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.
Captive audience; some disagreement; game of 21; and other highlights of recent tax cases.
Barrington, Illinois: Tax preparer Gary Sandiego has been sentenced to 16 months in prison for preparing and filing false returns for clients.
He owned and operated the tax prep business G. Sandiego and Associates and for 2014 through 2017 prepared and filed false income tax returns for clients. Instead of relying on information provided by the clients, Sandiego either inflated or entirely fabricated expenses to falsely claim residential energy credits and employment-related expense deductions.
Sandiego, who
He was also ordered to serve a year of supervised release and pay $2,910,442 in restitution to the IRS.
Ft. Worth, Texas: A federal district court has entered permanent injunctions against CPA Charles Dombek and The Optimal Financial Group LLC, barring them from promoting any tax plan that involves creating or using sham management companies, deducting personal non-deductible expenses as business expenses or assisting in the creation of “captive” insurance companies.
The injunctions also prohibit Dombek from preparing any federal returns for anyone other than himself and Optimal from preparing certain federal returns reflecting such tax plans. Dombek and Optimal consented to entry of the injunctions.
According to the complaint, Dombek is a licensed CPA and served as Optimal’s manager and president. Allegedly, Dombek and Optimal promoted a scheme throughout the U.S. to illegally reduce clients’ income tax liabilities by using sham management companies to improperly shift income to be taxed at lower tax rates, improperly defer taxable income or improperly claim personal expenses as business deductions. As alleged by the government, Dombek also promoted himself as the “premier dental CPA” in America.
The complaint further alleges that in promoting the schemes, Dombek and Optimal made false statements about the tax benefits of the scheme that they knew or had reason to know were false, then prepared and signed clients’ returns reflecting the sham transactions, expenses and deductions.
The government contended that the total harm to the Treasury could be $10 million or more.
Kansas City, Missouri: Former IRS employee Sandra D. Mondaine, of Grandview, Missouri, has pleaded guilty to preparing returns that illegally claimed more than $200,000 in refunds for clients.
Mondaine previously worked for the IRS as a contact representative before retiring. She admitted that she prepared federal income tax returns for clients that contained false and fraudulent claims; the indictment charged her with helping at least 11 individuals file at least 39 false and fraudulent income tax returns for 2019 through 2021. Mondaine was able to manufacture substantial refunds for her clients that they would not have been entitled to if the returns had been accurately prepared. She charged clients either a fixed dollar amount or a percentage of the refund or both.
The tax loss associated with those false returns is some $237,329, though the parties disagree on the total.
Mondaine must pay restitution to the IRS and consents to a permanent injunction in a separate civil action, under which she will be permanently enjoined from preparing, assisting in, directing or supervising the preparation or filing of federal returns for any person or entity other than herself. She is also subject to up to three years in prison.
Los Angeles: Long-time lawyer Milton C. Grimes has pleaded guilty to evading more than $4 million in federal taxes over 21 years.
Grimes pleaded guilty to one count of tax evasion relating to his 2014 taxes, admitting that he failed to pay $1,690,922 to the IRS. He did not pay federal income taxes for 23 years — 2002 through 2005, 2007, 2009 through 2011, and 2014 through 2023 — a total of $4,071,215 owed to the IRS. Grimes also admitted he did not file a 2013 federal return.
From at least September 2011, the IRS issued more than 30 levies on his personal bank accounts. From at least May 2014 to April 2020, Grimes evaded payment of the outstanding income tax by not depositing income he earned from his clients into those accounts. Instead, he bought some 238 cashier’s checks totaling $16 million to keep the money out of the reach of the IRS, withdrawing cash from his client trust account, his interest on lawyers’ trust accounts and his law firm’s bank account.
Sentencing is Feb. 11. Grimes faces up to five years in federal prison, though prosecutors have agreed to seek no more than 22 months.
Sacramento, California: Residents Dominic Davis and Sharitia Wright have pleaded guilty to conspiracy to file false claims with the IRS.
Between March 2019 and April 2022, they caused at least nine fraudulent income tax returns to be filed with the IRS claiming more than $2 million in refunds. The returns were filed in the names of Davis, Wright and family members and listed wages that the taxpayers had not earned and often listed the taxpayers’ employer as one of the various LLCs created by Davis, Wright and their family members. Many of the returns also falsely claimed charitable contributions.
