.

Meanwhile, Trump once again pressured the Federal Reserve to cut interest rates to support the economy, even though central bankers announced an emergency reduction of one-half of a percentage point last week. The Fed is scheduled to meet next week.

“Our pathetic, slow moving Federal Reserve, headed by Jay Powell, who raised rates too fast and lowered too late, should get our Fed Rate down to the levels of our competitor nations,” Trump said on Twitter.


Payroll taxes refer to the portion of the paycheck that funds Social Security and Medicare; workers pay 7.65 percent of their salaries for these two programs, and employers match the contributions. The Social Security tax is 6.2 percent on annual income of up to $137,700.

The Medicare levy is 1.45 percent, with no income cap, though wages above $200,000 are taxed at an extra 0.9 percent.

For a worker making $60,000 a year, temporarily suspending payroll taxes would result in a savings of about $88 a week.

It’s unclear if the White House also plans to include income-tax withholding as part of its relief package, which is a more substantial paycheck deduction. Also not clear is whether the millions of people who are self-employed, such as independent contractors, would get relief.

Any suspension of payroll taxes would be hugely costly to the US government. Each percentage point reduction could cost $55 billion to $75 billion per year, according to the Committee for a Responsible Federal Budget.

The White House is dusting off a playbook used by the George W. Bush administration and Congress following the financial crisis in 2008. The idea is to put more money in consumers’ pockets so they will spend and bolster the economy.

During the financial crisis that began in 2008, most filers received a $600 credit — $1,200 for joint filers — minus child and earned income credits, according to the Tax Policy Center. People who qualified for the credit also could receive an extra $300 credit for each child eligible for the regular child credit, the center said.


In 2010, Congress approved a 2 percentage point reduction in the Social Security payroll tax for the following year.

Senator Ed Markey said a payroll tax cut would be misdirected.

“A tax cut will do nothing to address the Trump administration’s failure to adequately respond to the coronavirus epidemic," the Massachusetts Democrat said in a statement.

Material from Globe wire services was used in this report.

Larry Edelman can be reached at larry.edelman@globe.com. Follow him on Twitter @GlobeNewsEd.