Trump’s Economic Playbook: Get Clarity on Inflation, Taxes, and More

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Speaker 3 Welcome to NerdWallet's Smart Money Podcast. I'm Tess Viglund in Fresh Own Piles.

Speaker 4 And I'm Ana Helhoski.

Speaker 3 And this is a special edition of our weekly Money News Roundup, where we break down the latest in the world of finance to help you be smarter with your money.

Speaker 3 We're coming to you early this week because, well, the news calls for it. Come January, Donald Trump will once again be the president.

Speaker 3 Soon after, he'll likely begin acting on some of those campaign proposals. So today, we're going to run down President-elect Donald Trump's plans for the economy and your finances.

Speaker 4 That's right. Exit polling done by NBC showed that the economy was the top issue among Trump voters.

Speaker 4 So in this episode, we're going to get into where Trump stands on a bunch of different economic-related issues, including his plans for lowering prices, tax cuts, health care, housing, and mass deportations.

Speaker 4 We'll also dive into what experts have said that his agenda could do to the economy.

Speaker 3 And in case you missed it, we actually ran a four-episode special series last month on how the presidential election could affect your finances.

Speaker 3 We'll put links to those episodes in today's show notes in case you want a deeper dive into the topics we discussed today.

Speaker 3 Or visit nerdwallet.com slash podcast and you can find the episodes near the top of the page. Okay, so as Ana mentioned, voters who chose Trump were very concerned about the economy.

Speaker 3 Over the last few years, two aspects of the economy have been really strong, employment and growth. But there's been one big thorn in the side of consumers, and that's inflation.

Speaker 3 While inflation has slowed down significantly and the Federal Reserve has begun cutting rates, prices haven't exactly gone down.

Speaker 3 And that dissatisfaction with the status quo seems to be reflected in the election outcome. So now that Donald Trump is president, what is he promising to do about prices?

Speaker 4 So there are four main plants that I'd point to. The first is one that he can enact through executive order.
So it's one to take very seriously, and that's placing tariffs on all imports.

Speaker 4 He's proposing a 10% to 20% tariff on all foreign imports, up to 60% tariff on imports from China, and anywhere from 100% to 200% tariff on automobiles produced in Mexico.

Speaker 4 Trump argues that his tariffs would spur manufacturing in the U.S. and raise revenue.
Experts say it will just increase costs that will be passed down to consumers.

Speaker 4 One of Trump's favorite taglines is drill, baby, drill. He wants to increase oil and gas production on federal lands.

Speaker 4 We will point out that gas prices are most directly influenced by global market forces, but the president does have some influence. He also wants to cap credit card interest rates at around 10%.

Speaker 4 Current rates are around 21.51%.

Speaker 4 That would require Congress to enact and would likely face a lot of legal pushback.

Speaker 4 And finally, he has talked about bringing the Federal Reserve under the power of the president, which would presumably mean that the president could tell the Fed to cut interest rates.

Speaker 4 But experts believe that it could weaken the credibility of the Fed, which could impact investors' confidence in the Fed and ultimately have political and economic ramifications.

Speaker 4 What Trump can do as president is appoint members of the Federal Reserve Board. He appointed the current Fed chair Jerome Powell, but has since been quite critical of him.

Speaker 3 Ana, speaking of the Fed, let's briefly also address its actions last week.

Speaker 3 In the middle of post-election fever, the Reserve Bank's Open Market Committee announced a quarter-point cut in the benchmark federal funds rate. This is what most economists expected to happen.

Speaker 4 It is. And this is the second rate cut this fall, coming after a half-point cut in September.
This will lower interest rates on everything from credit cards to car loans, possibly mortgages.

Speaker 4 Although the September cut didn't have as much of an effect on that as you might have expected. That was in part because rates had already come down in anticipation of that cut.

Speaker 4 But the real intrigue here is what effect Trump's election will have on the Fed's plans, because many economists agree that all of his plans for tariffs and tax cuts and even immigration could reboot inflationary pressures.

Speaker 4 That, in turn, could slow the Fed's plans to cut interest rates.

Speaker 3 All right. Speaking of taxes, Trump's plan for those arguably would have the most direct impact on consumers.
I will point out the tax changes need the support of Congress before they can be enacted.

Speaker 3 But Ana, what does he want to do there?

Speaker 4 So at the end of next year, Trump's 2017 Tax Cuts and Jobs Act is expiring. And that includes estate taxes as well as individual income tax cuts.
It's likely he will extend those cuts.

