Could market turmoil, recession risks hasten Trump tax cuts?

With the stock market wounded by a trade war that appears to be escalating, despite some key elements being on hold, and renewed fears of a US recession, is it time to speed up tax cuts?

President Trump pledged to save millions of Americans by reducing their tax burden as a major part of his election campaign, but with concern that the US economy could tip into recession, some want those cuts to come sooner than planned.

The president’s former economic advisor Stephen Moore says we have a “very wobbly economy” with tariffs on America’s three biggest trading partners “misguided” and is urging Congress to pass tax cut extensions by Memorial Day.

“The consumer confidence numbers are sinking, and other indicators are not positive,” Moore told Fox News, highlighting that the economy needs a boost in the form of tax reduction.

Monday’s market session was painful, led by a 4% drop for the tech-heavy Nasdaq 100 and smaller but significant drops for the S&P 500 and Dow Jones. Asian markets were down Tuesday but US stock futures showed some positive signs following the broad sell-off in the previous session.

Speaking on CNBC’s Closing Bell on Monday, iCapital chief investment strategist Anastasia Amoroso said it’s starting to feel like a capitulation in the market.

“We’ve been waiting for the market to, on a broad basis, hit oversold levels, and I think we’re going to get there today. If not today, most likely this week,” she said, adding that talk of recession may be overblown due to current strength in the labor market and consumer spending.

The bond market is positioning for a slowdown though with US Treasuries rallying on bets that a ‘Trumpcession’ could ignite government borrowing, especially after the president and Treasury Secretary Scott Bessent suggested a recession may be acceptable in the short term.  

Meanwhile, Congress continues to bounce around the potential for extending tax cuts with a price tag of some $4.5 trillion over a decade with no robust way for it to be funded. Lawmakers are unsure of how to proceed.

“The difficulty is exemplified by the fact that we have two competing budget resolutions to even start the process,” Marc Gerson, a former Republican tax counsel to the House Ways and Means Committee told Bloomberg.  “The House and Senate are on different pages.”