White House seeking tax breaks for business, consumers in COVID-19 stimulus package
The White House is hoping to turn the next coronavirus stimulus package into a vehicle for economic actions it has been trying to implement since President Donald Trump took office, such as sweeping tax incentives for businesses and a rate cut for the middle class.
Three prior rounds of negotiations have produced the type of big government assistance for small and large businesses and government paychecks for workers that fiscal conservatives have long opposed. A fourth bill could include billions of dollars to help state and local governments.
Trump has backed previous stimulus legislation but also wants a new round of tax cuts. Larry Kudlow, the president’s chief economic adviser, says the economic team is studying “long-term growth incentives” at Trump’s direction.
They include a 100 percent tax deduction for businesses on meals, entertainment and sports events and an extension of a provision that would allow businesses to immediately deduct the full cost of their investments.
The business investment expensing measure was enacted as part of the 2017 tax cut bill and will phase out after five years without further action, and conservatives have been pushing to make the tax write-off permanent.
“I’m not saying that we won’t put more cash in,” Kudlow said of a future stimulus package on Wednesday, “but I think we have to kind of switch gears and say to business and workforce, we will lower middle-class taxes and business regulations, and we’ll put in an infrastructure program, and we will try to restrict liability issues.”
The White House is still weighing what to include in a formal legislative proposal. Any big tax cut is certain to meet tough resistance in Congress. Democrats—including the powerful chairman of the tax-writing House Ways and Means Committee—have sent strong signals they will oppose any large business tax breaks or a reduction in individual rates.
House Speaker Nancy Pelosi, D-Calif., has not publicly discussed a broad tax cut plan, and did not mention tax cuts Thursday when she spoke about the road ahead for an economic stimulus at her weekly news conference.
Rep. Richard Neal, D-Mass., chairman of the House Ways and Means Committee, does not support Kudlow’s idea of big, broad tax cuts, his spokeswoman said.
“He believes another round of direct payments to individuals is a better idea, and he’s also in favor of expanding the employee retention credit,” spokeswoman Erin Hatch told McClatchy.
Among Republicans, the party’s influential conservative House group did not mention tax cuts in its latest proposal on how to boost the economy. The conservative Republican Study Committee (RSC) did not mention tax cuts when it detailed its views on another stimulus bill this week.
“The thought of any more debt-financed spending seems unimaginable,” said Reps. Mike Johnson, R-La., RSC chairman, and Jim Banks, R-Ind., who heads the RSC budget and spending task force, in a letter to House leaders and the White House.
A spokesman for Senate Majority Leader Mitch McConnell, R-Ky., did not respond to a request for comment.
Kudlow and other Trump administration officials concede that government aid was necessary early in the global financial crisis that came about as a result of the pandemic. They embraced and sought additional funding for a program providing government loans to small businesses that are not meant to be paid back.
The president has portrayed the economic crisis caused by the coronavirus as a blip in an otherwise strong period of growth, following his election and tax cuts that Republicans passed two-and-a-half years ago. He has encouraged businesses and states to bring people back to work to hasten a financial recovery.
Conservatives in close contact with the White House say it is likely that the stimulus legislation under discussion will be the last of its kind. Any tax cuts or economic incentives the administration wants are likely to be part of the package the Senate will start crafting next week, or they will not be on the table again until after the election, White House allies said.
“The White House could play this wrong,” warned Grover Norquist, president of the conservative advocacy group Americans for Tax Reform.
Trump and his economic aides are contemplating a Democratic proposal to provide federal assistance to cities and states. Pelosi said Thursday that the proposed aid—which she said could cost as much as $1 trillion—would be her party’s top priority for the relief bill.
Norquist and other conservatives are wary of a big aid package to help cash-strapped states like New Hampshire and Missouri or cities like Los Angeles.
“At this point, it really depends on how much the Democrats need to bail out cities,” he said, “and how much they’re willing to pay for it.”
Trump has said he does not want to reward insolvent states for years of “bad management,” but signaled this week that he would consider giving them federal assistance if congressional leaders entertain the policies on his wish list.
He said this week that he wants the legislation to explicitly ban cities from providing refuge to undocumented immigrants and that he would like Congress to pass a payroll tax cut.
Trump may not be seriously expecting all of the agenda items he has ordered his advisers to study to show up in coronavirus response legislation, said Paul Winfree, an aide to the Republican president during his first year in the White House.
