Trump makes moves for stimulus round two
RICK NEWMAN: From Yahoo Finance, this is "Electionomics." I'm Rick Newman.
ALEXIS CHRISTOFOROUS: And I'm Alexis Christoforous. Thanks so much for joining us. This week, Rick and I are going to unpack the president's latest executive actions, which are meant to bring another round of stimulus for Americans suffering with-- economically with this pandemic.
And Rick, before we go through each of those actions, I just want to talk about what President Trump is thinking about in signing these executive actions and going around Congress to try to get stimulus to the American people. Call me a cynic, but we're getting closer and closer to November 3. And if this works, President Trump can look like the hero in all of this.
RICK NEWMAN: Well, no doubt that's on his mind. And this stimulus that is coming from the White House, that Trump is trying to push out from the White House, the only reason he's doing this is because Congress is not getting anything done with what is, by most counts, would be the fourth stimulus bill. So the stimulus benefits, the extended unemployment benefits, those ran out at the end of July. That was the extra $600 per week.
Most Americans-- we did a poll on this ourselves here at Yahoo Finance. Most people say yes, there should be another stimulus package. There should be more relief for the, I don't know, what is the number, 30 million, 31 million unemployed people, and for businesses that can't reopen and stuff like that. But Congress cannot get there.
So we-- we've been talking about this a lot on our air. Just to go over it briefly, the Democrats passed a fourth stimulus bill-- the House Democrats, I should say-- all the way back in May. That was more than $3 trillion in additional aid. It was kind of an everything-under-the-sun, every Democratic wish list item was basically in there.
Republicans say no way, that's too much money. They say instead of $3 trillion plus, it should be about $1 trillion. There's still very large disagreements about how much aid Congress should give to states and cities. Republicans are drawing a hard line on that. They say it should only be about $150 billion. Democrats want $900 billion or more.
So there are major gaps here. And I have to admit, I'm surprised that Congress has not got this done. I thought this would come together at the last minute, like a lot of things do in Congress.
I mean, they're essentially on recess right now for the month of August. That's what they always do. And I thought they would get something done before they left for recess. But they haven't.
And the analysts are now saying there might not be anything out of Congress until September, perhaps mid-September. And Congress might not do anything. To me, that's incomprehensible. But that's where this sits right now, which is why Trump has gotten involved and said OK, if Congress won't do it, I will. And that's how we got to these four executive actions.
ALEXIS CHRISTOFOROUS: So let's get-- I mean, look, all four of the actions will probably be challenged in court. But let's talk about the one or two that you think have the best likelihood of actually happening. I know that Americans are really keeping a close eye on those extended unemployment benefits. It's one of those actions that the president took.
75% under his plan would be covered by the federal government, 25% by the states. And I guess the question becomes is it going to be a state-by-state basis, meaning OK, if your state was able to afford it, you're getting those extra unemployment benefits. And if your state wasn't, well, you know what? Too bad for you.
RICK NEWMAN: Yeah, so I've got a handy cheat sheet here, which I'm going to be looking at, to tell me what those four actions actually were. And we're calling them executive actions. Three of them technically were executive memorandums and one was an executive order. I know people don't really care, but that's why we're using this weird language, because they're not all technically executive orders.
So that one on the extended unemployment insurance-- so Congress has not come up with any more money for that. Where that stands in Congress is Democrats say they want to continue $600 per week. Republicans say nope, it should only be $200.
And you think, well, why don't they split the difference and call it $400? And that is essentially what Trump did. So he's coming up with some money from different funds. These are emergency funds.
So again, this is one of those things that's not clear he can really do this. But if he can, Trump says the benefits should continue at around $400 per month. And states have to come up with 25% of that money, which is a lot of money in states.
So states cannot borrow money the way the federal government can. Almost every state has to balance its budget. So they can't just run a deficit and sell bonds to finance these things.
We've heard a lot of governors say we don't have the money. It's like Trump is telling us to spend money we don't have. And he can't do that.
So that seems almost certain to end up in court. And we always say we're not lawyers. But a lot of Trump actions-- things he's signed at the White House, a lot of them have been overturned.
