Accounting
Trump to reshape US economy with tariffs, crackdown on migrants
Donald Trump is returning to the White House, and the U.S. economy is in for a wild ride.
The former and soon-to-be next president has promised an escalation of tariffs on all U.S. imports and the biggest mass deportation of migrants in history. He also wants a say in Federal Reserve policy. Many economists reckon the platform adds up to higher inflation and slower growth ahead.
Trump also promised sweeping tax cuts during the campaign that culminated in his victory over Vice President Kamala Harris. His ability to deliver them may hinge on
Win McNamee/Photographer: Win McNamee/Getty
Still, it’s Trump’s tariffs — which he’s threatened to slap on adversaries and allies alike — that stand to have the biggest impact on the U.S. economy, analysts say. The self-proclaimed “tariff man” enacted duties
Trump says the import taxes can help raise revenue, as well as reduce U.S. trade deficits and re-shore manufacturing. What’s more, as Trump demonstrated last time he was in office, a president can enact tariffs essentially single-handedly.
“He’s going to be off and running,” said Mark Zandi, chief economist at Moody’s Analytics. “I think we’re going to get these policies in place very quickly and they’re going to have impact immediately.”
Most economists say inflation will rise as a result, because consumers will pay higher costs that are passed on by importers who pay the tariffs.
Moody’s predicted before the vote that with Trump as president inflation would rise to at least 3% next year — and even higher in the event of a GOP sweep — from 2.4% in September, fueled by higher tariffs and an outflow of migrant labor. If targeted countries retaliate and a trade war ensues, the US will face “a modest stagflationary shock,” Wells Fargo economist Jay Bryson said in an Oct. 16 webinar, a situation in which economic output stalls and price pressures rise.
‘Winners and losers’
Such a scenario will put the Federal Reserve in the position of wanting to raise interest rates to combat inflation, but also to cut rates to prevent the risk of a recession, said Jason Furman, the former head of the White House Council of Economic Advisers under President Barack Obama.
“In economics, everything has winners and losers,” Furman said in an Oct. 17 webinar. “In this case, the losers are consumers and most businesses.”
Trump will likely have thoughts on how the central bank should respond. He
In general, Trump and his supporters dismiss the downbeat projections from “Wall Street elites.” They point out that inflation didn’t spike in his first term while he enacted tariffs and tax cuts — and presided over robust economic growth, until the pandemic hit.
The Coalition for a Prosperous America, which supports trade protectionism,
‘Loosening up’
Michael Faulkender, chief economist at the America First Policy Institute that’s staffed with officials from Trump’s first administration, said the negative projections don’t account for the economic growth that Trump’s deregulatory agenda and plans to boost energy production would generate.
“There’s a lot of loosening up of our economy, removing structural costs in our economy, that can generate growth in an actually deflationary way,” Faulkender said.
Trump promised to make permanent the tax cuts he pushed through in 2017 for households, small businesses and the estates of wealthy individuals — most of which are due to expire at the end of 2025. Even if the GOP loses its sway over the House, there’s likely some room to strike a deal with Democrats, who also favor keeping some of those measures in place.
Any such bargaining will take place under the pressure of another looming debt-ceiling showdown, with borrowing limits set to kick in again next year under a deal to resolve a 2023 standoff. Congress-watchers see other areas for potential agreement, because some — like a tax-credit for childcare and an exemption for tips — were backed by both parties during the campaign. But some of Trump’s proposals, including further cuts in the corporate tax rate, would likely be off the table if Republicans lose the House.
The tax and spending promises that the Trump campaign rolled out during the election could collectively
Many economists also doubt that Trump’s trade policy can quickly boost manufacturing employment, one of the stated goals. It takes years to build factories, and automation means they nowadays require fewer workers.
A National Bureau of Economic Research study
“The tariffs are not going to bring down the trade deficit, they’re not going to restore manufacturing jobs, but it’ll take several years to discover that and a lot of pain in between,” Maurice Obstfeld, formerly a chief economist at the International Monetary Fund, said in an Oct. 17 webinar.
‘Significant chaos’
Trump’s threat to deport millions of undocumented migrants is another source of alarm to many economists and businesses. It would reduce the labor pool available to companies that have found it hard to hire.
Deporting post-2020 arrivals would shrink the economy by some 3% by the next election in 2028, while the drop in demand from a smaller population would lower prices, Bloomberg Economics’ Chris Collins wrote in a note. The impact would likely land hardest in industries like construction, leisure and hospitality — and states including Texas, Florida and California — where migrants make up the biggest share of the labor force.
Of course, campaign pledges often fall by the wayside, and the economic impact of Trump’s second-term policies will depend on which ones he prioritizes and can get done.
Many doubt that deportations of migrants are feasible on the scale Trump has proposed. He’s floated using the U.S. Immigration and Customs Enforcement or even the Alien Enemies Act of 1798 — used to justify World War II-era internment of noncitizens — to carry out the plan, which would likely face court challenges.