Winfree, who now is the director of economic policy studies at the conservative Heritage Foundation, told McClatchy that Republicans have traditionally brought their top agenda items to Democrats and asked what the other party is willing to trade for them.
“That’s not how Trump does business,” he said. The ‘Art of the Deal’ is you throw a bunch of stuff out there, and you’re at the end of the day more than willing to walk away from everything, and then sell whatever you come up with as a win.”
The administration is likely to face resistance to a tax cut plan in Congress from Democrats and some Republicans on two fronts.
First, nonpartisan economists and veteran budget-watchdog groups say it is questionable whether big tax cuts spur economic growth, and second, there’s no consensus on just what kind of cuts or breaks work best.
At the moment, unemployment rates are expected to reach their highest levels since the Great Depression of the 1930s. The federal deficit is predicted to reach $3.7 trillion in the next fiscal year, far larger than any ever recorded, the nonpartisan Congressional Budget Office said in April.
The gross domestic product, the value of the nation’s goods and services, fell 4.8% in the first quarter, its worst showing in 12 years, the government reported Wednesday. Its drop in the current quarter is seen by CBO as being 39.6%.
Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget, told McClatchy that the administration’s tax musings “are completely mistargeted for this moment.”
“The best thing we can do now is fight the pandemic, figuring out places where spending is targeted to help ease immediate health and economic crises,” she said.“This is not a moment where those tax cuts are anything that makes any sense.”
Mark Mazur, director of the nonpartisan Tax Policy Center, told McClatchy the administration is using a familiar tax playbook, even though “the economy is in uncharted territory.”
Mazur was skeptical about the effectiveness, in the current situation, of a broad-based business tax cut. “It’s not that a restaurant is closing because taxes are too high,” he said.
Middle-class tax cuts, write-offs for businesses and business investment expensing incentives are all under serious consideration by the National Economic Council, a White House official told McClatchy. An executive order that addresses business liability is also being debated within the White House, the official said.
“It is being explored, but the National Economic Council is still studying whether or not it could be done through executive action,” the Trump aide said.
At the Center on Budget and Policy Priorities, a progressive economic research group, Samantha Jacoby, a senior tax analyst, called the administration’s proposal to extend tax incentives for business investment a “poor stimulus because they are not targeted to the basic problem that the hardest-up businesses lack customers.”
Already, businesses can fully expense their purchases until 2023, “So it wouldn’t do anything to alleviate the current crisis and could even be harmful if businesses are less likely to accelerate purchases into the near term,” Jacoby added.
One comparison with what Trump is seeking is the 1981, 25 percent, three-year tax cut that former President Ronald Reagan championed in his first term, when Kudlow first worked at the White House.
Those cuts came as the nation was heading into what would become its worst recession since the Great Depression. The tax cuts were phased in between mid-1981 and 1983.
The cuts were part of the “supply-side economics” strategy—since embraced by Trump—that argued the more people had to spend and invest, the more the economy would grow and federal spending would stabilize.
Mazur said tax cuts to spur growth made some sense when top individual rates were as high as 94% in the last years of World War II and 91% or 92% throughout the 1950s. The rate came down in the 1960s and was 70% in early 1981.
Cutting the top rate to 50% in that year’s tax cut package may have made a difference in investment decisions, he said.
But the top rate has been under 40% since 1987, and slight ups and downs “are probably not going to change people,” Mazur said. Currently, the top individual rate is 37%, down from 39.6% in 2017.
Winfree, the deputy director of the Domestic Policy Council at the White House at the time of the 2017 tax cut bill, said he has told Trump aides that they should shift their attention to addressing consumer fears about reentering society with the coronavirus still lurking instead of the supply-side economic policies they are currently pursuing.
“If demand doesn’t come back up, it doesn’t matter what we do on the supply side, it doesn’t matter what you do on investment, because people just aren’t buying stuff,” he said.
Even before the coronavirus pandemic, Winfree, who is with the conservative Heritage Foundation, said businesses were not investing, despite low interest rates and GOP-backed incentives in the 2017 tax cut bill. Winfree said he is pessimistic that supply-side economics alone will work this time.
“I think that it’s more important to watch the demand side,” he said, “and how quickly it comes back once some of the restrictions are lifted.”
Kudlow argued Wednesday that businesses will rehire or bring back furloughed employees, if the incentives for growth are there.
“We want to take care of everybody we can take care of,” he said of the stimulus checks workers have been receiving, “but we can’t take care of everybody all the time.”
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