More tax cuts and negative rates: Trump reveals 2020 economy push
In his mostly scripted speech to the Economic Club of New York, the president revealed both his impeachment counter-programming and his re-election theme for 2020. The president’s message to New York’s financial elite: The economy is booming because of Trump. You may not like him, but you can’t afford not to vote for him.
“Here’s the story. I don’t like you, you don’t like me, you have no choice but to vote for me,” he said.
Calling Democrats “crazy,” he ticked off successes in the economy. Rising wages, falling poverty, record low unemployment rates for African-Americans and Hispanics. Much of this true, some exaggeration. For example it is impossible to verify his claims the stock market rally would be 25% higher had the Federal Reserve not raised interest rates. He said his deregulation and tax cuts took a “failed recovery” to an “unprecedented tide of prosperity.”
Prosperity? Yes. Unprecedented? No. There were quarters in the Obama administration with stronger economic growth. And Trump’s job creation so far in his administration slightly trails the same time period in the end of the Obama years. Fact-checking aside, here are three takeaways for 2020 from the president’s speech.
Takeaway No. 1: Trump wants more tax cuts
New tax cuts for the middle class would quiet one of the top criticisms of his historic tax reform in 2017. Middle class tax cuts expire, but corporate tax cuts were made permanent. Trump has been asking his aides to come up with a simple middle-class strategy to free up more money in paychecks.
The obvious question is how to pay for it. The government is already spending so much more than it takes it, the deficit has topped $1 trillion. Any new tax cuts would have to be offset by spending cuts elsewhere, or the government has to borrow the money.
The president offered this creative solution. Get China to pay for it. Tariffs he (falsely) claims China pays could be diverted into tax relief.
There are “tremendous amounts of billions left over that we could use, actually, we could use it for tax reductions,” Trump said. “We could distribute it to people.”
Never mind that is not actually how budgets work. But the idea is what matters here. Perhaps aware of the criticism that his 2017 tax cuts disproportionately helped companies and rich people, he makes a simple play for middle-class tax relief. His team has hinted at the idea before. Top White House economic adviser Larry Kudlow on CNBC Tuesday floated the idea of tax cut before election day. The Washington Post reports Trump’s advisers are exploring the possibility of a 15% middle class tax rate.
Takeaway No. 2: China trade deal is not done
“We’re the ones deciding whether we want a deal,” he said. “We’re close to a significant phase one trade deal with China. It could happen soon, but we’ll only accept if it is good for the United States.” This is exactly where the negotiation has been for weeks now. The only thing that seems to change is the clock ticking down. A new round of tariffs on $156 billion in Chinese-made goods looms December 15. The Chinese want current tariffs cancelled. Trump appears willing to stay the course.
Takeaway No 3: He wants negative rates
The president again cast the Federal Reserve and its chairman Jerome Powell as the enemy of his recovery. He talked enviously of stalled economies around the world where central banks have pushed interest rates into emergency territory. “We are actively competing with nations who openly cut interest rates so that now many are actually get paid when they pay off their loan; known as negative interest,” the president said. “Who ever heard of such a thing? Give me some of that. Give me some of that money, I want some of that. Our Federal Reserve doesn’t let us do it.”
It’s a classic and common Trumpian contradiction. If the US economy is the greatest in American history, as the president claims, then why the need for negative rates? Negative rates have not spurred growth in Japan and Europe.
The president has called himself the “King of Debt” and certainly negative rates are favorable for borrowers. But it would hurt American savers, who would have to pay the bank to hold their money.
He called his choice of Powell as chair of the Fed “a mistake.” Something Powell may address when he testifies before the Joint Economic Committee at 11 am ET. You can expect more pressure on the Fed into the election year.