Speaker 4 There's one measure that was in the Tax Cuts and Jobs Act that Trump wants to reverse, and that's a phase out of write-offs for RD expenses in a business's first year.

Speaker 4 Instead, he wants to add a tax credit for businesses to write off every one of those first year expenses. During his first term, Trump cut the corporate tax rate from 35% to 21%.

Speaker 4 This time around, he wants to cut it down by just one percentage point. That first big cut had a huge impact on the biggest U.S.
corporations. They saw profits rise by 44%,

Speaker 4 while their federal tax bills declined by 16%. Trump also promised to exempt workers from paying taxes on their tips.
Now, Kamala Harris also made that pledge.

Speaker 4 But experts say it doesn't help as many tipped workers as it seems because the benefits of that policy change mainly go to employers and the very wealthy.

Speaker 4 who could potentially find a loophole and say that their earnings are tips. One more promise I'd like to point out is his plan to replace personal income taxes with tariffs.

Speaker 4 Again, we'll get into why that's not the most beneficial idea later.

Speaker 3 All right, on to healthcare. The first time around, Trump wanted to repeal and replace the Affordable Care Act, Obamacare, but he was unsuccessful.

Speaker 3 During the presidential debate on September 10th this year, when asked if he would try again, he said only that he had concepts of a plan.

Speaker 3 So it doesn't seem like that'll be a cornerstone of his next presidency.

Speaker 4 It doesn't. Trump didn't focus too much on health care in general this time around.
What he did say were two important things regarding reproductive health.

Speaker 4 He said abortion should stay with the states, but would veto any federal ban.

Speaker 4 He also said that the government or insurance companies should cover IVF, which is a departure from what many other members of the GOP have said.

Speaker 3 Another area where Trump didn't have a whole lot to say was housing, right?

Speaker 4 Yeah, he had one specific-ish plan and one vague plan. First, he wants to open up federal lands for new housing developments.

Speaker 4 There is precedence for doing this, but experts say that much of the federal land wouldn't be ideal for new housing, and most of that land is in the West.

Speaker 4 He's also talked about cutting red tape for building new housing without offering any specifics about what that red tape is.

Speaker 4 However, most rules around housing happen at the local level, so it's not apparent exactly how much influence the president can have there.

Speaker 3 That brings us to our last proposal and Trump's most controversial one, mass deportations of unauthorized immigrants.

Speaker 3 He has promised to round up, detain, and deport millions in a plan he calls Operation Aurora. And you spoke with experts who said that there would be serious economic consequences to this.

Speaker 4 That's right, Tess. And this was an issue we didn't get a chance to talk about during our election series.

Speaker 4 Beyond the humanitarian implications of Trump's mass deportation plans are very serious economic ones. Deporting a huge group of people would reduce the labor supply in key sectors of our economy.

Speaker 4 These are industries that rely on immigrant workers, like construction, agriculture, manufacturing, and hospitality.

Speaker 4 So if you don't have as many construction workers to build new housing, you don't get new homes and the housing shortage worsens, which means prices for housing increase.

Speaker 4 Without as many agricultural workers, it hampers our food supply, which would drive up prices there.

Speaker 4 And remember during the pandemic when there was a shortage of workers in hospitality and restaurants? People got annoyed that service was slower or places weren't open as often.

Speaker 4 Then businesses had to raise wages to attract more workers and those costs were passed down onto the consumer.

Speaker 4 Well, buckle up because that scenario could very well happen again if an entire segment of that workforce is removed entirely. I'll also mention one other thing.

Speaker 4 If you deport workers, it also reduces tax revenue and contributions to both Social Security and Medicare, benefits that unauthorized immigrants pay into but are not eligible to receive.

Speaker 4 What's unclear about all of these proposals tests is which ones Donald Trump will pursue on his own, what he will instruct different government agencies to do, and what legislative measures Congress will actually approve.

Speaker 4 There are some proposals like mass deportations that would most certainly end up facing legal challenges.

Speaker 3 Thanks for that overview, Ana. We will talk more about what experts think of Trump's plans after the break.
Stay with us.

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Speaker 3 All right, Ana, as you mentioned, Trump's ability to enact all of his proposals will face challenges, and it's still not clear what he'll pursue anyway.

Speaker 3 But for now, all that economists and policy analysts have are those promises and his track record to go on.

Speaker 3 So is there some consensus among those experts as to how Trump's second presidency might unfold?

