Tax Cuts May Prove Insufficient to Save the Economy

U.S. government is trying to contain the economic damage from the coronavirus pandemic. Nevertheless, the traditional economic stimulus program may not be enough to save the economy from recession.

For instance, a payroll tax cut envisioned by U.S. President Donald Trump won’t persuade millions of Americans to enter crowded shopping malls to take a flight.

Trump administration made the right decision, as the stimulus package may solve some of the problems. However, it would be unwise to consider that the stimulus package will solve all the problems connected with the economy and financial markets.

People should take into consideration that; the extent of economic impact largely depends on the coronavirus outbreak.

Brian Gardner is the director of Washington research at Keefe, Bruyette & Woods. He believes if the virus spreads to a worst-case scenario, the stimulus will have very limited impact.

In this situation, carefully crafted and quickly enacted stimulus package may be useful to soften the blow from the virus outbreak.

Donald Trump and the U.S. economy

U.S. President’s decision to support dramatic economic stimulus lifted the market sentiment. For example, the S&P 500 jumped 5% on Tuesday. It was the best day for the index since late 2018. However, the broad market index remained in the red for the year.

The risk of recession is quite high, according to the former U.S. Treasury secretary Larry Summers. He said there is an 80% chance of a U.S. recession. He called for a bold response from the government.

Now, not it is up to Trump how he will persuade the U.S. Congress to act quickly. The stimulus package should boost sentiment among households, especially ones living on a modest salary.

However, payroll tax cuts may not be the best option to boost the U.S. economy. Despite the fact that Trump prefers to use this stimulus weapon.

For example, people who are currently unemployed won’t even notice this measure. Moreover, some people might not even notice a boost to their pay.

Furthermore, even those Americans who will benefit from the payroll tax cut might not be willing to enter crowded shopping malls. There is another risk factor; politicians should take into consideration when they decide the fate of this stimulus package. There would likely be “negative payback” once the payroll tax expires, and this may cause even bigger problems.

The best option to limit the economic impact is to help individuals affected by the outbreak. One of the options it to pay for the medical expenses linked to the coronavirus. This way, the government will make it easier for ordinary citizens to handle the outbreak.

Also, the federal government should allocate more money for Social Security. Elderly Americans will receive more money thanks to this decision.