The other thing about this one, Alexis, is it's a very complicated formula in this directive from the White House. And state unemployment agencies are generally creaky old bureaucracies that don't have the latest computer systems and things like that. So they can administer the programs when it's the-- when the checks are going out the same way as they always have before. When it's some new formula they have to administer, some of them just can't do it. So it might be technologically difficult to do this.
So are people actually going to see these paychecks that Trump says they should get? My guess is maybe some will. Probably a lot won't. And the whole thing could end up getting killed in court at some point.
ALEXIS CHRISTOFOROUS: And then, I guess, the question becomes, does this really backfire on President Trump? Because some analysts are saying if this thing works out, Trump looks like the hero, saying, look, I was the guy who had to get it done once again. Congress couldn't get it done for you and I did.
But if it doesn't get done, does this look bad for him November 3?
RICK NEWMAN: Yeah, and I think it really depends on what Congress ends up doing. So let's just quickly go through these other provisions, these directives from the White House. So he wants to extend legislation that suspends student loan payments. So if you have a student loan, you want that to happen. Again, not entirely clear he can do that without Congress's action, but he's trying.
Rental and mortgage-- he wants to extend the moratorium on foreclosures and evictions, so another populist measure. Can he do that? We don't know.
And then here's a big one, is the payroll tax holiday. So Trump says he wants to defer the payroll tax that just about everybody has deducted from their paycheck to pay for Social Security and Medicare. So he's saying you're not going to have to pay that tax. And that's about-- the tax is more-- a little over 7.5% when you combine two different taxes. So that's a meaningful amount of money that's taken out of everybody's paycheck.
So Trump says that by executive action, he can defer the payment of that tax. And he wants to do that starting September 1 through the end of the year. So that's four months of deferred tax.
But a deferred tax is not a forgiven tax. So after December, you would have to pay that tax back in addition to paying the ongoing payroll tax starting in January. So you have to make up that tax payment.
And this is turning out to be a real controversy that I think is going to-- I think of these four things we're talking about here, I think this one could end up being the most controversial because that is a crucial funding source for Social Security and Medicare. And Trump is saying OK, no one-- people don't have to pay that for the next four months. So in theory, if everyone does have to pay that back starting in January, well, Social Security and Medicare are fine. They get the same amount of funding.
But Trump has also said that if re-elected, he will, quote, terminate the payroll tax altogether. So in other words, he wants to eliminate what is the number one source of funding for Social Security and I think the number three source of funding for Medicare. And that is-- that's remarkably controversial. And in a way, I can't believe Trump is actually proposing that.
ALEXIS CHRISTOFOROUS: Yeah, because you would think that he would really be alienating seniors by putting in jeopardy Social Security. I know Joe Biden jumped all over that and said something like this is equivalent to firing the first shot in a war on Social Security. So it's unclear whether or not employers are even going to go along with this. I mean, is it a suggestion that they do this? They're not being mandated to do this.
RICK NEWMAN: You're right.
ALEXIS CHRISTOFOROUS: And it maybe feels that they can't because they don't want to kick the can down the road on their tax bill, so they're not even going to do it.
RICK NEWMAN: One's head is tempted to explode contemplating how this works, actually. So to go back to the CARES Act, which is the biggest of the stimulus bills Congress has passed so far-- they passed that in March. That actually allowed companies-- so the payroll tax is paid in equal parts by employers and employees. Each party pays the same amount.
And that is a lot of money that goes into the Treasury. And it is dedicated to those two programs-- Social Security and Medicare. It cannot be used for anything else. So the CARES Act said companies can, again, defer their payroll tax payments until the-- I think it was until the end of this year.
But again, they're not forgiving the tax. They're just saying you can put off paying that tax if you're having trouble paying your bills right now-- your other bills right now. Well, you can put off paying that tax.
But then that tax is due, the whole amount is due at the end of the grace period. So that is part-- that's actually in the law now. What we know is we don't think companies are just deferring the tax and spending it on something else, because companies know they're going to have to pay it. That is a bill coming due.
So if they're not paying the tax-- they can choose to keep paying. Or they can not pay it. But they're essentially putting the money aside.
