What does Trump 2.0 mean for the economy? | The Excerpt
On Sunday’s episode of The Excerpt podcast (published on November 17, 2024): President-elect Donald Trump campaigned on a multitude of promises from mass deportations to banning transgender athletes. But perhaps the area that American voters said they were most persuaded by is the economy. From enacting tariffs on foreign goods to slashing taxes for both individuals and businesses, Trump’s vision of economic populism is about to be put to the test. How might the Trump administration impact the economy in his second term? Paste BN Money Reporter Medora Lee joins The Excerpt to decode what his various proposals might mean for the economy.
Hit play on the player below to hear the podcast and follow along with the transcript beneath it. This transcript was automatically generated, and then edited for clarity in its current form. There may be some differences between the audio and the text.
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Dana Taylor:
Hello and welcome to The Excerpt. I'm Dana Taylor. Today is Sunday, November 17th 2024. President-elect Donald Trump campaigned on a multitude of promises from mass deportations to banning transgender athletes. But perhaps the area that American voters said they were most persuaded by is the economy. From enacting tariffs on foreign goods to slashing taxes for both individuals and businesses, Trump's vision of economic populism is about to be put to the test. How might the Trump Administration impact the economy in his second term? Here to lay it all out for us, I'm joined now by Paste BN money reporter Medora Lee. Thanks for joining me, Medora.
Medora Lee:
Thanks for having me.
Dana Taylor:
If there was one issue that really animated voters this election cycle, it was inflation, the cost of eggs, the cost of gas, the cost of rent. So many different line items in the American workers' monthly budget just surged over the past few years. First, where are we with inflation today and what steps can the new administration take to really tame it?
Medora Lee:
So you're right, inflation has been a big burden on a lot of people, most Americans, and it showed through the election results as you can see. Right now, I mean, inflation's been coming down now for probably the last year. And so we hit a high of over 9% in June 2022 and we've made a lot of progress, we're now down to about 2.6%. That's a huge move. But the Fed is looking to target 2% inflation, so we're not quite there yet. And in fact, there are still some signs that underneath the surface certain prices are still bubbling. So that's got a lot of people a little worried, maybe even the Fed because they really want to lower interest rates because the labor market's cooling. So we'll have to see what happens. That last leg is going to be long and arduous from 2.6% to 2% economists say.
And so President-elect Trump has said that he will try to lower inflation by drilling more oil because gas and oil pretty much touches every part of everyone's lives through getting things delivered to the local grocery store, to your driving your kids to school, heating your home, and all of that kind of stuff. So his idea is that if we continue to, "Drill baby drill," as he always says, we will have a lot more oil, gas prices will drop, oil prices will drop, and so everybody will start feeling much better. I guess the problem with that is that oil prices have dropped a lot and gas prices have already dropped a lot. I'm not really sure how much more they'll drop, but we're already on our way.
Dana Taylor:
Medora, our colleague Ben Adler recently dug into how some of Trump's proposed policies are setting off alarm bells with the economists. In July, majority of professional economic forecasters surveyed by the Wall Street Journal said inflation would be higher under Trump than if Biden won re-election. That followed 16 Nobel Prize-winning economists penning a letter in June, warning they, "Are deeply concerned about the risks of a second Trump Administration for the US economy." Is this pretty much the consensus?
Medora Lee:
I know that that got a lot of play in the media. 16 Nobel Prize winners is pretty stunning to hear. A lot of really smart people are saying this. But in actuality, I think it's a little bit mixed. There are definitely a lot of people who are saying that Trump's policy would widen the deficit, which we really don't want, and that will be inflationary to the economy. And some people have said, "We're already seeing the economy slowing right now, which is why the Federal Reserve is trying to lower interest rates so that we can keep the economy moving and keep people in jobs." There's definitely some headwinds. Now, the extent of whether we are going to go into recession or not, I think that most people would say no. And I think a lot of those fears that the economy was going to sink are based on really a few things.
President-elect Trump would like to raise tariffs across the board and especially for goods from certain countries like China. And that does sound alarming and a lot of people will say that that's going to be very inflationary. There have been studies that show that tariffs will lead to higher prices, especially in the near term, but maybe it's really only a third of what people are saying. The reason is because when economists model that out, they assume the entire tariff is passed on to the consumer, which has not proven to be true. A lot of times people have choices that they can make, they can decide. I think that one example one of the economists from Penn Wharton gave me was, suppose you buy this widget that's made in China because it's $1 versus the US made one that's $1.50. So now we slap a tariff on there and now the price of that Chinese made one is now $1.75.
You as a consumer have flexibility to say, "You know what? I'm not going to pay that $1.75 one, I'll just go and buy the US one. So you're not actually feeling the full effect of the tariff. Also, I think that there have been studies by the National Bureau of Economic Research that have shown last time Trump passed a bunch of tariffs in 2018, '19, the producers or the businesses actually took a lot of that brunt of the tariffs. They did not pass on the entire tariff to consumers, they took some of it.
But the idea of the tariff is the short term we might suffer a little bit, but longer term we might get some more benefits out of it. We might get companies to open up manufacturing in the US to avoid the tariffs, that would create jobs for Americans and maybe open up more competition because now the US businesses that maybe weren't able to compete with China and they say, "You know, maybe there's a business there for us now,, we can actually compete." So that's the idea is that eventually prices will go down, but initially we will probably see higher prices.
