President Trump must avoid the 1990 Republican political curse

This is a “make or break” moment for President Trump. He needs a smart national recovery plan that puts juice in the economy this fall so we see businesses healthy, schools reopened, and workers back on the job.

But Treasury Secretary Steven Mnuchin has announced a plan that does not include a payroll tax suspension to assist businesses and incentivize workers. The proposal also does not include vouchers for parents to send their kids to private schools if public schools will be closed in the fall. This $1 trillion plan will harm the economy and damage the election prospects of Trump. The problem is that it is only going to get worse when the White House starts negotiating with House Speaker Nancy Pelosi. Her legislation has $3 trillion in new spending, none of which will grow the economy.

There is some good news. The White House plan tackles the problem of $600 a week federal unemployment benefits in addition to normal state benefits, and it also caps benefits at 70 percent of previous pay. Around 80 percent of the unemployed now make more money not working than by going back to work, and some workers are getting twice as much for not working than if they return to work. This is bad for the economy.

The unemployment provision expires next week, and extending it would be the financial equivalent of cyanide. Employers report they cannot find people to hire to fill millions of jobs. It was one thing to provide generous benefits when the government was shutting down the economy, but it is another under these circumstances with jobs returning. But Trump does not need a deal to undo the unemployment provision since the benefits expire at the end of the month with or without a new stimulus bill.

Conservatives are not happy, and the last thing Trump needs is a repeat of the political disaster 30 years ago when George Bush made a blunder that cost him a second term in the White House. After declaring “Read my lips! No new taxes!” for his campaign, Bush then abruptly reversed course and cut a deal with Democrats for major tax increases in return for promises of spending reductions down the road that never materialized. His infamous “deal of the century” damaged the disastrous economy and alienated the conservative base of Republicans. Bush was humiliatingly defeated.

Is Trump about to make a similar mistake now? He can certainly avoid it by sticking with the principles of lower taxes and less regulation that created the blockbuster economy in the first three years of his term. He must start by suspending the payroll tax. A person making $40,000 each year would receive the equivalent of an annual pay raise of $3,000 after taxes. Labor costs for employers would fall 7 percent, which would entice companies to retain their current workers and also to hire additional employees.

He should grant employers a federal lability shield for one year to protect them from frivolous but expensive lawsuits anytime an employee got sick. He should revert back to the unemployment benefits system. If necessary, instead of shrinking the labor market in paying people not to work, he can send one more round of individual stimulus checks of $1,200. This would counter claims of “heartlessness” for letting the unemployment benefits expire. Finally, Trump should provide vouchers of up to $10,000 for each student for parents to find private schools that will be open this fall. 

The good news is that Trump holds the cards on the economy. Without any new deal, those $600 a week bonus benefits expire next week. Is it fair that someone who works hard gets paid less than someone who will not go back to work? Trump can point to those new stimulus checks to prove he cares and understand that no deal is better than a bad deal.

Steve Forbes is chairman of Forbes Media. Stephen Moore is a member of the White House economic recovery task force and has advised the Trump campaign. They are two founders of the Committee to Unleash Prosperity.