Some of you reading this will be elated at the election results yesterday, and others will be devastated. With election day passed, today we’re commenting on the probable economic policies of a Trump administration. Before we do so, we will simply note that the best thing anyone can do today and going forward is to be kind to each other, regardless of their feelings about the election. With that said, let’s talk economic policy.
The 2016-2020 Trump Economic Policy
In a rare set of circumstances, we can actually look at the 45th President’s economic policies to give us some context for what we’ll likely see from the 47th President. In the 2016-2020 Presidential term, economic policies focused on reduction of individual tax raters through the Tax Cuts and Jobs Act (“TCJA”) and widespread deregulation, while simultaneously increasing Federal spending, despite a pledge to eliminate the national debt.
While the TCJA did directly lower individual marginal tax rates and corporate tax rates, it also involved the introduction of some novel elements of tax policy. This included the invention of the Qualified Business Income Deduction under Section 199A, and the substantial expansion of the estate tax exemption. Many of the provisions in the TCJA are set to expire at the end of 2025, which can be extended; if it is not extended, however, then marginal tax rates will revert to their pre-TCJA thresholds and rates, though they will be amended to account for inflation. From a financial planning standpoint, we have always assumed the tax cuts would expire unless otherwise acted upon by congress, so it will be interesting to see if Trump is able to renew these cuts with a potentially divided congress.
The focus on deregulation as a major economic policy is somewhat credited with the expansion of the economy under the Trump administration. A generalized policy of “if you want to pass a new regulation, you have to cut another one” was utilized during the administration to cut red tape, though in some regards this simply became an exchanging of said tape. In effect, the most direct elements of this policy manifested in general deregulation and a rollback of assorted environmental and consumer protections. While ostensibly some of these were genuine relics that served no meaningful purpose, other policies such as the Department of Labor’s Fiduciary Rule to protect retirement investors (a rule that specified that those advising on retirement plans had to do so as fiduciary) that was created under Obama and then overturned in the courts, were not revived under the administration, though the Biden administration took a second crack at it.
The increases in Federal spending are often attributed to the response to the COVID-19 pandemic. However, total federal spending sat at $5.03 trillion dollars annually before the Trump administration entered office in 2017, and over the next four years, increased by $60 billion, $40 billion, and $33 billion respectively before spiking in 2020 in response to the pandemic with an additional $2.48 trillion in spending.
Overall, the majority of economic indicators were on a positive trend coming out of the 2008-2009 financial crisis and onward into the start of the Trump administration and running through the Trump administration until February of 2020 with the advent of the COVID pandemic and subsequent economic slowdown due to lockdowns and trade issues that occurred at the time. Unemployment reached a 50-year low at 3.5% prior to the pandemic, and GDP grew from $24.35 trillion in 2016 to $25.83 trillion in 2020.
The Next Trump Economic Policy
Leading up to the election, Trump has indicated several priorities for his economic policy in the next administration. These have included proposed Tariffs on the import of foreign goods, additional tax cuts, and additional deregulation.
While economists generally agree that tariffs have an inflationary effect on the dollar, tariffs have a long history in the United States; in fact, between 1861 and 1933, the United States had some of the highest tariff rates on imports in the world, as tariffs made up a significant portion of the federal government’s revenue. It was only after the introduction of individual income taxes in 1913 that the government transitioned away from a reliance on such consumption-based taxes to the income tax system that we have today. However, the Federal Reserve has managed to create a soft landing after the significant inflation seen in 2021 through 2023 with respect to inflation rates, leading it to slash the reserve rate as inflation has cooled towards its target of a low 2% annualized rate. If the Trump administration does pursue an aggressive tariff policy, we will likely see the Federal Reserve hold off on any additional rate cutting activity as a means of combating the probable inflationary factors that would come with passing new tariffs.
Cutting taxes is another area of Trump’s proposed economic policies, though details have been scarce. While it’s possible that another omnibus tax bill like the TCJA is passed during the administration, it would technically be a tax cut to simply continue the TCJA as it is and to not let it lapse at the end of 2025. However, while the TCJA is generally described as having “cut taxes,” federal budgetary policy does not permit the direct cutting of revenue, at least insofar as how tax bills have to be formed, though the result can still involve a reduction in Federal revenues. This means that both the TCJA and any new tax cut proposals take the form of “shifting taxes,” such as reducing individual rates while increasing taxes in another area, or by omitting certain businesses from specific tax policies such as 199A.
Finally, deregulation remains a material component of the Trump economic platform. As with the prior administration, details on this have not been particularly forthcoming, but as we saw during that administration, this policy generally was directed at lax enforcement and an apathetic attitude toward increasing regulation in any particular area of the Federal government. It will remain to be seen just how such regulatory mechanisms adjust.
The Unknowns
This has been a commentary on the history and likely economic policy of a Trump administration. There are plenty of issues outside the realm of economics, and while certainly important to those who voted for or against Trump, are not within our purview to comment on. For example, while Trump has been very outspoken about the wars in Ukraine and Israel, how a direct economic or foreign policy will manifest remains to be seen.
However, there is a truism about the market when it comes to who is in office: The market doesn’t care. The market responds positively to greater levels of certainty and confidence in future conditions and responds poorly to uncertainty. While there will now be four years of new economic, domestic, and foreign policy to contend with, the unknowns of the election are now past. We now will have to see how things play out over the coming years, good, bad, or otherwise.
In the meantime, we said it up top and we’ll say it again: Be kind to each other.