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Trump forces federal institutions

Among the most important issues on which the investment decisions of financial operators will focus in the short term, a predominant role can only be played by the future outcome of the US presidential election. The current situation sees a considerable lead in the polls of the Democratic candidate Biden and in front of Trump, stands a much darker horizon than what was expected of him at the outcome of his election. The pandemic has had a disruptive effect on the economy and the President's management of contagion containment has always been unconvincing, full of questionable insights, and characterized by a prevailing focus on protecting the economic system rather than public health. Even in the face of the important issues raised by the Trump racial riots, calling for a tightening of law enforcement interventions, he has done nothing but significantly reduce his support.

In this context, in early August he surprised the presidential tweet in which he called for a postponement of the elections, which at first interpretation could have the taste of surrender but, on closer inspection, was part of a strategy of institutional aggression. Trump is fully aware of the impossibility of his request, history has shown not even the Civil War or the Second World War have led to a postponement of the presidential elections; the most important form of democratic exercise is protected both constitutionally and by federal laws. The intent of the tweet was simply to delegitimize the future outcome of the election by insinuating the lack of transparency and fairness of the mail in vote, which is now consolidated in the American electoral tradition. In this regard, the Covid-19 could be a foothold on which to leverage to create a temporary democratic deficit. Trump and his staff, with these statements, clearly want to force the hand of the rule of law and federal institutions.

This same reasoning underlies the next presidential move which consists of issuing four executive orders to support the economy.

Because of the non-agreement of the congress, the President of the United States, surrogates the functions of Congress, has signed acts that again involve the provision of additional unemployment benefits of 400 dollars per week, reduced compared to the previous 600, the suspension of the "payroll tax" or that which constitutes a part of the federal taxes on wages, the suspension of evictions and the payment of instalments of loans to university students.

With these measures we can clearly see the forcing of the us institutional functioning because the executive power has no authority on decisions relating to public expenditure, these are the sole responsibility of Congress, he can only postpone in time the payments already scheduled. In concrete terms, the Disaster Relief Fund, the fund that the government draws on in emergency cases as a natural disaster, will be referred to in order to finance the new unemployment benefits..

Trump's other move, in a view to strengthening his pre-election position, is to cut the "payroll tax." In fact, a reduction in the payroll tax of employees had been under study for some time, with a broader tax intervention perspective that had begun with the reduction of federal corporate tax rates from 35% to 21% in January 2018. The President had originally proposed reducing the payroll tax in the Senate, as part of the new federal aid package, to intervene for employees and businesses through a reduction in the burden on employment. This tax is a federal tax equal to 6.2% of payroll and serves to fund The Medicare and Social Security health care programs. Of course, the other side of the coin of this intervention is the further increase in the federal deficit, already at very high levels, which could undergo further increases for the probable future aid related to the Covid-19. It was precisely because of this reason that senators had not considered it appropriate to pursue this measure in the new coronavirus emergency package, and Trump, also as part of his strategy did not respect the institutional functioning, intervened by suspending and not cutting the "payroll tax". It all comes less than three months before the election and the presidential help for some workers and employers is also to be read with the aim of recovering some of the lost consensus.

For now, congressional negotiations on new economic aid to the Covid crisis have not been successful, and the democrats, who are proposing a large chunk of funding to local governments, are frowned upon by Republicans. All this has led the President to take a direct intervention that can give the economy a breather while waiting for the final decision of the Congress.

Unfortunately, in the United States the coronavirus has not slowed down its advance and registers a total of more than 5 million cases, with more than 160 thousand deaths, bringing with it an increase in inequalities in American society.

In a context where 90% of American states plan to face a budget deficit in the current financial year due to the economic emergency, where there is a loss of more than thirty million jobs, some of which cannot be recovered in the short term, in which many Americans are unable to pay rents and bills, Can Trump succeed in his plan to make a comeback in the polls to bridge the gap that currently separates him from Biden?

What is certain is that Trump's future moves and the outcome of the US election will significantly affect the performance of the financial markets in the coming months.

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