The Impact of Trump’s Economic Proposals on Prices: A Mixed Bag Analysis

Introduction

Today’s article from the Forecasts & Trends E-Letter by Henry Rohlfs presents what the Penn Wharton Budget Model sees as the major components of the economic policies of the Trump administration and the Wharton School’s analysis of how they could affect the economy and your pocketbook. (Listen to our theme song, Money, Money, Money, before proceeding.)

Trump Economic Proposals

“Tax Changes

1. Extend the individual income tax provisions of TCJA
   • For individuals, extending the TCJA would keep seven ordinary tax brackets with TCJA thresholds and rates.
     • The top rate would be kept at 37% versus 39.6% pre-TCJA.
     • The standard deduction would remain roughly twice as high as before 2017, and personal exemptions would remain eliminated.
     • For households that itemize deductions, the cap on the Mortgage Interest Deduction would remain at $750,000 in mortgage debt, and up to $10,000 in state and local taxes could be deducted.
     • The Child Tax Credit would remain at $2,000.
     • The Other Dependent Credit, which provides a $500 nonrefundable credit for dependents who do not qualify for the CTC, would remain in effect.
     • Married filers could deduct 20 per cent of the first $315,000 in income from pass-through businesses, subject to limitations.
     • Estate tax exemptions would remain at their higher post-TCJA levels.
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2. Eliminate taxes on Social Security benefits.
   • Under current law, individuals drawing social security benefits must pay taxes on 50-85% of their benefits, with lower-income retirees paying taxes on a lower share than higher-income retirees. This proposal would exclude all Social Security benefits from taxable income for all individuals.
3. Extend the business tax provisions of TCJA
   • …Since 2022, businesses have been required to deduct R&E costs spread over five years instead of taking the deduction in a single year. Beginning in 2023, the limitation on interest deductions became more restrictive.
   • The Trump campaign proposal would undo these changes, restoring and making permanent the regime that existed immediately after TCJA’s enactment. (Submit an article for posting consideration.)
4. Lower the corporate income tax rate to 15%
   • The TCJA permanently reduced the corporate tax rate from a statutory 35% of taxable income to 21%. The Trump proposal would lower that rate to 15%. (Watch our videos on youtube.)

The Wharton analysis shows that changing the above tax policies will put more money into Americans’ pockets. All income levels will see increases in their incomes after taxes and federal spending transfers. (The first four categories are “quintiles” – fifths of the wage-earning population. The final quintile is divided into the top percentages of wage-earners to clarify the comparisons.)

Economic Effects

The Penn Wharton Budget Models projects that the Trump proposals would increase deficits by $5.8 trillion on net over the 10-year budget window from 2025 to 2034 on a conventional basis. However, they believe GDP increases will offset losses by about $1.7 trillion. That leaves a primary deficit increase of $4.1 trillion over 10 years.

Trump’s plans to cut corporate taxes could initially grow the economy slightly faster, but that impact could fade over time. (Comment on this articles and/or our site design.)

Ryan Sweet, chief U.S. economist at Oxford Economics, writes that Real GDP growth could be 0.3 percentage points higher in 2026 than if current economic policies continued. He also adds that GDP growth could eventually fall to 0.6 percentage points lower in 2028 than earlier projections due to the impact of deportations and higher tariffs.

Inflation

The Trump campaign repeatedly spoke to consumers’ concerns on inflation….[but] many economists caution that Trump’s plans could reignite inflation. More than two-thirds (68%) of economists recently surveyed by The Wall Street Journal said prices would be higher under Trump… (Advertise on banner for FREE!)

Jacob Channel, chief economist at LendingTree, believes that the two main pillars of his policy proposals, tariffs and mass deportations, are likely to raise prices as they will make it more difficult for businesses to produce goods. (Sponsor a category and/or article for FREE!)

Balancing Budget

…If Elon Musk and Vivek Ramaswamy succeed in substantially reducing government spending, those savings could offset the projected budget deficit of $4.1 trillion over 10 years…[and] this presents the incoming administration with an opportunity to have a balanced budget by the end of Trump’s term….” (Add – bookmark – MunAiMarkets in the top bar on your e-mail browser for a fast and easy return to our site.)