Trump’s Next Tax Cut

Trump’s Next Tax Cut

Even before the Iran war propelled energy prices higher, the buzzword of the 2026 midterm elections was shaping up to be “affordability.”

That’s the label Democrats hope to tag on Donald Trump.

They can’t very well use the word “inflation” — because that’s the label Joe Biden and Kamala Harris got tagged with in 2024.

But whatever label you want to use, or whoever you want to blame, it’s the defining economic issue of the decade. The incumbent president, whoever it is, must grapple with it every two years if his party is going to have a prayer of competing.

In the last round of midterms four years ago, the biggest stunt Joe Biden pulled was to drain the Strategic Petroleum Reserve — at rates unprecedented in the SPR’s history.

“The Biden Bleed” helped bring gasoline prices down from $5.10 a gallon in June to $3.88 by Election Day. It still wasn’t enough to prevent Republicans from taking narrow control of the House.

So what can Donald Trump do — with the national average gas price this morning of $4.09?

His administration has already pledged to draw 172 million barrels from the SPR — an amount that would bring the SPR’s level down to where it is on the very left of that chart.

But this time that won’t be enough to move the needle on fuel prices.

The supply shock from the Iran war is more severe than from the Russia-Ukraine war. Then, oil was simply rerouted from one place to another to bypass Western sanctions. Now it’s bottled up inside the Strait of Hormuz with nowhere to go.

The president himself acknowledged on Sunday that by autumn, gas prices “should be around the same.”

So what else can he do?

The question here today isn’t what should he do. It’s what we can reasonably expect him to do under the circumstances. And the circumstances require him to do something big and splashy that everyday Americans would give him credit for. Read on…

Something Big

The “something big” that most readily comes to mind can be captured in three words: Payroll tax holiday.

The proposition here is simple: Lift the 6.2% withholding tax on Social Security and the 1.45% withholding tax on Medicare. Do it for maybe nine months. Six is too short and too obviously an election ploy. Twelve is too long and makes it look as if an unpopular war will be dragged out indefinitely. Nine is just right.

The feds would still collect the employer portion of payroll tax. The idea would be to create the appearance of an instant pay raise for every W2 employee in the land.

Trump and congressional Republicans could frame it as a gift to the American people for the nation’s 250th birthday. And of course they’d pass it sometime in late spring or early summer — just in time to make that Fourth of July trip a little more affordable.

The impact would be felt most among the working class and the poor — the bottom 50% of Americans who don’t own homes or stocks.

After all, payroll taxes apply to wage income — the sole source of income for most of the bottom 50%. Wealthier households collect income from more diverse sources — interest, dividends, capital gains, business profits. What’s more, Social Security tax isn’t collected on wage income exceeding $184,500. (The figure rises with inflation each year.)

There’s precedent here: The Obama administration and a Democratic Congress trimmed the employee portion of Social Security tax from 6.2% to 4.2% in 2011–12. And during the early days of COVID in 2020 there was chatter inside the Beltway about a full payroll tax holiday through year-end 2020 — although nothing came of it.

Would a payroll tax holiday drain the Social Security and Medicare trust funds — at a time when both funds are already on track to be emptied by 2032–33? Of course it would. Democrats would object on those grounds — even though they’d resort to the same tactic if they were in charge.

Fiscal-hawk Republicans would object on the same grounds — but in an election year and under pressure from the White House, they’d go along to get along.

Again, the question today isn’t whether it’s wise or foolish policy. The question is what’s most likely to happen when “affordability” is the buzzword and the election math doesn’t look too good for the Republicans.

If it happens, you heard it here first…

Manipulation, She Wrote

Even mainstream analysts are catching onto the disconnect between the price of oil futures and the price of actual barrels for delivery.

“Manipulation” is a strong word for someone who used to work for the Reuters newswire. But these days she works for the giant trade-data firm Kpler. It’s her business to know the price of real-world barrels that help move goods across continents and oceans.

And as we’ve been chronicling for weeks now, that real-world price is substantially higher than “paper oil.”

Brent crude futures — the global benchmark reflecting North Sea oil — trade for under $100. But actual “Forties” crude brought up from under the North Sea traded this week for a record $148.

