By Rebecca Ballhaus, Andrew Restuccia and Richard Rubin 

WASHINGTON -- President Trump said he is weighing a possible reduction in capital-gains taxes and continued to press the Federal Reserve to cut interest rates to spur economic growth, while saying he wasn't concerned about signs of a slowdown.

"We're very far from a recession," Mr. Trump told reporters at the White House.

With stock and bond markets signaling in recent weeks that a threat of a downturn from overseas is spreading to the U.S., Mr. Trump said his administration was looking at various tax cuts including possibly lowering capital-gains taxes by indexing gains to inflation. The president also suggested he could impose the indexing change through regulatory action rather than through Congress, saying: "I can do it directly."

Under current law, investors pay taxes on their nominal gains, so someone who bought a stock for $1 million in 1990 that is now worth $10 million would pay taxes on $9 million in capital gains, even though some of that gain is due to inflation.

Allowing taxpayers to adjust their cost basis for inflation might encourage people to sell long-held assets. But it would also reduce taxes by about $100 billion over a decade, according to the Penn-Wharton Budget Model, with most of the benefits going to high-income households.

Lawrence Kudlow, a top White House economic adviser, has long supported the idea of indexing. But so far, the president hasn't issued any directives, and the Treasury Department hasn't proposed any changes.

Democrats in Congress have shown little support for the further tax cuts, and they have warned that indexing without congressional approval is illegal and would simply benefit old investments without necessarily spurring new growth. Such a move would likely face immediate court challenges. Under President George H.W. Bush, the government considered a similar idea, but the Justice Department concluded that the administration couldn't act without congressional approval.

In his comments Tuesday, the president again pressed the Federal Reserve to reduce interest rates, saying such a move would result in a "burst of growth like you've never seen before." He reiterated his call for the central bank to cut its benchmark rate by at least a percentage point -- a move that would typically be considered only when the U.S. economy is severely struggling -- though he elaborated that the rate reductions could be made in several steps, not in one go.

Such a rate cut hasn't happened since the global financial crisis in late 2008.

Last month, the Fed trimmed rates by a quarter percentage point, the bank's first rate reduction since 2008, citing risks from slower global growth and unexpectedly soft inflation. Fed Chairman Jerome Powell is navigating the Fed toward more rate reductions and is scheduled to speak Friday in Jackson Hole, Wyo.

Among other possible steps, Mr. Trump said Tuesday he has been thinking about a cut in workers' payroll tax for "a long time," just a day after two White House officials said such a move wasn't being contemplated. Payroll taxes, which are separate from the federal income tax, fund Medicare and Social Security, and a reduction would boost workers' take-home pay.

Tuesday, White House officials said the discussions about a payroll-tax cut are in the early stages and that there haven't been serious conversations with Congress on the issue.

It isn't clear that the White House discussions will lead to any new policies. The president and his aides have frequently suggested new economic measures, including proposed tax cuts ahead of the 2018 elections that never came to fruition. The president did sign a tax-cut law into effect in December 2017.

Some administration officials have been concerned about the effect of Mr. Trump's trade battle with China and the ensuing tit-for-tat tariffs on the U.S. economy, and economic experts say the trade standoff has alarmed Americans about the future of trade and that the changing cost of doing business is causing trepidation about investment.

Mr. Kudlow, who is director of the National Economic Council, in a "Fox News Sunday" interview noted a proposal by Florida Sen. Rick Scott to try to reverse the effects of some of the tariffs the U.S. has imposed on Chinese goods. "He said, 'Look, why don't we take the tariffs from the China trade and turn those back to the taxpayers in the form of tax cuts?' " Mr. Kudlow said of the Republican senator. "That's an idea."

It isn't clear how such a proposal would work, because China doesn't directly pay U.S. tariffs, which are instead paid by American firms when Chinese goods enter the country. Already, for every dollar brought in by the new tariffs, a dollar has been authorized to rescue programs for U.S. farmers who have been harmed by retaliation from China and other countries. The U.S. government collected $63 billion in tariffs in the year that ended June 30.

Mr. Trump is unlikely to reverse tariffs on China, which he has said are helping pressure Beijing in negotiations over a trade deal with the U.S. Last week, however, in back off a Sept. 1 deadline for tariffs on some new Chinese imports, he acknowledged the residual effects on U.S. consumers, saying he was making the move to not hamper the holiday-shopping season.

The exploration of possible measures to boost the economy comes as White House officials have publicly said they see no warning signs. Vice President Mike Pence, speaking at the Detroit Economic Club luncheon in Detroit on Monday, criticized "naysayers" for expressing concern about the state of the economy and warned that Democrats would "wreck" the economy if they retook the White House in next year's election.

Democrats have said the president's economic policies have heightened the odds of a recession.

The economic expansion this summer became the longest on record in the U.S. Unemployment is exceptionally low and consumer spending appears robust, but warning signs are flashing. Growth in economic output slowed to a 2.1% annual rate in the second quarter from a 3.5% annual rate in the second quarter of 2018.

Business investment and exports both contracted in the latest quarter, possible signs that the corporate sector is being squeezed by global trade tensions. Moreover, financial markets have grown volatile, and the bond market has moved in a way that in the past has signaled recession, with yields on long-term Treasury securities falling below yields on short-term securities.

Mr. Trump, asked whether the White House was preparing for a possible recession, told reporters in New Jersey on Sunday: "I'm prepared for everything." But, he added: "I don't think we're having a recession." On Tuesday, the president said it was "inappropriate" to use the word recession.

--Alex Leary and Jon Hilsenrath contributed to this article.

Write to Rebecca Ballhaus at Rebecca.Ballhaus@wsj.com, Andrew Restuccia at Andrew.Restuccia@wsj.com and Richard Rubin at richard.rubin@wsj.com

(END) Dow Jones Newswires

August 20, 2019 17:55 ET (21:55 GMT)

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