Trump looking at tax cuts amid recession jitters

US President Donald Trump speaking to reporters at the White House on Tuesday. The US leader's 2020 bid for a second term hinges on the economy's performance. PHOTO: ASSOCIATED PRESS
US President Donald Trump speaking to reporters at the White House on Tuesday. The US leader's 2020 bid for a second term hinges on the economy's performance. PHOTO: ASSOCIATED PRESS

US leader dismisses fears of slowdown even as he seeks ways to foster growth

WASHINGTON • US President Donald Trump has said his administration was considering potential tax cuts on wages as well as profits from asset sales, and sought to play down market anxieties that the world's top economy could be heading for a recession.

Speaking to reporters on Tuesday during a White House visit by Romanian President Klaus Iohannis, Mr Trump said "we're looking at various tax reductions", adding that a "payroll tax is something that we think about".

Recession fears were stoked last week when bond investors briefly demanded a higher interest rate on two-year Treasury bonds than on 10-year Treasury bonds, a potential signal of lost faith in near-term economic growth.

Mr Trump dismissed fears of a slowdown, extolling low unemployment and a rising stock market over his tenure.

"I think the word 'recession' is a word that's inappropriate... We're very far from a recession," he said.

While Mr Trump remains bullish, he and his economic advisers have been casting about for ways to cut taxes to foster growth amid troubling signs. Business investment is cooling and manufacturing has weakened.

US factory activity deteriorated last month to an almost three-year low, according to figures from the Institute for Supply Management.

STILL BULLISH

I think the word 'recession' is a word that's inappropriate... We're very far from a recession.

U.S. PRESIDENT DONALD TRUMP

A slowdown would be bad news for Mr Trump, who is building his 2020 bid for a second term around the economy's performance, but whose year-long trade war with China is weighing on growth.

Economic trends tend to predict election outcomes and recessions can be radioactive for the party in power. In the last century, the only elected US presidents who lost re-election did so after overseeing a recession - Mr George H.W. Bush in 1992, Mr Jimmy Carter in 1980 and Mr Herbert Hoover in 1932.

For Mr Trump, the economy may be even more important than for his predecessors. His low-40s approval rating is already perilous for an incumbent and the economy is the main factor keeping him afloat. He scores poorly on most other policy issues and on questions of leadership and character.

On Tuesday, he said he would not need the approval of Congress to link a tax on profits from asset sales, known as capital gains, to inflation. According to tax code experts, investors would pay far less capital gains tax if it were linked to an inflation index.

"I'm not talking about doing anything at this moment, but indexing is something that a lot of people have liked for a long time. And it's something that would be very easy to do," he said. "It is something I am certainly thinking about."

 
 

Former vice-president and Democratic presidential hopeful Joe Biden, campaigning in Iowa, said lowering the capital gains tax would only help the wealthy.

"The route the President has us going down is a big mistake," Mr Biden said after a rally. "We should be focusing on how you re-empower the middle class; we should be rewarding work, not wealth."

Payroll taxes fund the Medicare health insurance programme for the elderly and Social Security which, in turn, provides income payments for retirees.

Lowering them temporarily could boost consumer spending, a key driver of the US economy, but it would also deprive the government of tax revenues, at least in the short term.

At the end of 2017, Mr Trump signed a massive tax overhaul passed by the Republican-led Congress and has since promised to follow up with another round of major changes.

REUTERS, BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on August 22, 2019, with the headline 'Trump looking at tax cuts amid recession jitters'. Print Edition | Subscribe