The Edge of the Ledge (Craig Douglass On Consumers)

Talk and taxes. And talk.

One day last week, newspaper and television news outlets reported the Trump administration was discussing a payroll tax cut to, as some said, “juice the economy.” Since the American economy is fueled at some 70% by consumer spending, that means you would get the juice.

The next day, the president said there was no such discussion. The day after that, he said he was looking at all kinds of tax cuts — payroll, capital gains and more. Then, yet again, within 24 hours, the talk from Trump was that no tax cut was needed because the American economy was great. Now if I have that sequence of statements and sentiments out of order, forgive the dizzying flips and flops. They’re hard to keep up with.

All of this comes at a time when the threat of a slowdown in the world economy has policymakers a bit spooked. Aggravating the issue is the fact that American job growth in 2018 and the first quarter of 2019 was revised downward by the Labor Department by more than 500,000 jobs. A half-million fewer jobs than previously reported, but now verified by state unemployment insurance information. Oops!

Talk and tariffs. And talk. And tariffs.

In the confusion and seeming chaos of current national fiscal policy, or the lack of a cogent policy, the imposition of tariffs has been most recently consistent. Tariffs are a favorite tool of protectionists: federal policymakers who attempt to protect domestic goods from unfair foreign competition. Whether they are effective in terms of spurring domestic development of new and competitively priced goods is debatable. What is clear is that tariffs, their threat and their imposition, are disruptive. Particularly in a globalized economy. Just look at the gyrations of the stock market indices as measured by stocks in the Dow Jones, Nasdaq and S&P averages. Wild swings due, in part, to uncertainty.

Setting aside the president’s previous comment that trade wars are “easy to win,” the oft-repeated notion that China, for instance, is paying billions of dollars in tariffs simply does not have the added value of being true. Economists who know how this stuff works will tell you that a tariff is a tax on imported goods, the stuff we buy here from others over there. The tariff is paid by the importer, like our on-shore companies that import foreign goods for sale to American consumers. They pay the tariff, not the company doing the exporting to us. And if our domestic companies pay the additional tax in the form of a tariff, they have to decide whether to pass that on at retail to local consumers. Some do, some don’t, but all pay the tax. The Chinese government doesn’t pay a red cent (outdated pun intended).

Studies reveal a striking result from all these tariff tiffs. And that result is felt in our middle-class pockets. Remember the vaunted tax cuts of 2017? While large corporations got the most out of them, earners did get, on average, $930, according to the Tax Policy Center. But wait. The New York Federal Reserve reports that so far the tariffs have cost middle-income folks $831 per household. Could the latest round of tit-for-tat tariffs wipe out that remaining $99 windfall? Most likely.

Consumers are being whipsawed and whiplashed. In fact, the Merrill Lynch U.S. Consumer Confidence Indicator now sees that Americans are starting to feel the pain from the two-year U.S.-China trade war. Pain is what happens when you’re whipsawed. Although consumers have been spending, the data indicate, according to Merrill Lynch and Yahoo Finance, that there most likely will be a consumer pullback beginning this month, through the end of the year. We’ll be watching and you will, too.

A recent Wall Street Journal editorial advised the president that if he wanted to turn tax talk into tax action, he should eliminate the tariff tax. Doing away with over-the-top tariffs as a fiscal policy, more so than a political maneuver, won’t further escalate the budget deficit, expected to reach nearly $1 trillion in 2020. That’s a 1 with 12 zeros behind it, or $83 billion more a month being spent by the federal government than it’s taking in. Draw your own conclusion.

Does someone need talking down from the edge of the ledge?

Craig Douglass serves as executive director of the Regional Recycling District in Pulaski County. Email him at Craig@CraigDouglass.com.