Providing some relief from the steep selloff yesterday, President Donald Trump hinted at a Payroll tax cut. The market responded opening strongly, subsiding mid-day and pushing to a strong close up 1,167 points for the DJIA.
So what is the “Payroll Tax” that’s given the market some gusto? Simply put, the payroll tax is what funds Medicare and Social Security. This tax is 6.2% for Social Security (on the first $137,700 of earnings) and 1.45% of all earned income for Medicare. The idea of whats been mentioned thus far would be to have temporary relief in place for these taxes. What this would accomplish is putting more money in every household to hopefully spur additional spending should the Coronavirus begin to cause shelter in place scenarios.
The question is, would it work? Its hard to say, but our inclination would be that decreased spending due to limited public activity would be hard to overcome with a temporary tax break of just under 8%. Adding a positive potential measure, some of the discussions include providing income relief for hourly employees that could otherwise be displaced from income due to potential measures.
The markets may certainly have “priced in” the potential of this package as we know of it now with today’s upswing. It wouldn’t surprise us if a ‘wait and see’ sentiment takes place in trading until we hear more (smaller movements from the market open while waiting for additional information would be a “wait and see” approach from the markets). We would advise avoiding over-exuberance based off today’s swing and keeping a long-term outlook on both your portfolio positioning as well as financial goals.