Speaker 4 Yeah, so there seems to be agreed upon projections that Trump's proposals would likely be inflationary and could very well land us in a recession. Neither of those is what anyone wants.

Speaker 4 Certainly not right after inflation has slowed and we achieve the soft landing that the Fed said we needed in order to avoid a recession.

Speaker 4 And even one of Donald Trump's most outspoken and wealthiest supporters, Elon Musk, has said that there may be, quote, temporary hardships as a result of Trump's plans for spending cuts.

Speaker 3 So beyond Elon Musk, what have economists said about Trump's plans?

Speaker 4 First off, there have been two letters by Nobel Prize-winning economists that have been released since Trump's campaign kicked off.

Speaker 4 The most recent from October says that Trump's policies like, quote, high tariffs, even on goods from our friends and allies, and regressive tax cuts for corporations and individuals, will lead to higher prices, larger deficits, and greater inequality.

Speaker 4 Another analysis done by economists at Moody's Analytics, that's the research division of one of the world's most prominent bond rating agencies, said the two dominant contributors to reigniting inflation and a potential recession under Trump are his tariff plans and mass deportations.

Speaker 3 For listeners here, tariffs are essentially taxes on imports. They're used to increase revenues for the federal government, protect domestic industries, or as a punitive foreign policy tool.

Speaker 3 And as president, Trump levied tariffs ranging from 10 to 50% on a lot of different goods, mostly from China. But the cost of those tariffs tends to fall back on consumers.

Speaker 4 That's right. The Center for Tax Policy finds that Trump's tariffs would cost the typical household $2,600 per year in price increases.

Speaker 4 And the Tax Foundation says that the proposals may not effectively offset tax revenue losses from his tax cuts.

Speaker 3 Speaking of tax cuts, what can people expect with Trump's plans?

Speaker 4 The Institute on Taxation and Economic Policy did an analysis that found that Trump's cuts would only benefit the wealthiest Americans, mainly those earning $360,000 a year and up.

Speaker 4 Otherwise, if you earn anywhere from nothing to just under $360,000, your taxes will go up, and And that burden would fall greatest on low-income Americans.

Speaker 4 However, some provisions like the elimination of taxes on social security benefits would be beneficial to taxpayers.

Speaker 4 In general, an analysis by the Wharton School, Trump's alma mater, found that if Trump fulfills his campaign promises to extend his Tax Cuts and Jobs Act, eliminate those Social Security taxes, and lower the corporate tax rate, then households across the board would see benefits.

Speaker 3 So, big picture, what could happen at the macro level as a result of these potential changes?

Speaker 4 The picture is a little less rosy in the long run. The Warton School says that the U.S.
deficit would increase by an estimated $4.1 trillion over 10 years. Oof.

Speaker 2 Yeah.

Speaker 4 So for perspective, the deficit for fiscal year 2024 is $1.83 trillion.

Speaker 4 Another estimate by the Committee for a Responsible Federal Budget projects that Trump's tax cuts increase the national debt by $9.15 trillion over 10 years.

Speaker 2 Wow.

Speaker 4 The national debt is currently near $36 trillion.

Speaker 4 When it comes to GDP, the Wharton analysis also says there would likely be a bump initially before falling by 0.4% in 2034 and 2.1% over 30 years.

Speaker 4 Something else that could impact GDP are the mass deportations.

Speaker 4 An analysis by the American Immigration Council found that if Trump's plan to conduct deportations comes to pass, it would result in a reduction in GDP anywhere from 4.2% to 6.8%.

Speaker 4 As a reference point, during the Great Recession, GDP went down by 4.3%.

Speaker 4 And the last thing I'll mention is this: despite elevated prices compared to before the pandemic, Trump is inheriting a strong economy with steadily declining inflation, a stable job market, healthy growth, and the Fed rates coming down.

Speaker 4 That's a good starting place for any president to be in.

Speaker 3 Ana, thank you. Great wrap-up.

Speaker 4 Yeah, anytime test.

Speaker 3 All right, that's it for this week's money news. We always welcome your money questions and comments.
Turn to the nerds and call or text us your questions at 901-730-6373.

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Speaker 4 Today's episode was produced by Tess and myself and edited by Rick Vanderkneif.

Speaker 3 And here's our brief disclaimer. We are not financial or investment advisors.

Speaker 3 This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.

Speaker 4 And with that said, until next time, turn to the nerds.