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It’s Trump Versus Democrats, Republicans and Economists

Jonathan Bernstein
·5-min read

(Bloomberg Opinion) -- Negotiations on the next coronavirus relief package appear to be making slow but real progress ahead of Congress’s self-proclaimed deadline on Friday. But Donald Trump has threatened to derail everything with a series of executive actions.

Most notably, he says he’ll impose the payroll tax holiday that members of Congress from both parties oppose. He’s also threatening to use the maneuver to extend the supplemental unemployment insurance benefits that expired last week, and to take other actions.

This is a really bad idea. It’s either a terrible negotiating strategy or a desperate bet on crank economics — or both.

As negotiating strategy, it’s a variation of the famous scene in “Blazing Saddles” in which the new Black sheriff of Rock Ridge, about to be lynched, “kidnaps” and then threatens to shoot himself, thereby confusing the townspeople into having sympathy for him and generally being too confused to act. OK, Trump isn’t quite threatening suicide, but he is threatening to take measures that aren’t at all likely to help him politically. But House Speaker Nancy Pelosi isn’t apt to be confused.

For starters, the payroll tax holiday is a sure short-run loser. Democrats will continue to call it a giveaway to big corporations that does nothing for the unemployed and threatens the solvency of Social Security. And Republicans don’t like it either; Senate Finance Committee Chair Chuck Grassley already reacted on Thursday by blasting the idea. Oh, and most economists don’t like it either. There’s a name for policies which unite both parties and neutral experts against them: Political poison.

Then there’s unemployment insurance. Trump hasn’t said what he’s planning to do — and it’s far from clear he has the legal authority to do anything.(1) But it’s lose-lose. If he restores the full $600 supplemental payment that expired, he’s going to have Republicans upset with him, and if he does it only briefly he runs the risk of having the payments cut off even closer to the election. If, as seems more likely, he chooses a lower amount, Democrats are going to blast it — and he’ll have sole responsibility for the lower checks millions of unemployed voters will begin to see. He won’t get support from Republicans who want no extension at all, while still having to deal with what to do after any short-term extension.

None of this is likely to push Democrats to make significant concessions. Indeed, it makes things considerably worse. After all, if Trump is willing to act on his payroll tax holiday now and take other actions of dubious constitutional and statutory legitimacy, what’s the point in reaching a deal that Trump may well decide to blow up anyway once it’s passed? Trump’s previous power grabs, such as spending unappropriated money on construction of his border barrier, have already made bargaining with this White House an iffy proposition; this only underlines that he can’t be trusted.

Now, none of this would matter if Trump is correct that a payroll tax holiday would create a surge of economic activity. Results, after all, matter. But only fringe cranks think that would happen. Yes, it will be temporarily cheaper to hire workers without the employer share of the tax, and the larger paycheck serves as an incentive for unemployed workers to take jobs. But if the reasons for reduced employment are the direct effects of the pandemic (such as closed bars and restaurants) and a massive drop in demand, then those incentives are probably going to deliver very little bang for the buck.

The truth is that a final deal based on a modified version of the bill House Democrats passed back in May — trimmed of some fat, and supplemented by some Republican priorities — would almost certainly be best for the economy, and best for Donald Trump’s re-election (see Bloomberg columnist Michael R. Strain for what a reasonable Republican plan would look like). It’s not just that the legislation would help the economy; it would also help Trump deflect blame by making the response bipartisan.

Instead, he’s threatening to further personalize the economic response, just as he’s already (disastrously) personalized the public health response, all while generating a far more anemic rescue plan for the economy than Pelosi and the Democrats are offering him. And if he’s just bluffing, then he’s making a deal on his terms harder to reach. Not good.

(1) Trump probably does have the authority to suspend certain tax collections, although it's not entirely clear. But spending money that's been appropriated for something else is a much shakier proposition. One thing in his favor: While Congress could certainly use upcoming appropriations bills to fight back, it's less clear that anyone would have both the legal standing and the political incentive to use the courts against unemployment insurance benefits.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Jonathan Bernstein is a Bloomberg Opinion columnist covering politics and policy. He taught political science at the University of Texas at San Antonio and DePauw University and wrote A Plain Blog About Politics.

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