The Impact of President-elect Donald Trump's Policies on the Economy

The economy emerged as a primary concern for voters during the presidential election. A September Pew Research poll indicated that the economy surpassed health care, foreign policy, and crime as a leading issue. Now, everyone is curious about how President-elect Donald Trump's policies will influence our finances over the next four years. Although not all of Trump's policy details have been made public and many of his proposals require congressional approval, experts have shared their insights on what we might anticipate from his next term, which begins on Jan. 20, 2025.

Tariffs and Mass Deportation: Implications for Prices

The president-elect has been vocal about two significant plans: imposing high tariffs on imported goods and conducting mass deportations of illegal immigrants. If the administration implements either or both of these measures, prices in the US are likely to rise. Usha Haley, a professor at Wichita State University and an expert on trade with China, explains that tariffs act as a tax on consumption by increasing the costs of directly imported products and imported supplies used in American manufacturing. "Trump's proposed 60% tariff on all imports from China and 20% on imports from other countries will lead to increased costs for end users throughout the supply chain," Haley said. While corporations may absorb some of the impact in reduced profit margins, importers often pass on a portion of these tax costs to consumers in the form of higher prices.David Anderson, Blazer professor of economics and business at Centre College in Danville, Kentucky, also highlights the impact of mass deportation on prices. "Immigrants play a crucial role in industries such as agriculture, health care, construction, food service, and transportation. Fewer workers in these and other areas will put upward pressure on labor costs and prices," Anderson said.Inflation, which measures the rate of change in the price of consumer goods and services in a year, reached record levels in the wake of the pandemic. After the Federal Reserve's aggressive post-pandemic rate-hiking campaign that began in 2021, inflation has been gradually returning to the central bank's annual target rate of 2%. However, prices still remain elevated after years of rate increases. The Federal Reserve was initially preparing to implement additional cuts to the federal funds rate in 2025 to reduce borrowing costs. But if tariffs and mass deportations fuel inflation, interest rates are likely to remain high in the short term.

Some Tax Cuts to be Extended, Others at Risk

Most experts anticipate that Trump will extend and potentially expand the 2017 Tax Cuts and Jobs Act, which is set to expire in 2025. Passed during Trump's first administration in January 2018, some of the notable tax breaks still in effect include lower individual income tax brackets. When paying income taxes, taxpayers fall into one of seven tax rates based on their income tax bracket, and the TCJA lowered five of these rates. Additionally, the TCJA nearly doubled the amount of the standard deduction that most taxpayers can claim. The increased Child Tax Credit also provides up to ,000 per child, compared to the previous ,000.However, a recent report by the Tax Policy Center shows that while the TCJA lowered taxes for many households, most of the benefits of extending this tax law would go to those earning 0,000 or more. Approximately 75% of households would see some form of tax cuts, but 45% of the policy's tax breaks would benefit high-income earners. The incoming administration is not planning to extend all tax breaks. For example, other tax breaks, like the EV tax credit, which can lower your tax bill by ,500 when purchasing an eligible electric vehicle, are likely to be eliminated. Other tax plans, such as Trump's stated proposal to offer "large tax cuts for workers" and eliminate taxes on tips, remain less clear.

Social Security Benefits: A Delicate Balance

Trump has proposed eliminating taxes on Social Security benefits. While this may provide short-term relief for those receiving SSI benefits, it would also deplete the Social Security funds, which would have long-term consequences for workers. According to the Tax Policy Center, it is advisable for anyone nearing retirement or planning in advance not to rely solely on Social Security to fund their future. Instead, setting aside a portion of each month's paycheck in a tax-advantaged retirement plan, such as a 401(k) or an Individual Retirement Account, is a more prudent approach. The SECURE 2.0 Act in 2025 has introduced new retirement rules that may make it easier for individuals to save for their future.

Student Loan Forgiveness: Uncertainty Looms

Based on Trump's previous term and Republicans' opposition to student debt relief, experts predict the incoming administration's stance on student loans. With Republican state leaders leading efforts to block forgiveness in the courts, it is unlikely that the Biden administration's SAVE Plan or the "Plan B" broad student loan forgiveness effort will move forward. Elaine Rubin, a student loan and policy expert with Edvisor and a CNET expert review board member, states that under Trump, the SAVE Plan is at risk. "We do not expect the Trump administration to engage in the legal battle to maintain SAVE or authorize broad forgiveness. If SAVE is overturned before Jan. 20, the Biden administration may not have sufficient time to successfully appeal the decision," Rubin said. She recommends that borrowers closely monitor the status of their loan repayments as court cases progress, especially if they are not resolved before Trump takes office. Rubin also suggests reviewing other income-driven repayment plans in case SAVE is struck down.Project 2025, a far-right, conservative blueprint, proposes ending popular forgiveness programs, eliminating the Department of Education, and privatizing student loans. Although Trump denied any connection to the proposal during his campaign, he has appointed some of its contributors to prominent positions in his administration. Trump also pledged to shut down the Department of Education on the campaign trail, which would require congressional support. According to Rubin, many parts of the Project 2025 program regarding public education, including the removal of the Department of Education, are highly speculative. "It is unclear if he will have the necessary votes to make any or some of those changes," Rubin said.