Dana Taylor:
Let's turn to Trump's signature 2017 tax cuts, which are set to expire at the end of next year. What does he promise to do on those?
Medora Lee:
I don't think that there's a tax cut that Trump has never liked. See, he's promised a lot more tax cuts. The Tax Cuts and Jobs Act that he passed during his first presidency was probably one of the biggest tax packages in a long time. And it's cut the corporate tax rate, it also lowered taxes for almost all of the Americans in this country, doubled the standard deduction and did a lot of different things. And so this time around he is promising to extend those tax cuts and even maybe add more to the mix. And I know a lot of people have said that this is going to just help the wealthy. And probably so, he wants to go further on the corporate tax cut, they cut that down a bit more. But there are a mix of different things going on. I mean, JD Vance has talked a lot about increasing the child tax credit to $5,000, I think it's only about $2,000 now.
So that would significantly help middle class Americans. But there's one that is actually really not talked about a lot, but is really going to create a huge fight, and it's called the state and local tax, the SALT deduction. So when President-elect Trump was president last time, he had capped that to $10,000. Meaning that rich people could not deduct unlimited amounts of state and local taxes on their federal tax returns. But it actually created a lot of problems for a lot of state and local governments because progressives were saying that high income people were leaving their states, states like New York, California, New Jersey, because they weren't getting those big tax breaks anymore. And then that was taking revenue away from the state and local governments for their programs. So this time around President-elect Trump has said he will eliminate the cap. So we'll have to see how that works out, but if they eliminate the cap, that could cost the government also a lot of money. So we'll see how that works out.
Dana Taylor:
Social Security is facing a funding crisis. If Congress doesn't fix Social Security's funding shortfall by 2033, beneficiaries could see an automatic 21% cut to their monthly check across the board. That's according to the Social Security Board of Trustees. There are many reasons for this, including the mass retirement of the boomer generation. Has he said how he plans to address this?
Medora Lee:
That's the million dollar question. He has not talked too much about how he's going to shore up Social Security. Instead, he has offered a tax break to Social Security beneficiaries. There are quite a few people who are taxed on their Social Security benefits and Donald Trump has promised to eliminate that tax and there would be no tax on Social Security income. Now as much as seniors love that idea and applaud that idea, I think that Wall Street Journal did a survey and I think that was one of people's favorite tax cuts in all of his proposals. It's really difficult to do that because that might shorten the life of Social Security even more. So I think that some estimates were by a year or more, the trust fund could go bust or be depleted a year sooner. So he hasn't really addressed how he's going to pay for that. My guess would be, and it's only a guess, is that he's really banking a lot on these tariffs bringing in more money to the US.
Dana Taylor:
On the campaign trail in June, Trump rolled out a promise to end the tax on tips, a proposal that has been enormously popular with the working class. And House Speaker Mike Johnson has promised to pass legislation to do so in the first 100 days after the new Congress is seated. Is he likely to be successful and how much will that cost?
Medora Lee:
That's another tax lure that Trump has promised. And that one, I'm a little surprised that Mike Johnson's thought it would be easy to pass because we don't have very many details on it. The biggest thing is the tax on tips, and it's also on overtime, I think he also talked about eliminating the tax on overtime pay, are difficult because what you earn and what you report and what you pay taxes on also affects Social Security, how they calculate what kind of Social Security you will get in your retirement, and also Medicare from the payroll taxes. So it hasn't really been clear how they would account for that, so we would have to have more details on it. Again, a very popular idea, but in implementation may be a little bit more difficult. So we'll have to see how that works out.
Dana Taylor:
Many of the policies we've been talking about will lead to a ballooning of the deficit, essentially forcing later generations to pay for today's overspending. Where are we with the national debt today? And how might these policies impact America's IOU?
Medora Lee:
So right now our national debt, it's not pretty, is around $35 trillion. And for the first time ever, the US will be paying over a trillion dollars in interest this year. So this is really not going in the right direction. People haven't really taught enough, I think, in the general population about the deficit, but it is extremely worrisome. If we have a ballooning deficit, I think this is where the economists feel very uncomfortable, we will definitely see probably more inflation and that will keep interest rates higher to try to keep inflation under control.
And another big thing is that some people worry that the US dollar will lose its prime status in the world if our deficits continue to balloon. So far, it seems like from the proposals that we hear, nobody is really talking about keeping the deficit under control. But we'll have to see how the balance of the policies shake out. Because obviously there are always a lot of promises of spending and helping Americans with tax cuts or incentives, but we'll have to see how much they budget in that we might get for extra revenue from more growth in the economy and what they think that we might be able to get from tariffs. So I think that we just need a lot more details. Right now it is really alarming to just keep hearing the spending side though.
Dana Taylor:
Thanks for coming on The Excerpt, Medora. It's good to speak with you.
Medora Lee:
Thank you for having me.
Dana Taylor:
Thanks to our senior producers Shannon Rae Green and Kaely Monahan for their production assistance. Our executive producer is Laura Beatty. Let us know what you think of this episode by sending a note to podcasts@satoday.com. Thanks for listening, I'm Dana Taylor. Taylor Wilson will be back tomorrow morning with another episode of The Excerpt.