What a second Trump term means for U.S. fiscal health
What a second Trump term means for U.S. fiscal health
If President-elect Donald Trump implements the fiscal polices he’s promised, the finances of the U.S. government could deteriorate. That’s according to an analysis by credit rating agency Moody’s. It’s the last of the three main credit agencies to keep America’s top rating in place, but it’s reviewing that determination.
To discuss the increased risk to U.S. fiscal health, “Marketplace Morning Report” host David Brancaccio spoke with Jason Furman, a professor at Harvard and former chair of the White House Council of Economic Advisors under President Obama. The following is an edited transcript of their conversation.
David Brancaccio: What about this notion from the credit rating agency that if we take the president-elect at his word on many of these policies, the federal government’s fiscal health could suffer?
Jason Furman: That’s exactly right. President Trump was basically every week announcing a new area of income that would not be subject to tax. You add all of that up, and it’s more than $10 trillion worth of promises. That would be a huge increase in the deficit, if Congress is willing to pass it.
Brancaccio: I think voters sometimes are cynical or like, “Well, everybody makes promises.” What you’re saying is there are some economists out there who are kind of hoping that these were promises and not actual policy.
Furman: I don’t think it’s some economists out there. I think it’s probably the vast majority of them. My Republican friends in the economics profession, first of all, thought this was too expensive, but second of all thought they were very poorly designed. They’re really one pandering giveaway after the next.
Brancaccio: Fiscal policy has real effects to people around their kitchen table, because if you’re borrowing more, that can drive market interest rates higher for starters.
Furman: I mean, the tricky thing with fiscal policy is the direct effect is always good. It’s paid for, though, by higher inflation, higher interest rates, eventually maybe higher taxes or spending cuts. And all of that is indirect, but at a time like this — when we already have a high deficit — could add up to an even bigger problem than any of the direct benefits.
Brancaccio: We’ve also been talking about inflation, identified as a major source of anger for so many voters. The president-elect has been quite clear about his intention to raise tariffs, especially on China — but it could be other countries as well, including Mexico. Tariffs many regard as a tax and can be themselves inflationary.
Furman: Again, this is another one where he campaigned on a very, very expansive set of tariffs — 10% or 20% on every country in the world. Australia and New Zealand, they’d get punished for I’m not quite sure what. If he did what he said — and that’s a big “if” — the result would be the price of things that people buy would go up by quite a lot, and that would be a reduction in people’s after-tax income. And yes, it would show up in the statistics as higher inflation.
Brancaccio: Clearly, many Democrats hope the president-elect won’t do what he promised, but I remember a prominent Republican and supporter of the man who will be the next president saying, “Well, tariffs and his promises are a bargaining chip,” suggesting, I think, that the new administration won’t really raise the tariffs, because perhaps we won’t need them in the end.
Furman: Yeah, there are some countries where a certain amount of bargaining makes sense. China, absolutely. We have all sorts of economic issues with China, all sorts of issues with the way they treat us. We do need to bargain with China. The across-the-board though is a very peculiar type of bargaining. I mean, again, I bring us back to Australia and New Zealand. What did they ever do to the United States? What are we trying to get from them in exchange for not putting tariffs on them? You need to have a goal when you set out to bargain. I can see goals for China. I can’t see them for, frankly, the large majority of countries in the world, which have tariffs against the United States of 1%, 2%, 3%, 4% right now.
Brancaccio: Professor Furman, I’ve been wanting to ask you something as soon as the exit polls were available after Election Day, the ones that showed that about 45% of voters said they felt that they were worse off now than four years ago. Four years ago was a lot of things going on. There was the switch of the administration, but of course the lockdowns, pandemic and those stimulus payments — both under Trump and then under Biden, three rounds of them that put cash into the pockets of many Americans. And those Americans, despite the pandemic, felt flush. So do you think that accounts for any of this notion that people feeling worse off now? I mean, we don’t have those stimulus payments?
Furman: Yeah, I do think that’s part of it. Let’s contrast 2012 when Obama ran for reelection with an 8% unemployment rate to 2024 when Harris ran effectively for reelection with a 4% unemployment rate. In many respects, the economy was much better this time than it was in 2012. The difference is, I think people were never quite as grateful for the economic recovery, understandably, because economically they were very insulated from the recession. This is the first recession in our history where people’s incomes were actually higher than in normal times, not lower. There were quite a lot of jobs available in late 2020 and throughout 2021, but a lot of people were choosing not to take them. And so I think you don’t get as much credit for job growth when people knew there probably would be a job for them eventually, and you don’t get as much credit for getting out of something when economically you protected them from the harm of it in the first place. And that’s a painful irony, because although I think the response to this went too far, if we had done everything right, we would have protected people, and then they would not have felt the normal relief they do as they start digging out of a really, really deep hole.
Brancaccio: Do you stand by the decisions by both Trump and Biden to give out those stimulus checks?
Furman: In 2020, the world was falling apart. I think we needed to do everything possible to keep it together, and so I think those stimulus checks made sense. By March of 2021, the economy was recovering really quickly. There were lots of jobs available. Households had an unusual amount of money in their checking accounts left over from the previous year. I think those stimulus checks were completely unnecessary that last round.
Stories You Might Like
There’s a lot happening in the world. Through it all, Marketplace is here for you.
You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible.
Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.
