Bulletin
Investor Alert

London Markets Open in:

Key Words Archives | Email alerts

Aug. 10, 2020, 4:31 p.m. EDT

Paul Krugman: Trump’s payroll tax cut is ‘the hydroxychloroquine of economic policy’

The economist said he’s ‘extremely worried about a greater recession coming from it’

new
Watchlist Relevance
LEARN MORE

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

  • X
    Twitter Inc. (TWTR)
  • X
    Dow Jones Industrial Average (DJIA)

or Cancel Already have a watchlist? Log In

By Nicole Lyn Pesce


Getty Images
Economist Paul Krugman calls payroll tax cuts a “quack remedy.”

President Trump’s bold move to bypass Congress by signing his own executive order and memorandums for coronavirus relief over the weekend drew plenty of strong reactions from both Democrats and Republicans.

His actions to defer payroll taxes and replace the expired supplemental $600 unemployment benefit with a plan that would pay up to $400, in particular, drew questions about their effectiveness, and whether the president has the right to overwrite the legislative branch of U.S. government.

Nobel Prize-winning economist and New York Times columnist Paul Krugman is among the most vocal critics, calling payroll tax cuts “the hydroxychloroquine of economic policy” in both a CNN interview and on his official Twitter /zigman2/quotes/203180645/composite TWTR -0.62%  account on Sunday.

His dig harks back to the fervid belief by some during the pandemic, including the president, that the malaria drug would be a silver bullet against COVID-19. That has not proven to be the case.

Krugman said that payroll tax cuts are a “known bad idea” on CNN, adding, “Even Senate Republicans basically said, ‘Let’s forget about that. That’s a really stupid idea,’” during deliberations for a new relief package.

Indeed, Republican Sen. Ben Sasse of Nebraska called the executive order “unconstitutional slop” in a statement on Sunday. “President Obama did not have the power to unilaterally rewrite immigration law with DACA and President Trump does not have the power to unilaterally rewrite the payroll tax law,” he said.

Top Democratic senators Nancy Pelosi and Chuck Schumer also piled on, releasing a statement calling the president’s actions “unworkable, weak and narrow.” Some experts told MarketWatch that they were skeptical whether the order would even bump up take-home money all that much per paycheck.

Read more: Here’s what Trump’s payroll tax deferral could mean for your paycheck

But Trump supporters such as Senate Majority Leader Mitch McConnell (R-Ky.) praised the executive decision. “Struggling Americans need action now,” McConnell said in a statement on Saturday. “Since Democrats have sabotaged backroom talks with absurd demands that would not help working people, I support President Trump exploring his options to get unemployment benefits and other relief to the people who need them the most.”

Read more: Trump extends unemployment benefits, defers payroll tax

In a Twitter thread , Krugman wrote that payroll taxes help fund Social Security and Medicare, and so cutting them would “undermine the finances of programs that are absolutely crucial to the lives of older Americans.”

“It’s a known quack remedy that everybody who knows anything has said is useless and dangerous, including Republicans.”

What’s more, he said that combining a payroll tax cut with a new and more complicated unemployment benefits program, especially after many people struggled to claim their benefits from the first Cares Act package, could have “dangerous side effects.”

“I’m extremely worried about a greater recession coming from it,” said Krugman.

Trump announced last week that he was eyeing an executive order after Congress failed to compromise and pass a new coronavirus rescue package, even though using his executive power to provide economic aid over the legislative branch is a legal gray area.

Opinion: Trump’s executive orders would boost the stock market

Stocks opened modestly higher off the news on Monday /zigman2/quotes/210598065/realtime DJIA -1.84%  , however, with analysts noting that even if the executive orders are illegal or ineffective, they could give Congress a kick in the pants to finally reach an agreement on a bipartisan stimulus plan.

/zigman2/quotes/203180645/composite
US : U.S.: NYSE
$ 39.90
-0.25 -0.62%
Volume: 13.79M
Sept. 21, 2020 4:04p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$31.76 billion
Rev. per Employee
$776,112
loading...
/zigman2/quotes/210598065/realtime
US : Dow Jones Global
27,147.70
-509.72 -1.84%
Volume: 523.66M
Sept. 21, 2020 5:00p
loading...

This Story has 0 Comments
Be the first to comment
More News In
Economy & Politics

Story Conversation

Commenting FAQs »
Link to MarketWatch's Slice.