Trump's Coronavirus Payroll Tax Cut Has 'Important Drawbacks' and Is 'Really Inferior' to Other Ideas, Economists Say

President Donald Trump's promise of a very substantial cut to payroll tax is better than nothing, economists said, but it will take much more to ease the pain caused to the American economy by the coronavirus health emergency.

As of Monday afternoon, the Centers for Disease Control and Prevention said there were 647 confirmed cases across the U.S. and 25 deaths. Both figures are expected to rise daily in the near-term as the virus spreads.

Worldwide, a coronavirus tracker compiled at Johns Hopkins University says there are now more than 116,000 confirmed cases, more than 4,000 deaths, with over 64,000 recovered.

At a press briefing yesterday on the White House response to the coronavirus situation, Trump said he would be meeting with Republicans from the Senate and House to discuss a payroll tax cut or relief that he said would be "very substantial" and "a big number."

Economists said cutting payroll tax is not a bad idea but there are better levers for the White House to pull.

"The payroll tax cut can be viewed as one of those 'better than nothing' proposals, but it's not the optimal tool to address the ongoing virus outbreak," Gregory Daco, chief U.S. economist at the consultancy Oxford Economics USA, told Newsweek.

Josh Bivens, director of research at the Economic Policy Institute (EPI) think tank, told Newsweek cutting payroll tax "is not the worst opening offer one could imagine coming from the Trump White House, but it's still really inferior to a lot of other ideas that should be in the top tier."

"Even a large payroll tax cut would have trouble offsetting the corona shock to the economy—it would be disbursed too gradually and too much of the benefit would go to pretty high-income households who won't spend enough of it," Bivens said.

Daco said reducing the employee portion of the payroll tax by 2 percent would give additional income to working families but it carries "important drawbacks."

Those include doing nothing for workers who are "idled and don't have sick leave," it is only a small boost of around $1,000 annually for an individual on a median income, and the tax benefit "would filter extremely gradually," Daco told Newsweek.

"It's unsure whether working individuals would spend much of the additional income in an environment of extreme fear and reduced demand," Daco added.

Moreover, it will likely only provide a little uplift for the economy, Daco said, estimating a potential rise of 0.1 to 0.2 percentage points to inflation-adjusted GDP "but mostly concentrated on the back-half of the year."

The payroll tax cut is one part of a developing plan to steer American society and its economy through the coronavirus turbulence as stock and commodity markets drop sharply over fears about the financial repercussions of the global health emergency.

Trump said his administration is working to ensure hourly wage earners would not miss a paycheck because of the coronavirus. The president also said his team is working with the airline, cruise, and hotel industries and creating loans for small businesses.

He does not want to see companies large or small "get penalized for something that's not their fault" and added that his administration is "taking care of the American public."

"I believe measures that address the immediate needs of healthcare workers, infected patients and affected populations would be preferable," to a payroll tax cut, Daco told Newsweek.

"This would include a combination of paid sick leave, enhanced unemployment insurance, free coronavirus testing, enhanced supplemental assistance programs and support for healthcare workers.

"It would also include the provision of bridge loans to businesses in need and temporary tax obligation deferments for businesses. For individuals, leniency on the provision of credit and debt payments would also be welcome."

The EPI's Bivens said it is spending measures rather than tax that would be most effective at combating the impact of the coronavirus. Bivens said direct payments to individuals "would be a very good and quick start."

Bivens said those payments should be modeled on the 2008 Economic Stimulus Act signed by President George W. Bush, which created new tax rebates for working Americans to help fight the financial crisis.

"But made a bit better in that everybody would get the full value, not just those with sufficient income tax liability, and they should be larger than that was," Bivens said. "Roughly $1,000 per adult and $500 per kid. Maybe even higher but then phased out for higher-income people."

He also suggested taking responsibility for funding Medicaid away from state governments to "give them opportunity to spend freely to fight the virus."

Bivens told Newsweek this "would stop the anti-stimulus that state and local governments tend to provide when the economy enters recession" because balanced budget rules mean they "predictably cut spending and slow the economy in downturns unless given federal aid."

"Finally, targeted interventions at low-wage workers in directly-affected industries would be great," Bivens said.

"Tax credits for employers who offer paid sick leave or shorter hours, guarantee that all corona-related health care will be paid for by the government, and figuring out how to keep nutritional assistance flowing to low-income kids in the event that schools shut down."

Trump said there will be a full briefing on his administration's economic plan after Tuesday's meetings. The measures "will be very dramatic," the president said on Monday.

"And we have a great economy, we have a very strong economy, but this came—this blindsided the world. And I think we've handled it very, very well. I think they've done a great job. The people behind me have done a great job."

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U.S. President Donald Trump speaks as Vice President Mike Pence looks on during a press briefing with members of the White House Coronavirus Task Force team in the press briefing room of the White House March 9, 2020 in Washington, DC. President Trump said he will hold a press conference on Tuesday concerning COVID-19 and other topics. Drew Angerer/Getty Images