Trump looking at possible tax cuts amid economic jitters

[August 21, 2019]  By Steve Holland and Lisa Lambert

WASHINGTON (Reuters) - President Donald Trump said on Tuesday his administration was considering potential tax cuts on wages as well as profits from asset sales, and sought to play down market anxieties that the world's top economy could be heading for a recession.

Speaking to reporters during a White House visit by Romanian President Klaus Iohannis, Trump said "we're looking at various tax reductions," adding that a "payroll tax is something that we think about."

Recession fears were stoked last week when bond investors briefly demanded a higher interest rate on 2-year Treasury bonds than for 10-year Treasury bonds, a potential signal of lost faith in near-term economic growth.

Trump dismissed fears of a slowdown, extolling low unemployment and a rising stock market over his tenure.

"I think the word "recession" is a word that's inappropriate...We're very far from a recession," he said.

The Washington Post reported a temporary payroll tax cut was under consideration to juice growth, but Trump said the White House has been weighing tax cuts for some time.

A slowdown would be bad news for Trump, who is building his 2020 bid for a second term around the economy's performance, but whose year-long trade war with China is weighing on growth.

On Tuesday, Trump said he would not need the approval of Congress to link a tax on profits from asset sales, known as capital gains, to inflation. According to tax code experts, investors would pay far less capital gains tax if it was linked to an inflation index.

"I'm not talking about doing anything at this moment, but indexing is something that a lot of people have liked for a long time. And it's something that would be very easy to do," he said. "It is something I am certainly thinking about."

President Donald Trump answers questions from reporters as he meets with Romania's President Klaus Iohannis in the Oval Office of the White House In Washington, U.S. August 20, 2019. REUTERS/Kevin Lamarque

Former Vice President and Democratic presidential hopeful Joe Biden, campaigning in Iowa, said lowering the capital gains tax would only help the wealthy.

"The route that the president has us going down is a big mistake," Biden told reporters after a campaign rally. "We should be focusing on how you re-empower the middle class, we should be rewarding work, not wealth."

Payroll taxes fund the Medicare health insurance program for the elderly and Social Security, which in turn provides income payments for retirees.

Lowering them temporarily could boost consumer spending, a key driver of the U.S. economy, but it would also deprive the government of tax revenues, at least in the short term.

At the end of 2017, Trump signed a massive tax overhaul passed by the Republican-led Congress and has since promised to follow up with another round of major changes.

(Reporting by Steve Holland; Writing by Lisa Lambert and Alexandra Alper; Additional Reporting by Ginger Gibson; Editing by Rosalba O'Brien, Lisa Shumaker and Sonya Hepinstall)

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