As for tariffs, Trump himself has indicated the numbers he floats are often intended as bargaining levers. But even the threat of tariffs will be disruptive as companies scramble to renegotiate contracts and reconfigure supply chains to get ahead of the potential duties, said Wendy Edelberg, director of the Brookings Institution’s Hamilton Project.
“We’re going to see this significant chaos across the entire business landscape,” she said.
The House unanimously passed four bipartisan bills Tuesday concerning taxes and the Internal Revenue Service that were all
- H.R. 1152, the Electronic Filing and Payment Fairness Act, sponsored by Rep. Darin LaHood, R-Illinois, Suzan Delbene, D-Washington, Randy Feenstra, R-Iowa, Brad Schneider, D-Illinois, Brian Fitzpatrick, R-Pennsylvania and Jimmy Panetta, D-California. The bill would apply the “mailbox rule” to electronically submitted tax returns and payments to allow the IRS to record payments and documents submitted to the IRS electronically on the day the payments or documents are submitted instead of when they are received or reviewed at a later date. The AICPA believes this would offer clarity and simplification to the payment and document submission process while protecting taxpayers from undue penalties.
- H.R. 998, the Internal Revenue Service Math and Taxpayer Help Act, sponsored by Rep. Randy Feenstra, R-Iowa, and Brad Schneider, D-Illinois, which would require notices describing a mathematical or clerical error to be made in plain language, and require the Treasury to provide additional procedures for requesting an abatement of a math or clerical error adjustment, including by telephone or in person, among other provisions.
- H.R. 517, the Filing Relief for Natural Disasters Act, sponsored by Rep. David Kustoff, R-Tennessee, and Judy Chu, D-California. The process of receiving tax relief from the IRS following a natural disaster typically must follow a federal disaster declaration, which can often come weeks after a state disaster declaration. The bill would provide the IRS with authority to grant tax relief once the governor of a state declares either a disaster or a state of emergency and expand the mandatory federal filing extension under Section 7508(d) of the Tax Code from 60 days to 120 days, providing taxpayers with more time to file tax returns after a disaster.
- H.R. 1491, the Disaster related Extension of Deadlines Act, sponsored by Rep. Gregory Murphy, R-North Carolina, and Jimmy Panetta, D-California, would extend the amount of time disaster victims would have to file for a tax refund or credit (i.e., the lookback period) by the amount of time afforded pursuant to a disaster relief postponement period for taxpayers affected by major disasters. This legislative solution would place taxpayers on equal footing as taxpayers not impacted by major disasters and would afford greater clarity and certainty to taxpayers and tax practitioners regarding this lookback period.
“The AICPA has long supported these proposals and will continue to work to advance comprehensive legislation that enhances IRS operations and improves the taxpayer experience,” said Melanie Lauridsen, vice president of tax policy and advocacy for the AICPA, in a statement Tuesday. “We are pleased to work closely with each of these Representatives on common-sense reforms that will benefit taxpayers, tax practitioners and tax administration and we’re encouraged by their passage in the House. We look forward to continuing to work with Congress to improve the taxpayer experience.”
The bills were also included in a recent Senate
The House also passed two other tax-related bills Tuesday that weren’t endorsed in the recent AICPA letter.
- H.R. 1155, Recovery of Stolen Checks Act, sponsored by Rep. Nicole Malliotakis, R-New York, would require the IRS to create a process for taxpayers to request a replacement via direct deposit for a stolen paper check. If a check is determined to be stolen or lost, and not cashed, a taxpayer will receive a replacement check once the original check is cancelled, but many taxpayers are having their replacement checks stolen as well. Taxpayers who have a check stolen are then unable to request that the replacement check be sent via direct deposit. The bill would require the Treasury to establish processes and procedures under which taxpayers, who are otherwise eligible to receive an amount by paper check in replacement of a lost or stolen paper check, may elect to receive such amount by direct deposit.
- H.R. 997, National Taxpayer Advocate Enhancement Act, sponsored by Rep. Randy Feenstra, R-Iowa, would prevent IRS interference with National Taxpayer Advocate personnel by granting the NTA responsibility for its attorneys. In advocating for taxpayer rights, the National Taxpayer Advocate often requires independent legal advice. But currently, the staff members hired by the National Taxpayer Advocate are accountable to internal IRS counsel, not the Taxpayer Advocate, creating a potential conflict of interest to the detriment of taxpayers. The bill would authorize the National Taxpayer Advocate to hire attorneys who report directly to her, helping establish independence from the IRS.
House Ways and Means Committee Chairman Jason Smith, R-Missouri, applauded the bipartisan House passage of the various bills, which had been unanimously passed by the committee.
“President Trump was elected on the promise of finally making the government work better for working people,” Smith said in a statement Tuesday. “This bipartisan legislation helps fulfill that mandate and makes improvements to tax administration that will make it easier for the American people to file their taxes. Those who are rebuilding after a natural disaster particularly need help filing taxes, which is why this set of bills lightens the load for taxpayers in communities struck by a hurricane, tornado or some other disaster. With Tax Day just a few days away, we must look for common-sense, bipartisan ways to make filing taxes less of a hassle.”
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