So what Trump is now saying is he wants workers to be able to do the same thing for months starting in September. But, I mean, everybody who's thinking about this should ask yourself if-- so I did the math. If you earn $50,000 a year over four months, that's a tax you're going to defer of about $1,300. So if somebody told you you don't have to pay this tax in regular installments over the next four months, but you are going to have to pay it back in January, and it's going to be $1,300 either way, what would you do?
I guess if you were really in a tight spot and you couldn't buy food or you couldn't pay your rent, I guess you would use that money to pay for the essentials you needed at the time. But then you would still owe the money. You'd have a $1,300 tax bill coming due in early 2021. So it's just puzzlement in all directions, honestly.
ALEXIS CHRISTOFOROUS: And I can't remember another time when a president has sort of messed with Social Security before.
RICK NEWMAN: Actually, I don't-- I know, I don't think there ever has been a time when a president has messed with the fund-- basically the funding mechanism for social security. And we've just begun, in my opinion. I think we've only begun to hear Biden squawk about this.
I think we're going to see ads from Biden everywhere. Trump is the first person to say he wants to defund Social Security. Now that's not what-- that's not what Trump actually said. But if I were writing the ads for the Biden campaign, I would undoubtedly be trying to craft that kind of message. And I'm sure, I'm sure we are going to hear about this.
Now the White House is on the defensive about this already. And Larry Kudlow has now come out and said, oh, we would, of course, fully fund Social Security. We would just fund it in a different way. We would bond it. So he-- I think he actually used the word bond as a verb. First time I've heard that, but maybe I'm-- maybe I'm just not in all the right finance circles.
So he said we would bond it. And what he means by that is the Treasury Department would just borrow the money. It would sell Treasury securities the way it does every year to borrow money. And so far, I think this year, we're $3 bill-- $3 trillion in the hole on Treasury borrowing, certainly the most since World War II. And I guess the White House says if we get rid of the payroll tax holiday, we'll just borrow the money to pay for Social Security.
But the people who are the staunchest defenders of these programs say that is-- that's kind of a worst-case scenario, because then instead of having this dedicated funding mechanism that Congress basically can't touch unless it changes the law, then funding for Social Security becomes part of the annual appropriations process and all the shenanigans that go into the budget deal year after year after year in Congress.
ALEXIS CHRISTOFOROUS: And that just seems so, so messy. And, you know, that's the new hip way to say it. I'm going to bond it. That's just what you do, Rick. Come on.
So, I mean, that sounds so complicated and so wrong for so many reasons. And what you're just talking about now, that we would then have to borrow money, adding to the debt we already carry in this country, to help fund Social Security-- wouldn't it just be easier, really, for the government to just write another check to Americans, maybe above and beyond the $1,200 we got in the last stimulus check round?
RICK NEWMAN: It depends. It depends what you're trying to stimulate. I mean, I think that's the fundamental question.
ALEXIS CHRISTOFOROUS: I think they're trying to stimulate consumer spending at the end of the day, right?
RICK NEWMAN: Yes. I think you want to-- I'm not even sure that we're at that point yet, Alexis.
ALEXIS CHRISTOFOROUS: You think it's more about paying the bills, making sure your mortgage is paid?
RICK NEWMAN: Yeah, I mean, right. So we're basically in an induced recession. I mean, this is not a business cycle recession, where we had the expansion and then it ran its course and we just ended up in a contraction, which is what you might call the sort of standard business cycle, the way we have growth spurts and then recessions.
I mean, we have this recession because we had to shut down parts of the economy for the coronavirus pandemic, to stop it from spreading. And, of course, we're doing pretty poorly with that. So the shutdowns are continuing longer than anybody would like.
So the idea of these, this giant stimulus plans that are coming out of Congress is to basically tide people over, get them to the other side of this recession, which we now know is really not going to end until we have a vaccine, and not one that's manufactured by Russia, probably a real one that's manufactured here in the United States or in Europe or perhaps Japan. So this is tide-- tide people over money. We don't need to stimulate spending right now. People are saving tons of money.
What we do need to do is really help the people who have lost their jobs and lost their paychecks because the businesses shut down. And they-- they're having trouble paying bills. So get them to the other side.
