Global uncertainty is palpable as the Coronavirus continues to spread and as countries close their borders. Though the spread of COVID-19 is a health issue at its core, its global economic impact is causing equal concern.
President Trump and congressional leaders in the House and the Senate are working hard to counteract the economic impact of the virus on the U.S. economy. However, not all solutions are created equal, and some may have detrimental effects—more so than the status quo. Here is all you need to know about the policy solutions to the economic impact of the coronavirus being debated right now in Washington.
Trump v. Tulsi Gabbard—Tax Cuts or Universal Basic Income?
The two main leaders in Washington who are pushing for their respective economic solutions to the COVID-19 pandemic are President Trump and Tulsi Gabbard. Before getting into the nitty-gritty of their solutions, Trump and Gabbard have this in common: the public health and safety of U.S. citizens are their highest priority, and both seek to find solutions so that U.S. citizens will not have to choose between their health/public health and their economic security. While Trump is pushing for major tax cuts on income/payroll taxes, Gabbard is championing a universal basic income.
Trump’s Solution: Cut Payroll Taxes
Here’s what you need to know about Trump’s Tax-Cut Proposals. Trump and the director of the National Economic Council—Larry Kudlow—are pushing temporarily cutting payroll taxes until the end of the year to help cushion the individual economic impact of the coronavirus. Payroll taxes go towards programs such as Social Security, health care, unemployment compensation, and workers’ compensation. A Medicare tax of 1.45 percent is also deducted.
Trump’s proposal to cut payroll taxes is “stable” in that it does not inflate the value of the currency in the U.S. economy.
What do these numbers actually look like month-to-month? Currently, if you make $137,700 or less, you are paying a 6.9% payroll tax out of your paycheck to these social programs. That means if you make $50,000 per year, then you are paying $3,100 in payroll taxes. If Trump temporarily cuts the payroll tax, then this $3,100—or 6.9%—goes straight into your bank account. Obama made a similar tax cut in 2010 and 2011, cutting the payroll tax by 2%—from 6.2% to 4.2%—so Trump wouldn’t be the first to propose such a solution. This proposal is “stable” in that it does not inflate the value of the currency in the U.S. economy. It’s merely letting Americans keep more of the money that they have earned rather than giving it to the federal government in the form of taxes.
Trump has never shied away from tax cuts—in fact, much of his economic policy has been driven by reducing the Government’s budget in order to cut more taxes and put more money in the pockets of the American people. This proposal is no different in theory, though it’s definitely more significant in scope. Though Trump has not specified the exact percentage of the tax cut, we should expect it to be substantial, and many worry that it would blast a huge hole in the federal budget to support these important government programs.
In addition, these tax cuts would only provide relief to those citizens with an income—the unemployed or those with an hourly wage would not reap as much support from the tax cuts as those with an annual income. However, many legislators don’t think that these tax cuts would provide nearly enough support to get the American people through the economic impact of the coronavirus.
Trump announced that he will be issuing cash checks to every American within the next couple of weeks.
In response to this concern, and to get the negotiation talks in Congress concerning the tax cuts moving, Trump announced that he will be issuing cash checks to every American within the next couple of weeks. Trump has not specified the amount of each check, but there is an indication that checks will vary between every citizen based on individual income. Secretary of the Treasury Steven Mnuchin said in an interview yesterday, “I think it’s clear we don’t need to send people who make a million dollars a year checks.”
Trump also indicated that he intends to “go big” with this new economic stimulus plan, which will amount to a total of $1 trillion ($50 billion of which will be directed towards relieving the airline industry.) This short-term solution will provide immediate relief to American citizens, particularly the unemployed and middle class, as Trump fights for his long-term tax cut solutions.
Gabbard’s Solution: Universal Basic Income
Republican Senator Mitt Romney and Democratic House Representative and Presidential nominee Tulsi Gabbard have also been pushing for immediate cash delivery into the hands of the American people. Gabbard recently pushed her bill for providing a universal basic income of $1,000 per month. This means that you would receive an extra $1,000 in your bank account from the federal government every month, amounting to an additional $12,000 per year to your annual income.
Gabbard recently pushed her bill for providing a universal basic income of $1,000 per month.
This sounds an awful lot like Andrew Yang’s central campaign proposal for a universal basic income. However, unlike Yang, Gabbard is using this as a temporary solution for the COVID-19 issue. Once the Department of Health and Human Services declares COVID-19 is no longer a national emergency, the monthly supplement will cease.
The Devil Is in the Details
In considering Trump’s vs Romney and Gabbard’s policy proposals to mitigate the economic impact of COVID-19, this is the most important thing to keep in mind: the devil is in the details. Trump and Gabbard have published little of the actual logistics and budgeting required to pass their solutions. Trump’s tax cuts have the advantage of being a long-term solution. Cutting taxes doesn’t run the risk of inflation, and the money will already go directly into the pockets of the American workers. However, the devil in Trump’s details concerns the federal budget and deficit. If such taxes aren’t going into the federal budget, where will the federal government get the money to support Social Security, Medicare, and other government-run programs? This raises the possibility of increasing our deficit by a significant amount.
However, Gabbard is not immune to this concern, and she has the additional burden of confronting the possibility of inflation. The devil in her details is the question of where she will get the money to provide $1,000 of additional income for every American per month? If she intends to take the money from the federal budget, then her solution faces the same problem as Trump’s. If she plans to flood the market through printing more U.S. dollars, then she risks the dangerous possibility of inflation - the devaluing of the U.S. dollar. Why is this such a big deal? The Great Depression was started by such an influx of inflated cash and pushing cash into the American market only prolonged it - a problem that both political parties would hope to avoid.
Both sides of the political party spectrum have come together to find the best solution to help the American people through this crisis.
Gabbard’s proposal would also expand the power of the federal government significantly. Though Gabbard’s bill puts a timeline on the Universal Basic Income, who is to say that this universal basic income would not become permanent by another legislator in the future? If the universal basic income remains after the coronavirus, then the federal government has the power to tax this income, even after it has devalued the U.S. dollar in the market. Higher taxes and inflated/devalued currency are a recipe for an economic recession—even a depression. In addition, a permanent Universal Basic Income, such as that of Andrew Yang, de-incentivizes work which will stagnate the economy further. Before we get excited about the extra $1,000 in our bank account, let’s carefully consider the long-term economic impact.
Though there is not yet a solidified or detailed economic solution going forward, there is a happy note to end on. Both sides of the political party spectrum have come together to find the best solution to help the American people through this crisis. From Romney to Gabbard, or Trump and McConnell to Schumer, both Republicans and Democrats have rallied together despite their differences - a unity that we have not seen in quite some time. As both sides of the political spectrum are coming together to help the American people, we too should come together, despite our differences to seek the best solutions for our neighbors and our fellow citizens.
As the Coronavirus pandemic has caused anxiety for the American people and for billions across the globe, one thing is certain: the American spirit has never shied away from a challenge, and that spirit lives first and foremost within the hearts of the American people. We will emerge from this, and we will do it through caring for our neighbor, through not cowering in the midst of fear, and through coming together, not as a Republican or a Democrat, but as Americans. In this time of fear and uncertainty, I hope that we will unite as friends and fellow citizens, united by a common love for each other and by the unshakable American spirit.