NOEL KING, HOST:
The Trump administration says the U.S. economy is fundamentally healthy, but the White House is now talking about doing some things that are often used to stoke an economy that's not doing so well. This week, President Trump talked about the possibility of implementing two different kinds of tax cuts, and he keeps yelling at the Federal Reserve on Twitter to cut interest rates. NPR's chief economics correspondent Scott Horsley is on the line. Good morning, Scott.
SCOTT HORSLEY, BYLINE: Good morning, Noel.
KING: OK. So the president is talking, first, about cutting payroll taxes, and that's something that would affect just about everyone who gets a paycheck in this country. Here's what President Trump said about that.
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PRESIDENT DONALD TRUMP: Payroll tax is something that we think about and a lot of people would like to see that, and that very much affects the working - the workers of our country.
KING: And he's right about that. So when, in the past, has the U.S. cut payroll taxes?
HORSLEY: Congress authorized a temporary payroll tax cut back in 2011. And it's important to note that lawmakers did that as we were digging our way out of the Great Recession. The economy is a lot stronger now, and to the extent there has been a weak spot in the economy, it hasn't been consumer spending. It's really been business investment. But let's say that Congress were to do what they did back in 2011 and once again cut the payroll tax by, for example, two percentage points. That would balloon the deficit by another $150 billion a year. It would put about $800 in a typical worker's pockets over the course of a year, but a lot of that savings would then be eaten up by the president's own tariffs. JP Morgan Chase estimated this week that, if all the China tariffs go into effect, that'll cost the typical household about a $1,000 a year.
KING: Interesting. So it could just be a wash regardless. The president's also talking about reducing the capital gains tax. Now, that is not something that would have any bearing on most Americans. Can you explain it?
HORSLEY: This is an idea the administration has floated before. And you're right, this would overwhelmingly save money for the wealthy. More than three-quarters of all capital gains taxes are paid by people who make more than a million dollars a year. Capital gains are - capital gains taxes are taxes on investments, like real estate or stocks, that go up in value. And what the president's talking about doing here is eliminating taxes on that part of the gain that's eaten up by inflation over time. Now, one thing the White House likes about this is they argue that they could do this without Congress. They could do it through an IRS rulemaking process, although there's actually some question about that, and it would almost surely invite a legal challenge.
KING: OK. President Trump also wants the Federal Reserve to help stoke the economy by cutting interest rates. He talks about this all the time. That's also something that we see when an economy is doing not so well or when it's expected to do not so well. Is the president getting any traction there?
HORSLEY: The Fed did cut interest rates by a quarter percentage point last month, but Trump wants to see much bigger cuts. This week, he tweeted that the Fed should cut rates by a full percentage point. Now, that's sort of the economic equivalent of that hypodermic to the heart in "Pulp Fiction." I mean, this is - to put it in perspective, back in 2008, when Bear Stearns collapsed and the economy was sliding off a cliff, the Fed cut rates by three-quarters of a percentage point. So Trump wants them to go even further now, even though his administration continues to insist the U.S. economy is solid. Here, for example, is Vice President Pence speaking this week in the swing state of Michigan.
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VICE PRESIDENT MICHAEL PENCE: Despite the wishful thinking of some naysayers in the media and in the Democratic Party, the American economy is strong. It's stronger than ever before.
HORSLEY: If so, it's hard to imagine why the administration is calling for such aggressive stimulus.
KING: Well, is it possible to say which it is - is the economy strong or does it need intervention - the way the president's been talking about it?
HORSLEY: You know, we're still adding jobs. We're still growing. But it's definitely down-shifted. And some of the biggest slowdown has come in the parts of the economy that the administration likes to champion. Here's Vice President Pence again earlier this week.
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PENCE: I'm talking about people who make things, grow things, who spend their days building more than a Facebook page.
HORSLEY: Manufacturing has been particularly affected by the slowdown, partly because of the president's trade war. Even industries that are supposed to benefit from protectionism, like steel, are suffering. Now, it's not a dramatic slowdown. We're not shifting into reverse. But for a president whose reelection chances may hinge on the economy, even a little slowdown can be scary.
KING: NPR's chief economic correspondent, Scott Horsley. Thanks, Scott.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.
