Ask Chuck: What economic changes are ahead under President Trump
Dear Chuck,
With the re-election of Donald Trump, what economic changes do you think we should expect now?
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Opportunistic Investor
Dear Opportunistic Investor,
In what has been described as “the greatest comeback in American political history” by VP elect J.D. Vance and a host of others, the election results on November 5th will go down in history. Americans and the world at large watched in shock as President Trump overcame the improbable odds of his re-election. He won not only the Electoral College but also the popular vote. Plus, both the House and Senate will have a Republican majority. A clear pathway has been established for the sweeping changes that are likely ahead.
Personally, I was praying that we would avoid a contested election leading to political instability. I thank God for answering my prayer. Many economic changes are ahead. Some will work; some will not. Some will benefit; others will be displaced. If you think of economics as a “study in human behavior,” as I often call it, you will be able to anticipate the opportunities ahead.
Three potential economic shifts
During the course of President Trump’s many campaign rallies, I noted three potential policy shifts that sound almost too good to be true. Keep in mind, many things are said during a campaign that may or may not be implemented.
Tariffs vs. income taxes
In a recent interview, President Trump said that he thought the word tariff was “the most beautiful word in the dictionary.” In other words, he is very excited about using tariffs. He believes that enforcing tariffs on foreign goods will bring more jobs to the United States, will fund a portion or potentially all of the federal budget, and could lower or even eliminate personal federal income taxes. He certainly had my attention because this would have an impact on all of our lives, both directly and indirectly.
I had to learn more about what tariffs are intended to accomplish. In a summary by Dartmouth economist Douglas Irwin, tariffs have served three primary purposes: “to raise revenue for the government, to restrict imports and protect domestic producers from foreign competition, and to reach reciprocity agreements that reduce trade barriers.”
The direct benefit of low or no personal income taxes would lead to an economic boom for American small businesses, particularly the housing sector, as disposable income would skyrocket. Obviously, it would create pain for some industries that are service providers for adherence to tax laws.
I suspect this policy will meet strong resistance from those who stand to be injured. It will require careful analysis and measured implementation. My guess is that it will be an uphill battle. However, the indirect benefit could provide far greater leverage over foreign nations that presently produce our goods, like China and India. It will likely demand their cooperation, or they will lose access to the strongest market in the world.
Other tax policies
President Trump spoke about eliminating taxes on tips and income earned from overtime pay and allowing a tax deduction for interest paid on a car loan if the car was/is manufactured in the United States. These changes will be music to the ears of our hard-working contract laborers who will have increased disposable income. While the idea of a tax benefit for interest paid on a car loan sounds reasonable, it is likely to drive up the cost of automobiles as borrowers shift their interest saved into higher loan amounts.
These policy promises may be addressed early after the inauguration. However, they will become null and void if the federal income tax system is dismantled through the tariffs mentioned above.
Reduce one-third of the federal spending
Uncle Sam has been overspending by 1/3rd of his income for more than 25 years. This is economic suicide and must be changed. See last week’s column. Elon Musk will likely be named the Government Efficiency Czar, as promoted on occasion by President Trump. This will be an unofficial, volunteer position to look to stop government waste and inefficiency. Elon Musk has recruited Ron Paul to help with the task. Former Congressman Ron Paul has been a lone voice in the wilderness for his entire career sounding this alarm. The two will make quick work of finding money that can be permanently eliminated from the budget.
My outlook is that this will cause shock among government agency leaders, lifelong bureaucrats, and staff alike, as many will fight to justify their survival. I expect public revolts as job security is threatened. However, the long-term benefits of a fiscally sound government will far outweigh the short-term adjustments. We can only imagine the growth that could result when the good faith and credit of the United States government is fully restored.
A golden age of prosperity?
Some of the economic experts that I read, like Adam Kobeissi and John Mauldin, who are both capable sources for market trends, sense we could be heading toward the golden age of American prosperity. Of course, we live in a fallen world, so the road will be paved with enormous challenges politically, socially, and spiritually.
We must keep our eyes on Christ, not the government, to provide our peace, security, and purpose in life. This is not our home. Regardless of what lies ahead, let us continue to lay up treasures in Heaven, where the streets will be paved with gold — tax-free.
Similar to Uncle Sam, if over-spending and debt have you or someone you know in a financial bind, a trusted partner of Crown is Christian Credit Counselors. They are a valuable resource to help consolidate debt and get on the road to financial freedom.
Chuck Bentley is CEO of Crown Financial Ministries, a global Christian ministry, founded by the late Larry Burkett. He is the host of a daily radio broadcast, My MoneyLife, featured on more than 1,000 Christian Music and Talk stations in the U.S., and author of his most recent book, Economic Evidence for God?. Be sure to follow Crown on Facebook.
