What a Trump Return Could Mean for the Economy: Tax Cuts, Deregulation, and Debt Concerns
This Article Includes
With the economy top of mind for many voters, Donald Trump’s potential return to the White House and Republican gains in Congress raise questions about the future of U.S. economic policy. Here’s a look at how Trump’s economic approach may unfold, focusing on tax cuts, business-friendly policies, and the implications for the national debt.
Extending the 2017 Tax Cuts
One major economic policy from Trump’s first term was the Tax Cuts and Jobs Act of 2017, a sweeping reform set to expire in 2025. Without action, the expiration could lead to a tax increase totaling about $4 trillion by 2034.
The 2017 tax law reduced income taxes for individuals and included a larger standard deduction, a boost to the child tax credit, and limits on state and local tax deductions. These changes helped middle- and lower-income households reduce their tax burdens.
Extending these cuts would prevent an economic shock for households still recovering from inflation, which factored into Trump’s recent win. By keeping taxes low, the administration would aim to stimulate demand for goods and services, promoting job creation, productivity, and business growth.
Additionally, lower tax rates tend to boost incentives for working, saving, and investing, which can contribute to long-term economic expansion.
Supporting Small Businesses Through Tax Benefits
Small businesses play a vital role in job creation, and the 2017 tax law included measures to support them, like the 20% small-business deduction and a full expensing allowance for equipment purchases.
Both are set to expire soon, but extending these provisions could help keep small businesses competitive with larger firms and reduce their tax liabilities, encouraging further investment and hiring.
The deduction for small businesses has been associated with the creation of 1.2 million jobs per year, and allowing companies to expense equipment like computers and machinery has been linked to a long-term economic output increase of about 5%.
By securing these provisions, the administration aims to support small businesses and prevent a tax increase that might otherwise slow job creation and innovation.
Deregulation and Reducing Red Tape
Trump’s first term emphasized regulatory reform, with reductions in new regulations that, studies suggest, minimized economic burdens relative to previous administrations. In a second term, Trump has signaled plans to reduce regulations even further, especially those affecting businesses and technological advancement.
Reducing unnecessary regulations could encourage innovation in areas like artificial intelligence, which has the potential to boost productivity and economic growth. However, regulations will still be needed to provide clear rules for industries without hindering innovation.
By promoting a business-friendly environment with reduced regulatory burdens, Trump’s administration could create conditions for steady economic expansion and technological advancement.
Managing the National Debt
A key consideration with extended tax cuts is their impact on the national debt. At over $35 trillion, the U.S. debt has reached unsustainable levels, and projections suggest it will grow from 99% of GDP in 2024 to 166% by 2054.
Extending the tax cuts without offsetting revenue could worsen the debt issue, leading to higher deficits and potential financial instability.
To address this, Trump’s administration may look to balance tax cuts with strategic spending cuts. A bipartisan fiscal commission could be established to tackle debt reduction and fiscal sustainability, sparking a long-term discussion on policies that can sustain economic growth without compromising financial health.
Moving Forward: Balancing Growth and Fiscal Responsibility
If Trump and the Republicans proceed with their economic agenda, Americans could see benefits in terms of tax relief, small-business support, and growth-friendly policies.
But with national debt levels a looming concern, achieving fiscal balance will be critical. Ultimately, by focusing on both economic stimulus and debt management, a potential Trump administration aims to foster a robust and sustainable economy.