How to Prepare for the Trump Recession

The global coronavirus pandemic has put our economy in free-fall.

Even through Donald Trump’s reckless economic policies, like his pointless trade war with China or his deficit-busting tax cuts for his billionaire donors, the economy has somehow managed to keep chugging along — until now. 

All of the stock market gains from Trump’s time in office have been wiped out, and over the course of just over one week in March the Dow Jones Industrial Average experienced its five largest drops in history. 

Worse than a plummeting stock market, businesses and major industries have been forced to shutter their windows to help combat the rapid spread of the virus, putting hundreds of thousands of workers’ paychecks at risk. 

A recession is inevitable at this point. Here are 3 things we can do to prepare.  

Number one: We need to reform unemployment insurance so it reflects the needs of today’s economy. 

When it was first created in 1935, unemployment insurance was designed to help full-time workers weather downturns until they got their old jobs back. But there are fewer full-time jobs in today’s economy, and fewer people who are laid off get their old jobs back again. 

As a result, only 27% of unemployed workers receive benefits today, compared to 49% of workers in the 1950s. We need to expand unemployment coverage so that everyone is protected.

Number two: We need to strengthen Temporary Assistance for Needy Families, also known as  public assistance. 

Since its creation in 1996, the number of families receiving cash assistance has declined dramatically – and not because they’re doing well. Between 2006 and 2018, just 13% of families were lifted out of poverty, while the number of families receiving public assistance fell by 39%.

Already weak, the program didn’t hold up well during the Great Recession. Funding doesn’t automatically expand during economic downturns – meaning the more families are in need, the less money there is to help them. The program also has strict work requirements, which can’t be fulfilled in a deep recession. Worse yet, many individuals in need have already exhausted their five years of lifetime eligibility for assistance.

We need to reform the public assistance program so that more families in need are eligible. It should be easier to waive the strict work eligibility requirements during the economic downturn, and the lifetime five-year limit should be suspended.

Number three: We need to protect the Supplemental Nutrition Assistance Program, also known as SNAP or food stamps. 

Unlike public assistance, SNAP responded well during the Great Recession. Its requirements are designed to expand during economic downturns or recessions.

Waiving work requirements during the Great Recession made thousands of people in need eligible for the program who otherwise wouldn’t have been. Between December 2007 and December 2009, the number of SNAP participants rose by 45%. The program helped keep an estimated 3.8 million families out of poverty in 2009.

But that might not be an option this time around, as SNAP has come under attack from the Trump administration, which is trying to enact a draconian rule change that would kick an estimated 700,000 of our most vulnerable citizens off of the program. Luckily, a judge blocked the rule from going into effect, but the administration is still fighting to enforce it — even in the middle of a global pandemic. We need to make sure SNAP’s flexibility and ability to respond to economic downturns is protected before the next recession hits.

Stronger safety nets are not only good for individuals and families in need. They will also prevent the looming recession from becoming an even deeper and longer economic crisis. 

For a century the GOP has been bankrolled by big business and Wall Street. Trump wants to keep the money rolling in. His signature tax cut, two years old last Sunday, has helped U.S. corporations score record profits and the stock market reach all-time highs. To spur even more corporate generosity for the 2020 election, Trump is suggesting more giveaways. Chief of staff Mick Mulvaney recently told an assemblage of CEOs that Trump wants to “go beyond” his 2017 tax cut.

Trump also wants to expand his working-class base. In rallies and countless tweets he claims to be restoring the American working class by holding back immigration and trade. Incumbent Republicans and GOP candidates are mimicking Trump’s economic nationalism. As Trump consigliore Stephen Bannon boasted recently, “we’ve turned the Republican party into a working-class party.”

Keeping the GOP the Party of Big Money while making it over into the Party of the Working Class is a tricky maneuver, especially at a time when capital and labor are engaged in the most intense economic contest in more than a century because so much wealth and power are going to the top.

Armed with deductions and loopholes, America’s largest companies paid an average federal tax rate of only 11.3 percent on their profits last year, roughly half the official rate under the new tax law – the lowest effective corporate tax rate in more than eighty years.

Yet almost nothing has trickled down to ordinary workers. Corporations have used most of their tax savings to buy back their shares, giving the stock market a sugar high. The typical American household remains poorer today than it was before the financial crisis began in 2007.

Trump’s giant tax cut has also caused the federal budget deficit to balloon. Even as pretax corporate profits have reached record highs, corporate tax revenues have dropped about a third under projected levels. This requires more federal dollars for interest on the debt, leaving fewer for public services workers need.

The Trump administration has already announced a $4.5 billion cut in food stamp benefits that would affect an estimated 10,000 families, many at the lower end of the working class. The administration is also proposing to reduce Social Security disability benefits, a potential blow to hundreds of thousands of workers.

The tax cut has also shifted more of the total tax burden to workers. Payroll taxes made up 7.8 percent of national income last year while corporate taxes made up just 0.9 percent, the biggest gap in nearly two decades. All told, taxes on workers were 35 percent of federal tax revenue in 2018; taxes on corporations, only 9 percent.

Trump probably figures he can cover up this massive redistribution from the working class to the corporate elite by pushing the same economic nationalism, tinged with xenophobia and racism, he used in 2016. As Steve Bannon has noted, the formula seems to have worked for Britain’s Conservative Party.  

But it will be difficult this time around because Trump’s economic nationalism has hurt American workers, particularly in states that were critical to Trump’s 2016 win.

Manufacturing has suffered as tariffs raised prices for imported parts and materials. Hiring has slowed sharply in Pennsylvania, Michigan, and other states Trump won, and in states like Minnesota that he narrowly lost.

The trade wars have also harmed rural America, which also went for Trump, by reducing demand for American farm produce. Last year China bought around $8.6 billion of farm goods, down from $20 billion in 2016. (A new tentative trade deal calls for substantially more Chinese purchases.)

Meanwhile, health care costs continue to soar, college is even less affordable, and average life expectancy is dropping due to a rise in deaths from suicide and opioid drugs like fentanyl. Polls show most Americans remain dissatisfied with the country’s direction.

The consequences of Trump’s and the Republicans’ excessive corporate giveaways and their failure to improve the lives of ordinary working Americans are becoming clearer by the day.

The only tricks left to Trump and the Republicans are stoking social and racial resentments and claiming to be foes of the establishment. But bigotry alone won’t win elections, and the detritus of the tax cut makes it difficult for Trump and the GOP to portray themselves as anti-establishment.

This has created a giant political void, and an opportunity. Democrats have an historic chance to do what they should have done years ago: Create a multi-racial coalition of the working class, middle class, and poor, dedicated to reclaiming the economy for the vast majority and making democracy work for all.