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After a four-year Democratic intermission, Donald Trump will soon begin his second act as president, with the GOP in full control of Congress. Here’s what you should expect this time.
The likely defining issues of term two Trump:
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1. Trade. Trump has pledged to expand tariffs via executive action, including across-the-board duties of 10%-20% and a tariff of at least 60% on imports from China. Any such effort is sure to be challenged in court, as well as cause friction between Trump and congressional Republicans, who are hoping that Trump will collaborate with them. Legal experts say Trump can accomplish quite a bit on his own.
2. Immigration. A mass deportation effort targeting millions of undocumented people in the U.S. will similarly test the legal limits of Trump’s authority and increase tensions with Congress. Some GOPers fear the possible economic and political ramifications if the president-elect is able to execute his plan.
3. US Policy. Even if Trump falls short of his ambitions he can still substantially shift U.S. policy in less prominent ways. Don’t be surprised if Trump further stiffens U.S. export controls and makes foreign worker visas harder to obtain.
On the regulatory front, the usual partisan ping-ponging will take place. Trump will reverse numerous Biden administration environmental rules, including carbon emissions reductions for power plants and a pause on permits for liquefied natural gas terminals. Others could survive in a truncated form, since they have industry support, such as a rule to reduce methane emissions. The big question is whether Trump will modify his stance on electric vehicles, given his increasingly close relationship with Tesla CEO Elon Musk. The implications could be substantial for federal tailpipe emissions regs and other EV-related policies.
Also on tap: A more employer-friendly labor policy, with less of an emphasis on workplace safety. Expect Trump officials to target any low-hanging regulatory fruit, including a new workplace heat standard that is scheduled to take effect next year. The Biden administration’s forthcoming overtime rule also has a big target on its back, though it will be more difficult to undo if it takes effect on January 1, as scheduled. Health care will involve a revival of many first-term Trump policy proposals, such as Medicaid work requirements plus block grants and various policies intended to favor Medicare Advantage, a private-sector alternative to the federal health plan for seniors. Repealing the Affordable Care Act seems unlikely at this point, but Trump can still defang the law via federal rule changes, such as allowing health insurers to divide enrollees into different risk pools, with premiums adjusted accordingly.
4. Taxes
Taxes will be the top legislative priority for President-elect Trump and the GOP Congress: Specifically, extending the many provisions of Trump’s 2017 tax bill that expire at the end of 2025: the higher standard deduction, lower income tax rates, the $10,000 cap on state and local tax deductions, higher exemptions for estate tax and the alternative minimum tax, the 20% deduction for pass-through income, etc. (Note that the lower corporate income tax rate enacted in 2017 is not set to expire.)
Some additional tax reductions or reforms could also get a closer look. Trump campaigned on an array of tax breaks, like exempting certain income from tax. The challenge will be how, or whether, to pay for what Republicans want. Extending the 2017 cuts for another decade would take the annual deficit as a share of GDP from an already-high 6.1% to 7.4%. Whether bond investors will balk at that and demand higher yields on Treasury debt to finance such deficits is a key question.
This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.
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