So to that extent, yeah, $1,200-- another $1,200 payment does make sense. It would make even more sense if you could target it to the people who need it the most. They tried to do that the first time around. There was an income cutoff.
But you got that stimulus payment-- if you were underneath the income cutoff, you got it whether you were unemployed or not. So, I mean, it is a good idea to target the aid to the people who have lost your job. So the stimulus-- the one-time stimulus check can help.
But probably bit even important than that is the continuation of those unemployment benefits. And just to remind people, unemployed workers are still getting benefits at the state level. But those are generally much less generous than that extra $600 a week that the Feds were giving out until the end of July.
ALEXIS CHRISTOFOROUS: You know what's also a little puzzling here? I mean, we're talking about the people who need this help the most. And yet the president, at least at the time that we're recording this, Rick, is talking about cutting the capital gains tax, which is not going to help low-income folks. I mean, you have to hold stocks and assets that you can actually sell to benefit from a cut in that.
And also, again, begs the question, does he have the authority to do that?
RICK NEWMAN: Yeah, I'm mystified by-- I mean, Trump in 2016, he nailed the populist appeal to the right types of voters, the voters who feel professional politicians had just basically forgotten about them. And this time around, he's blowing it. Those workers, the so-called forgotten men and women Trump talked about in 2016, they don't need a cut in their cap-- in their capital gains tax. They don't have capital gains.
And, by the way, we were just talking about the payroll tax. The payroll tax cut, that would only help people who have a job. If you don't have a job and you're not getting a paycheck, then having the amount of payroll tax deducted from zero doesn't help you.
So Trump just has these couple of-- these few things that are just his-- his babies. He just loves the idea of a payroll tax cut. And he loves the idea of a capital gains tax cut.
It is not going to help-- I don't know how he can-- he can-- there are these sort of work arounds he might be able to do through executive action. There is zero chance that Congress-- I mean, Congress can't even approve what are forms of aid that are generally bipartisan at this point. There is no chance in an election year Congress is ever going to approve a cut in the capital gains tax when we have 30 million people unemployed.
And I don't think there's any chance-- even if Republicans controlled 3/4 of the House and 3/4 of the Senate, I don't think there's any chance they would ever repeal the payroll tax, because you cannot eliminate the funding for Social Security and for Medicare and survive politically. So why? I mean, it's just mystifying why Trump has chosen these ideas to basically be his case for why he should get a second term in the White House.
ALEXIS CHRISTOFOROUS: Feels a little like he's grasping for straws, like just if he throws the word-- the words tax cut into a sentence, that will sort of rally up the base. What I'm not hearing, though, is more money for these PPP loans, right, these small business loans that people so desperately need. None of those four executive actions deals with that issue, right, Rick?
RICK NEWMAN: Yeah, that's correct. Now the Republican plan and the Democratic plan in Congress, they both do contain additional funding for businesses, the Paycheck Protection Program loans or the PPP loans. But again, they-- they're not-- they don't agree on the amount of money that should go there. And-- excuse me-- it could be that Trump just could not find a legalistic maneuver he could use to direct more funds to businesses in the manner in which they need it. Or maybe this is another executive order he has coming down the road.
But for now-- for now, Trump is focusing his efforts at individuals. And I guess this part of his strategy does make sense. If it turns out that Congress-- we get all the way to the election, and Congress really does not pass any additional stimulus, then I think-- I think Trump will win points with voters for having done these executive actions we're talking about here. And I think you can expect he'll probably try some additional ones.
But let's say Congress does finally-- does finally pass a fourth stimulus bill. That would probably supersede these executive actions. And if voters do, for example, if another $1,200 check does show up in their mailbox, or if they do start to once again receive that extra-- some extra measure of unemployment insurance from the federal program, then that might just put Trump's executive actions out of business. And people may not give Trump any credit for it at all.
So it really does depend what Congress ends up doing here.
ALEXIS CHRISTOFOROUS: Do you think that he is alienating people within his own party-- I think I know the answer to this-- with these-- with these executive actions?
