Exit polls show that many voters supported President-elect Donald Trump because they believed his pledge to “fix the economy.” However, the economy he will inherit is well on the mend and some of the fixes he has proposed may result in serious damage.
Inflation is slowing and is near the Federal Reserve’s target of two percent. Hence, the Fed cut the lending rate one quarter point to a range of 4.5 to 4.75 percent Thursday. What remains high are prices. However, wages are on the rise and catching up. In addition, unemployment is low.
With that background, let’s take a look at some of Trump’s economic proposals and the effect they may have on your wallet.
Inflation
As mentioned above, inflation has already dropped to about 2.4 percent from a high of 9.1 percent in 2022. However, on the campaign trail, Trump said that if he was re-elected, “inflation will vanish completely”.
On the contrary, many economists caution that Trump’s plans could do the opposite. They contend that his proposals to enact tariffs on imported goods, cut taxes and launch mass deportations of migrant workers would skyrocket prices.
A letter signed by 16 Nobel Prize winning economists last June voiced a fear that Trump’s economic program will “reignite” inflation.
Taxes
During his first term, Trump’s signature legislative achievement was passage of the
Tax Cuts and Jobs Act (TCJA) in 2017. Many TCJA provisions are scheduled to expire at the end of 2025. However, Trump has pledged to extend and make them permanent.
The greatest benefit of extending the TCJA would go to the highest one percent of income earners, according to research by the Tax Policy Center. That would mean a roughly $280,000 tax cut for those earning $ 5 million a year. At the same time, middle income earners would save about $1,000 in taxes.
Trump does not want to stop there.
“If you vote for me, I’m going to reduce your taxes,” Trump said at a New York rally.
Republicans have regained control of the Senate and are likely to retain a small advantage in the House. As a result, there is nothing to stop Trump from following through on that pledge.
However, as with the TCJA, not all Americans will benefit equally from Trump’s new tax plans. In fact, research indicates that most will see a tax increase.
The wealthiest five percent of Americans will get a tax cut based on Trump’s proposals, according to the Institute on Taxation and Economic Policy. The remaining 95 percent of taxpayers would see their taxes rise.
Trump also wants to eliminate taxes on Social Security benefits, overtime pay and tips
Tariffs
The former and future president has proposed tariffs of 10 to 20 percent on goods from most foreign countries. However, he wants a 60 percent tariff on products manufactured in China and a 100 percent tariff on those from Mexico.
Major categories with high potential tariff exposure include automobiles, drugs for human and veterinary use, food and beverage, toys, furniture, clothes and household appliances.
Analysis by the Peterson Institute for International Economics found that Trump’s tariff plans will cost American households over $2,600 a year.
In a CNBC interview, Moody’s Chief Economist Mark Zandi said Trump’s plan will hit families hard.
“Broad-based tariffs on the scale former President Trump has proposed will act as a massive tax increase on American families as they pay more for all imports, cutting into their purchasing power and thus weighing heavily on their spending and the overall economy,” said Zandi
Trump maintains that tariffs will encourage domestic and foreign companies to establish manufacturing operations in the U. S. However, economists disagree.
“It will remain much cheaper to source goods from overseas, given relatively high U.S. labor costs, limiting the reshoring boost,” said Pantheon Macroeconomics economist Samuel Tombs.
An announcement from fashion company Steve Madden bears out the Pantheon analysis.
CEO Edward Rosenfeld told media on an earnings call Thursday that the company plans to move 40 to 45 percent of its China production to one or more other countries. The United States is not on the list of relocation targets. Instead, the company is considering “countries like Cambodia, Vietnam, Mexico, Brazil,” according to Rosenfeld.
Health Insurance
Trump has been all over the map on healthcare.
For a long time he claimed he would repeal and replace the Affordable Care Act (ACA) often referred to as Obamacare. On his first day in office during his first term, he signed an executive order to repeal the ACA. However, a president does not have dictatorial powers that allow him to sweep a law off the books at whim.
That said, Trump did weaken Obamacare. During his presidency, Congress eliminated the individual mandate penalty as part of the TCJA. In addition, his administration stopped paying cost-sharing subsidies.
After House Speaker Mike Johnson declared Trump would repeal Obamacare, the Trump campaign said that was untrue. Instead, Trump’s staff said he would focus on cutting healthcare costs. However, no specifics were offered.
Trump was called out on his healthcare vagaries during his one debate with Vice President Kamala Harris. He was asked, after eight plus years of vowing to replace the ACA, what his plan was for healthcare.. His response was that he had “concepts of a plan”.
Increasing National Debt
Trump has touted his tariffs as a cure-all for the nation’s financial needs. However, his tax cuts and other proposals are expected to increase the federal deficit. That would raise the government’s borrowing costs.
Analysis by the Committee for a Responsible Federal Budget has found that Trump’s fiscal plans will add $7.75 trillion to the deficit over the next decade.
Reacting to the likelihood of such an increase in the national debt sent bond yields soaring the day after the election. The 10-year Treasury gained 14 basis points Wednesday hitting 4.433 percent. However, most of that gain was lost when the Fed announced its rate cut.
Mass Deportations
Trump has got a lot of political mileage out of illegal immigration. He has vowed to implement mass deportations. However, those efforts also include plans to restrict legal immigration, according to a report from The Wall Street Journal.
Restricting immigration too aggressively could hurt many businesses and dampen economic growth.
“Overall, differences in immigration policy alone could cause GDP growth in 2025 to be roughly half a percentage point—or $130 billion—lower in a second Trump administration than under a Harris administration,” the Brookings Institute reported in October.
Foreign born workers have filled a void that could have developed as baby boomers retire, according to Brookings.
Research from Wells Fargo has determined that more than half of labor force growth from 2022 to 2023 came from immigrants. Wells Fargo economists Jay Bryson and Michael Pugliese point out that a nation’s economic growth is determined in large part by labor growth.
“Therefore, policies restricting immigration and/or large-scale deportations would lead to slower labor force growth and, by extension, slower potential economic growth, everything else equal,” wrote Bryson and Pugliese. “There very well may be valid reasons to adopt such a policy. But, side effects of a policy that restricts immigration and deports undocumented people likely would be upward pressures on labor costs and a detrimental effect on the nation’s potential economic growth rate.”
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