Fed up with high prices and unimpressed with an economy that by just about any measure is a healthy one, Americans demanded change when they voted for president.
They could get it.
President-elect Donald Trump has vowed to topple many of the Biden administration’s economic policies. Trump campaigned on promises to impose huge tariffs on foreign goods, slash taxes on individuals and businesses and deport millions of undocumented immigrants working in the United States.
With their votes, tens of millions of Americans expressed their confidence that Trump can restore the low prices and economic stability they recall from his first term — at least until the COVID-19 recession of 2020 paralyzed the economy and then a powerful recovery sent inflation soaring. Inflation has since plummeted and is nearly back to normal. Yet Americans are frustrated over still-high prices.
“His track record proved to be, on balance, positive, and people look back now and think: ‘Oh, OK. Let’s try that again,’ ” said Douglas Holtz-Eakin, a former White House economic adviser, director of the Congressional Budget Office and now president of the conservative American Action Forum think tank.
Since Election Day, the Dow Jones Industrial Average has skyrocketed more than 1,700 points, largely on expectations that tax cuts and a broad loosening of regulations will accelerate economic growth and swell corporate profits.
Maybe they will. Yet many economists warn that Trump’s plans are likely to worsen the inflation he’s vowed to eradicate, drive up the federal debt and eventually slow growth.
Americans are Deeply Unhappy with Prices
Consumers, though, still bear the scars of the inflationary surge. Prices on average are still 19% higher than they were before inflation began to accelerate in 2021. Grocery bills and rent hikes are still causing hardships, especially for lower-income households. Though inflation-adjusted hourly wages have risen for more than two years, they’re still below where they were before President Joe Biden took office.
Voters took their frustration to the polls. According to AP VoteCast, a sweeping survey of more than 120,000 voters nationwide, 3 in 10 voters said their family was “falling behind’’ financially, up from 2 in 10 in 2020. About 9 in 10 voters were at least somewhat worried about the cost of groceries, 8 in 10 about the cost of healthcare, housing or gasoline.
“I don’t think it’s either deep or complicated,’’ Holtz-Eakin said. “The real problem is the Biden-Harris team made people worse off, and they were very angry about it, and we saw the result.’’
The irony is that mainstream economists fear Trump’s remedies will make price levels worse, not better.
Deportations would Rattle the US Job Market
Trump has threatened to deport millions of undocumented immigrants, potentially undermining one of the factors that allowed the United States to tame inflation without falling into recession.
The Congressional Budget Office reported that net immigration — arrivals minus departures — reached 3.3 million in 2023. Employers needed the new arrivals. After the economy rebounded from the pandemic recession, companies struggled to hire enough workers, especially because so many native-born baby boomers were retiring.
Immigrants filled the gap. Over the past four years, 73% of those who entered the labor force were foreign born.
Economists Wendy Edelberg and Tara Watson of the Brookings Institution’s Hamilton Project found that by raising the supply of workers, the influx of immigrants allowed the United States to generate jobs without overheating and accelerating inflation.
The Peterson Institute calculates that the deportation of all 8.3 million immigrants believed to be working illegally in the United States would slash U.S. GDP by $5.1 trillion and raise inflation by 9.1 percentage points by 2028
Big Tax Cuts could Swell the Federal Deficit
Trump has proposed extending 2017 tax cuts for individuals that were set to expire after 2025 and restoring tax breaks for businesses that were being reduced. He’s also called for ending taxes on Social Security benefits, overtime pay and tips as well as further reducing the corporate income tax rate for U.S. manufacturers.
The University of Pennsylvania’s Penn Wharton Budget Model estimates that Trump’s tax policies would i ncrease budget deficits by $5.8 trillion over 10 years. Even if the tax cuts generated enough growth to recoup some of the lost tax revenue, Penn Wharton calculated, deficits would still increase by more than $4.1 trillion from 2025 through 2034.
The federal budget is already out of balance. An aging population has required increased spending on Social Security and Medicare. And past tax cuts have shrunk government revenue.
Holtz-Eakin said he worries that Trump has little appetite for taking the steps — cuts to Social Security and Medicare, tax increases or some combination — needed to bring the federal budget meaningfully closer to balance.
“It’s not going to happen,” Holtz-Eakin said.
