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How Trump's payroll tax deferral impacts your wallet

Edelman Financial Engines Founder Ric Edelman joins Yahoo Finance's Zack Guzman to break down the impact of President Trump's payroll tax deferral and outlook on a second stimulus check amid the coronavirus pandemic.

Video Transcript

ZACK GUZMAN: Kick off the show with the latest out of Washington, DC, and the update we got from Treasury Secretary Steven Mnuchin. Not a lot of progress between Republicans and Democrats on that fourth round of stimulus here. Again, saying that he did not receive from Democrats a line-by-line counter in that gap that we've seen, with Democrats sticking to about $3 trillion in a total package, Republicans sticking near $1 trillion, though they did say they would be willing to compromise. But Steven Mnuchin pointing the finger to the Democrat side for the time being.

And for more on what that means for your stimulus and whether or not you're waiting for another $1,200 stimulus, and where we go from here, is Edelman Financial Engines founder Ric Edelman joining us once again. And Ric, always good to see you. It seems much like the same discussion we had last time here, with little progress to discuss today.

But what's your take on maybe what we could get here, as Republicans plan potentially a scaled-back proposal here to maybe not try and take, you know, the whole apple in one bite, but try and slim off pieces to get around that, mainly that additional unemployment benefit here? What's your take on maybe how that might be better or worse for Americans waiting for relief now?

RIC EDELMAN: Good to see you, Zack. And you're right, we haven't gotten anywhere since I was last with you. And that's the frustrating part. I'm not a political pundit, so I'm less inclined to talk about the nature of these proposals. My biggest issue, from a financial perspective, because I'm a money guy, like you, is urgency. Congress and the White House have to get on with it. The crisis is growing. We've got 12 million households that are facing eviction at the end of this month.

We have tens of millions who are now what they call food insecure. Because of the absence of those $600 unemployment checks, people don't have the money to buy food. They can't afford their auto payments, and millions are facing having their cars repossessed in September. Thousands of small businesses are going to close next month. They say 8,000 hotels are going to shut down permanently. So Congress has to get on with it. Whether they do it in small bite-sized bits or whether they do it in one big package, I don't care. Nobody cares. Let's just get it done.

ZACK GUZMAN: Yeah, no, it's a good point. And I mean, there's that on the table right now, Democrats saying they'd come down $1 trillion to meet in the middle at $2 trillion. That apparently not enough to entice Republicans. And we also have the executive orders that we've been discussing on the show, in terms of what Trump might want to do in going it alone.

But on that side, I mean, there do seem to be a lot of issues with some of those proposals, mainly one of them, the payroll tax relief that we've discussed here. It would mostly benefit people who still have a job, and we know millions of Americans now on unemployment and seeing those benefits roll off at the end of July. So what do ideas like that do to maybe seem to help the economy, but not in the same way that some of these other tactics might?

RIC EDELMAN: You're right, Zack, the payroll tax cut really doesn't do any good to solve the immediate crisis. As you noted, it's the people who don't have an income who are in the most severe situation. So the payroll tax cut doesn't do them any good because they don't have an income to have a tax cut on. And it's only a deferral, it's not really a cut, which means that, at the end of the year, that money is going to have to be paid.

Well, where's it going to come from? If you don't withhold it from people's paychecks now, they're going to spend it. So how are you going to collect it at the end of December? If you're going to hold the employers' feet to the fire, that's extraordinarily scary for them. What are they going to do? Withhold the money anyway, just not forward it to the Congress. So I don't see how this helps the crisis in any way. It looks like window dressing.

ZACK GUZMAN: Yeah, and on that front, I mean, we've discussed this yesterday, you know, a new study out showing about a 44% decline when we saw those benefits roll off in terms of spending for those people depending on the additional $600 coming from the federal level. And on that front, I mean, stimulus checks are something that both sides seemingly agreed to, so frustrating for Americans out there who received that once, would be very excited to see another $1,200 check come in the mail here.

But as that gets held up, that's another one of those things where we're talking about people on the margin, incomes below $99,000 here. I mean, talk to me about how that's one of those calculated, specific metrics to address the people who would be spending here if you do send a stimulus check, rather than some of these things that aren't going to really stimulate and hold up this recovery that looks even shakier now.

RIC EDELMAN: Yeah, it's a bit of a problem. As we saw last time around, a lot of people got the checks who didn't need it, and all they did was put the money into the bank. So it really didn't help stimulate the economy. Many others discovered it took three, four, five, six weeks for the check to show up. If that happens again, and oh, by the way, there's a crisis in the postal service, and we didn't know that, so how long will it take for those checks to arrive?

If it waits until middle or late September, that doesn't help people put food on the table right now. It doesn't help them pay their auto loans or their rent payments right now. So speed is of the essence. The greater the simplicity and the greater the speed, the better off the American families will be, small businesses, and therefore, the US economy.

ZACK GUZMAN: I'm glad you mentioned the battle going on at the postal service because, again, it is not a political show, you and I both money guys here, but when we're talking about that issue, it does seem to be, I guess, from the outside looking in, distracting from the stimulus discussions, as Democrats come out and now plan a Saturday vote to protect the postal service here and defend $25 billion in funding that was kind of broken out from the stimulus discussions here, as this is an election year and they don't want to see more people disenfranchised through mail-in voting.

But on that front, I mean, we do know that there are economic problems with the postal service. President Trump raised these years ago, when we think about that part of the government posting its 13th consecutive billion-dollar loss here last year. So what's your take on how that is a real issue, but maybe not one that's timed right when we're dealing with a lot of these other discussions that are stalling?

RIC EDELMAN: It's definitely a real issue, and it simply requires administrative reform. Everybody knows who runs a business how to operate the postal service as a business. And that's not what's happening right now. And it's becoming even worse, more acute because of the incredible number of mail-in ballots that are going to occur in November. So we've got a problem, no question about it. We've got to solve it right now. But to suggest that that is, frankly, a more urgent problem than the overall stimulus needs of the country is sort of like saying we're a leaky rowboat, but let's all pay attention to how we're going to paint it.

ZACK GUZMAN: And lastly, before we let you go, I just want to highlight kind of-- this was a discussion we had a few months ago when the stock market was really starting to recover here, and now, as we potentially sit here and see the S&P hit a new all-time high, we'll watch at the close, but when you think about the gap between the stock market and the underlying economy, it's widened, really, when you think about the stalled talks here between Republicans and Democrats.

So what does that say about where we're at here in August, with a lot still here to go for the rest of the year, and how the market might-- could potentially even more decouple from the underlying economy? Or do you think that there is a risk that, the longer we go without a deal, without more stimulus, that we could see something bad here in the back half of 2020, as the stock market comes back down to Earth?

RIC EDELMAN: Yeah, your concern is very legitimate, Zack. If it was stupid a couple of months ago, it's downright absurd today. There is, to my mind, little justification for today's stock market valuations. It doesn't make a whole lot of sense. And I just fear that many investors are expecting the virus to go away soon. They're expecting whatever government stimulus is required, from both Congress and the Fed, to persist. And if either of those premises prove to be untrue, market sentiment will shift in a hurry and significantly. So yeah, this is a very worrisome period of time.

ZACK GUZMAN: And as we get closer to the election, it's not difficult to think that we might see politics rear their ugly head here and move even further in the wrong direction. But Ric Edelman, the founder of Edelman Financial Engines, appreciate you taking the time to chat.

RIC EDELMAN: Good to be with you, Zack.