RICK NEWMAN: I guess so. Yeah, I mean, we've heard some Republicans saying that-- like Ben Sasse, the Republican senator from Nebraska, for example, I think he called the payroll tax cut executive action unconstitutional slop. So, I mean, you're seeing the usual pushback from members of Congress whose attitude is it's our prerogative.
We reserve the right to tax. And it's up to us to tax, raise taxes or lower taxes. That's in the Constitution. That's the right of Congress.
But look, Congress is not getting it done right now. Again, I think Congress will get something done. But in the absence of Congress doing anything-- I mean, Obama tried to do this when Congress didn't do anything. Of course, it wasn't a crisis like we're in now.
And Trump is-- I mean, this is now what presidents basically do. When Congress just doesn't act, presidents, they get out the pen and they just write an order or they have their lawyers write an order. And usually they're pretty ineffective.
But at least it gives the president the ability to say I'm trying. Congress is dithering. I'm doing my best. And I think Trump does have that message to some extent, working to his advantage for now.
ALEXIS CHRISTOFOROUS: Yeah, I mean, I know when I saw the alert come over my phone that he was doing this, I thought you know what? Pretty smart, right? He's coming in there, looking like he's-- like he's the savior, saying here they go again. Those bozos in Congress can't get it done.
Don't worry. I'm your fix-it guy. And I'll do it for you. But if there is no deal from Congress and the president pushes ahead with these actions and they go to the courts-- of course, who suffers here? The American people. We will have to wait for this stimulus to make its way through the courts or Congress or wherever it's going to come from.
But what's your feeling on debates? I mean, I have to think that when Biden and Trump finally debate, this is all that we're going to hear, the fact that Congress couldn't get the stimulus done.
RICK NEWMAN: Well, if-- that's true if Congress hasn't gotten the stimulus done by then. I think the first debate is not scheduled until the end of September. And if we have no additional stimulus from Congress by then-- I mean, most economists are saying we are-- look, we're not out of the recession.
There are reasons to think that the job gains we've seen during the last three months are going to flatline from here on out. In other words, businesses have hired back everybody they can. And they're not going to hire many more people unless they can see growth ahead. And we're not going to have growth as long as we have the virus.
So if Congress has done nothing by-- let's say by the end of September. If they haven't done anything by then, they're probably not going to end-- they will not have done anything by the date of the election itself. And so you have to ask yourself, who does that benefit?
And one of the reasons for logjams in Congress is that neither party perceives any harm to holding out for a better deal. And I think that's where we're at right now, where Republicans think it's not going to hurt them if they hold out for a tougher deal with Democrats-- in other words, a smaller stimulus bill than we would otherwise have. And I think Democrats, led by Nancy Pelosi, also perceive there's no harm to them.
And maybe they can even win the messaging battle, because they did pass a bill in the House in May. It was kind of a ridiculous bill that had so much stuff in it. Everybody knew the Republicans in the Senate would never pass it.
But Democrats can say, hey, we already passed our bill. We're just waiting for the Republicans. So if one of these parties started to lose the messaging war and it became apparent that voters were really souring on either the Democrats or the Republicans, and we're likely to punish them in November, I think that's the point at which we would have a deal, because then one side would say, OK, I have to give because it's better for me to make a deal now, even if I don't like the deal, than be perceived as the one bringing the whole thing down.
But when you see Congress at loggerheads the way they are right now, it tells you that neither side thinks they are yet going to get punished by voters for the stance they've taken. I don't know if both parties are right. But that's what they think right now.
ALEXIS CHRISTOFOROUS: Plenty of drama. And we're still about three months out from Election Day.
RICK NEWMAN: We're technically under three months. I'm counting 11 weeks. And believe me, I breathe a sigh of relief every-- every day we get closer to the darn thing.
ALEXIS CHRISTOFOROUS: Everybody, thank you so much for joining us this week for "Electionomics." Be sure to rate and review what you just heard and saw. You can follow me on Twitter @AlexisTVNews.
RICK NEWMAN: And me @rickjnewman. And how could you not love this podcast?
ALEXIS CHRISTOFOROUS: This is the question we ask ourselves every week, Rick. Thanks, everybody.