White House officials want a reduction in payroll taxes to reverse the downturn in the economy

WASHINGTON – Three senior White House officials have begun discussions about the opportunity of a temporary payroll reduction to halt an economic downturn, three familiar people said the talks revealing the growing concerns of the chief economic advisers of President Donald Trump.

The talks are still in their infancy and officials have not yet decided to officially force Congress to approve the reduction, said the people, expressing anonymity because they were not authorized to disclose internal discussions. But the White House has begun in recent days to seek proposals likely to curb the economic slowdown.

Millions of Americans pay a "payroll tax" on their earnings, a 6.2% tax that is used to fund social security programs. The payroll tax had been reduced for the last time under the Obama administration to 4.2%, to encourage an increase in consumer spending during the recent economic downturn. But the reduction was allowed to return to 6.2% in 2013.

Americans pay social security contributions of $ 132,900. Reducing payroll taxes has therefore remained a popular idea for many lawmakers seeking to provide savings to middle-income taxpayers and not to the wealthiest Americans. However, cuts in payroll taxes can also make the deficit considerably worse and, according to their design, take billions of dollars from social security.

Payroll tax cuts under the Obama administration have cut taxes by more than $ 100 billion a year, but the Obama administration has allocated lost revenues to social security programs, so that these initiatives did not result in the loss of money. The cuts added to the deficit, however.

The magnitude of the reduction could mean more tax relief for many families than the 2017 Tax Act.

The Trump administration talks about the opportunity for a payroll tax cut have only begun in recent days, said the three people, and no specific details regarding the design n & # 39; 39, has been reached yet.

Trump and his key collaborators have spent the past few days trying to convince the public that the economy is strong and that fears of a recession are wrong. But White House officials have quietly begun to look for new ideas to reverse the concerns of the people and boost business confidence.

Some administration officials felt that planning for an economic downturn would send a negative perception to the public and worsen the situation, but Trump spent much of last week talking with Business executives and other confidants to get information on what they observe in the economy. .

There are signs that the US economy is slowing and economists are worried that Germany and the UK are already heading into a recession. So far, consumer spending has remained one of the strengths of the US economy and White House officials are aware that Trump's chances of re-election could depend on the stability of the economy for the United States. next year.

The tax cuts on wages have remained popular among Democrats, largely because they are perceived as targeting working Americans, and that this money is often spent immediately by consumers without being saved. In this way, money gives consumers more power to spend, but it also helps businesses that depend on their income.

One of the main causes of economic downturn is the decline in consumer spending. It hurts companies, which then fire workers, who then reduce their expenses – a painful economic loop.

In the past, Democrats have strongly supported cuts in payroll taxes, while Republicans have been more resilient. Republicans have complained that these cuts are not helping the economy and disproportionately hurting the deficit.

White House officials have evolved tremendously in recent days with various assessments of the economy. White House economic advisor Larry Kudlow sought to express his optimism, but Trump was less consistent.

The president tried on Monday to minimize the risk of a recession while blaming a possible economic slowdown on the Federal Reserve, reproaching the president of the central bank, Jerome Powell, for "his lack of appalling vision".

In a tweet, Trump also called on the Fed to reduce interest rates by at least 100 basis points, marking an escalation of its requirements vis-à-vis the central bank. Trump has often criticized Powell, but he never used the term "base points" in a tweet or made such a request.

"Our economy is very strong, despite the dreadful lack of vision of Jay Powell and the Fed, but the Democrats are trying to" want "the economy to be bad for the 2020 election goals," said Trump on Twitter. "Very selfish! Our dollar is so strong that it hurts other parts of the world."

He then said that interest rates "over a relatively short period, should be reduced by at least 100 basis points, with perhaps also some quantitative easing".

"If this happens, our economy would be even better and the world economy would grow stronger and faster, which would be good for everyone!" he said.

The federal funds rate, which Trump is trying to tell central bankers to cut, is currently set at 2.25%. Reducing by 100 basis points would reduce this rate to 1.25%, which would give them little extra room for maneuver if a full-fledged recession started.

His directive to launch a new phase of quantitative easing is a shortcut to asking the Fed to inject more money into the economy, which could weaken the US dollar. This is also seen as an extreme step taken by central bankers when they are trying to urgently address a declining economy, and not by a tactic employed while the economy is still growing.

Fed officials said they were not making decisions based on political pressure, but Trump has pushed his attacks on the central bank to new extremes, especially this month amid numerous signs that the US economy weakens more than expected.

After a tumultuous week on the markets suggesting that the economy is heading towards unstable ground, Mr. Trump and his key officials touted what they believe to be the strengths of the economy, particularly the consumer spending, and predicts that a recession will not occur.

As for the increase, Kudlow has scheduled this week's information meetings with state and municipal business leaders, conservative groups and other stakeholders, in order to gauge the strength of the economy and seek more information.

White House spokesman Judd Deere said the "long-overdue" calls would be on Trump's economic agenda, including issues such as deregulation and production. ;energy.

But even if the White House rejected the idea that the country could be headed for a recession, Trump and his aides sent conflicting messages.

During an exchange with reporters in Morristown, New Jersey, shortly before leaving for Washington on Sunday night, Trump dismissed the possibility of an economic slowdown stating, "I do not see a recession." .

"I mean, the world is currently in a recession – although it's a big statement," he added, in a remark that seemed to undermine his efforts to calm his fears.

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Felicia Sonmez of the Washington Post contributed to this report.