How Much Will It Cost to Make America Great Again?

With Trump’s election victory and a GOP-controlled Congress, there are some significant economic changes on the horizon.

Bullion.Directory precious metals analysis 12 November, 2024
By Peter Reagan
Financial Market Strategist at Birch Gold Group

Trump won both the popular vote and the Electoral College. The GOP has a majority in the Senate and control the House of Representatives by 9 seats (with another 16 still unresolved). I think it’s safe to say that the Red Wave will hand President-Elect Trump a majority in both houses.

That means his economic policies will very likely be implemented in the years ahead.

Today we’ll take a look at those policies, and how they’ll affect your personal finances…

The Trump economic agenda

The Trump campaign has an aggressive economic agenda. Rather than digging into the details, today I’m going to summarize individual initiatives and their approximate costs over the next 10 years.

I relied heavily on the nonpartisan Committee for a Responsible Federal Budget (CRFB) for many of these numbers.

Extending the Tax Cuts & Jobs Act (TCJA): -$4.6 to -$5.9 trillion

Also known as the “Trump tax cuts,” the TCJA reduced tax rates for individuals and businesses. The New York Times called it “the most sweeping tax overhaul in decades.”

Extending these tax cuts have caused economists across the political spectrum to worry they would both boost inflationary pressures and worsen America’s fiscal trajectory.

Exempt overtime pay from taxes: -$500 billion to -$3 trillion

There’s a large amount of uncertainty here – because when you change a tax law like this, people (and their accountants) are incentivized to figure out a way to game the rules.

End taxation of Social Security benefits: -$1.25 to -$1.45 trillion

No doubt this will be a welcome development to those who’ve been struggling to survive on a fixed income over the last few years.

End taxation of tip income: -$100 billion to -$550 billion

The IRS estimates that about 40% of tip income is already unreported (that’s why cash gratuities are always appreciated).

Those are the biggest changes to taxation promised during Trump’s campaign.

What about cost savings? How does the Trump administration plan to balance the books?

Let’s turn to revenue collection…

Tariffs: +$2 to $4.3 trillion

A flat rate tariff of 10-25% across the board on all imports – plus a 60% tariff on China’s imports – is at the heart of the Make America Great Again agenda.

The result “would spike the average tariff rate on all imports to highs not seen since the Great Depression,” Tax Foundation economist Erica York wrote.

What’s the logic here?

Consider: Over the last 50 years, manufacturing’s contribution to GDP has shrunk from 27% to just 12%. (I don’t want to belabor this, but if you’re interested in learning more, here’s an excellent overview.)

The intent of this policy is to rejuvenate the American industrial and manufacturing sector – to give Made in America products a price advantage.

Tariffs are often characterized as protectionist – and in this case, that’s exactly the intent. They’re intended to protect domestic industries. There are two problems with tariffs, though:

1. Retaliation: Usually, any nation whose products are subjected to tariffs simply does the same thing – if we levy a 20% tariff on cheddar cheese and Rolls Royces, the British will most likely do the same thing to products we export to them.
2. Who pays? Nearly every economist, from Adam Smith to Paul Krugman, agrees on one thing: Manufacturers don’t simply bear the cost of tariffs. Instead, they pass them on to customers. Somewhere between 95%-100% of these tariffs will be paid by you and me.

Over the long term, the U.S. will enjoy a more diverse and robust industrial base. Over the short term, we’ll be paying higher prices across the board.

Reprioritize energy and environmental policies: +$550 to $750 billion

This one doesn’t quite make as much sense to me – the U.S. currently produces more oil and natural gas than any other nation.

The shale boom gave us energy independence in 2019 (for the first time since the 1940s). Even so, the promise to “free up the vast stores of liquid gold on America’s public land for energy development” could make prices drop even farther.

Repealing tax credits for installing solar panels and electric vehicle purchases will save the government money.

Reduce government waste and crack down on fraud: up to $250 billion

This is simply a wild guess – we all feel like there’s a huge opportunity to save money by eliminating wasteful government spending.

But it’s impossible to put a number on it. As the CRFB says, “It is possible the Government Efficiency Commission could identify billions or trillions of additional dollars of savings, but these cannot be estimated until they are presented.”

Eliminate the Department of Education: up to $200 billion

Based on an analysis by the Heritage Foundation.

Time to sum it up…

Total: approximately -$7.75 trillion

Here’s the CRFB’s summary analysis:

President Trump would add $7.75 trillion to the projected debt through FY 2035 under our central estimate, as a result of $10.40 trillion of deficit-increasing measures, $3.70 trillion of deficit-reducing measures, and $1.05 trillion of interest costs.

Take a look at the full analysis here, or just take a glance at this chart.

Image via Tax Foundation

What about the benefits? Like I said before regarding tariffs, over the long term, there are tangible benefits to this economic plan. The nonpartisan Tax Foundation projects that these changes will boost national wealth significantly, over the long run:

• GDP +0.8%
• Wages +0.8%
• Full-time jobs +597,000

However, these benefits come at a cost. And it’s important to understand who’s paying that cost.

Deficit spending is dollar destruction

When the federal government spends more money than it collects, it finances the difference by issuing debt. Essentially, this means borrowing from future generations, which dilutes the purchasing power of today’s dollars.

As debt rises, your purchasing power falls. Everyday goods and services become more expensive – a process we call inflation.

On top of this, we’re facing imminent price increases due to tariffs – because corporations don’t just pay them as a cost of doing business. They pass them on to us.

Regardless of your politics, I strongly encourage you to take a few moments and consider the effects of this economic agenda. While the intention behind these policies is to rejuvenate American industries and create a more diverse economic base, the benefits are projected to materialize over the long term.

In the meantime, we need to be ready for a higher cost of living.

Obviously I’m a big proponent of diversifying your savings with physical precious metals for exactly this reason. The price of gold and silver tends to go up when the purchasing power of the dollar declines. There are other inflation-resistant investments, of course, though most of them simply don’t measure up to physical precious metals.

This article was originally published here

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