Little wonder that real-world oil is so costly when Kpler’s data reveals that exports from the OPEC+ nations have collapsed.

Meanwhile, West Texas Intermediate futures are up 2.5% as we write to $93.60. How long can the disconnect last?

Well, as we mentioned two days ago, a huge confluence of events is about to hit next Monday and Tuesday…

• The last oil tankers that departed the Strait of Hormuz before the war began will reach their destinations in Malaysia and Australia

• May oil futures traded in New York expire on Tuesday

• The aircraft carrier USS George H.W. Bush is set to arrive in the region — just as the two-week ceasefire is scheduled to expire Tuesday.

In the meantime, the S&P 500 and the Nasdaq are reaching even higher into record territory.

Both indexes set record closes yesterday. Both are up about a quarter percent at last check today — the S&P at 7,040 and the Nasdaq over 24,000. But at 48,547 the Dow still has work to do to regain the 50,000 mark that ex-Attorney General Pam Bondi was crowing about.

Precious metals look quiet — gold just over $4,800 and silver a few pennies below $79. Crypto is consolidating, Bitcoin just over $74,000 and Ethereum over $2,300.

The big economic number of the day is industrial production — down 0.5% in March, in contrast with the typical Wall Street economist’s expectation for a 0.1% bump higher.

Some of that can be chalked up to milder weather — energy/mining production and utility production both fell. But manufacturing also contracted.

All told, 75.7% of the nation’s industrial capacity was in use during March — the weakest in four months.

Comic Relief

The vibe in the meme-o-sphere is shifting rapidly from unaffordable housing to… the end times.

After Yesterday’s Mailbag…

“Great retort, couldn’t agree more with you,” a reader writes after your editor took more slings and arrows in the mailbag during yesterday’s edition.

“I feel our country has advanced enough from the Founding Fathers to do away with our political representatives — they serve not the constituents, but only their own interests. They are owned by special interests, big corporations, big pharmaceutical companies, etc.

“Surely our society with today’s technology and instant communications can come up with a solution without the control of the deep state. At the very least, we shouldn’t allow attorneys to become politicians — it’s like putting the wolves in charge of guarding the henhouse.

“Love your services.”

“Hey Dave, time to counteract some of the other feedback you've been getting,” writes another.

“I love it when you agree with my outlook, but I love it even more when you point out something I didn't know, even if I disagree with it.

“So please keep running your mouth.

“(Except perhaps stay quiet regarding your immediate environs.)”

Dave responds: Thanks to the readers rising to my defense after the recent incoming fire — which has not ceased.

“Gonigam, why do you believe you have the answers for all?” says one. “Don't you have any common sense, that any bashing of a sitting president at time of war is helpful to the enemy?”

I have a feeling this individual had no issues bashing Bill Clinton during his promiscuous warmaking in the ’90s, or bashing Barack Obama while he bombed even more countries than Dubya Bush did.

And no, I don’t have all the answers. I have no idea at all how to order the affairs of other people’s countries — which is why regime change and similar efforts are such an awful idea.

Yesterday during a congressional hearing, White House budget director Russell Vought told Congress he was unable to come up with a cost estimate for the Iran war. Vought was reminded the Pentagon has never passed an audit.

“There is so much arrogance in that agency,” said Rep. Glenn Grothman (R-Wisconsin). “They just say ‌we don’t have to do it on audit. We’re so damn important. We don’t care what Congress thinks.”

We await the economic consequences… and we’ll anticipate and chronicle them here, ahead of the mainstream.

“Do you have a citation for the George H. Smith observation on Hamilton?” a reader inquires after yesterday’s mailbag.

“Thanks for all your work,” he adds, “and to heck with the don’t-talk-about-politics people. Everything unfortunately flows through that sewer and we have to navigate it like a Ferengi on the Great Material River (OK, really obscure reference but it fits).”

Dave: Sadly, nothing in print. I recall Smith’s quip from an excellent lecture series he did titled An Overview Of American History: From the Revolution to the Progressive Era. It was distributed on audiocassette by the gone-but-not-forgotten Laissez Faire Books.

Unlike a lot of spoken-word content from the ’80s and 90s, it doesn’t appear to be on YouTube. I do have mp3s in my possession that I copied from the cassettes long ago. I might be the only one!