Davis prepared and filed the false returns; Wright provided him information and contacted the IRS to check on the status of the refunds claimed.
Davis and Wright agreed to pay restitution. Sentencing is Feb. 3, when each faces up to 10 years in prison and a $250,000 fine.
St. Louis: Tax attorneys Michael Elliott Kohn and Catherine Elizabeth Chollet and insurance agent David Shane Simmons have been sentenced to prison for conspiring to defraud the U.S. and helping clients file false returns based on their promotion and operation of a fraudulent tax shelter.
Kohn was sentenced to seven years in prison and Chollet to four years. Simmons was sentenced to five years in prison.
From 2011 to November 2022, Kohn and Chollet, both of St. Louis, and Simmons, who is based out of Jefferson, North Carolina, promoted, marketed and sold to clients the Gain Elimination Plan, a fraudulent tax scheme. They designed the plan to conceal clients’ income from the IRS by inflating business expenses through fictitious royalties and management fees. These fictitious fees were paid, on paper, to a limited partnership largely owned by a charity. Kohn and Chollet fabricated the fees.
Kohn and Chollet advised clients that the plan’s limited partnership was required to obtain insurance on the life of the clients to cover the income allocated to the charitable organization. The death benefit was directly tied to the anticipated profitability of the clients’ businesses and how much of the clients’ taxable income was intended to be sheltered.
Simmons earned more than $2.3 million in commissions for selling the insurance policies, splitting the commissions with Kohn and Chollet. Kohn and Chollet received more than $1 million from Simmons.
Simmons also filed false personal returns that underreported his business income and inflated his business expenses, resulting in a tax loss of more than $480,000.
In total, the defendants caused a tax loss to the IRS of more than $22 million.
Each was also ordered to serve three years’ supervised release and to pay $22,515,615 in restitution to the United States.
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The American Institute of CPAs is still concerned about the Public Company Accounting Oversight Board’s new firm and engagement metrics standard, despite some modifications from the original proposal.
During a board meeting Thursday, the PCAOB
Under the new rules, PCAOB-registered public accounting firms that audit one or more issuers that qualify as an accelerated filer or large accelerated filer will be required to publicly report specified metrics relating to such audits and their audit practices. The metrics cover the following eight areas:
- Partner and manager involvement;
- Workload;
- Training hours for audit personnel;
- Experience of audit personnel;
- Industry experience;
- Retention of audit personnel (firm-level only);
- Allocation of audit hours; and,
- Restatement history (firm-level only).
The AICPA reacted cautiously to the announcement. “We’re still studying the components of the final firm metrics requirements but, as we stated in our comment letter to the PCAOB this past summer, these rules will place a significant burden on small and midsized audit firms and could lead some to exit public company auditing altogether,” said the AICPA in a statement emailed Friday to Accounting Today. “This is not just conjecture: a majority of respondents (51%) to a recent survey we did of Top 500 firms with audit practices said they would rethink engaging in public company audits if the requirements were approved.”
The PCAOB it made some modifications to the original proposal in response to the comments had received since April:
- Reduced the metric areas to eight (from 11);
- Refined the metrics to simplify and clarify the calculations;
- Increased the ability to provide optional narrative disclosure (from 500 to 1,000 characters); and,
- Updated the effective date. (If approved by the SEC, the earliest effective date of the firm-level metrics will be Oct. 1, 2027, with the first reporting as of September 30, 2028, and engagement-level metrics for the audits of companies with fiscal years beginning on or after Oct. 1, 2027.)
The AICPA welcomed those changes but doesn’t think they go far enough. “We’re glad the PCAOB took some comments to heart by extending implementation dates, particularly for smaller firms, and lowering the number of required metrics,” said the AICPA. “But the potential consequences of the remaining requirements — reduced competition and market diversity in the public audit space — are a significant risk. We hope the SEC will give these unintended outcomes the weight they deserve before giving final approval to the requirements.”
The Securities and Exchange Commission would still need to give final approval to the standard, as well as the new firm reporting standard. Last week, the PCAOB decided to
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