The consensus among political scientists, analysts, and pundits is that Donald J. Trump completed the greatest comeback in American political history. For those of us concerned about the Misery Index, the obvious question is whether the economic policies of Trump 2.0 will enable us to say four years from now that we are better off than we are today. To achieve this, President-elect Trump must implement his economic agenda effectively, and that agenda must deliver tangible results. Given the animosity of the campaign, the challenges posed by the deep state, and the skepticism of conventional economists, including several Nobel laureates, it remains uncertain how smoothly implementation will proceed. Time will tell. In the meantime, we can speculate on what is likely to happen.
A New and Improved Trump
Looking back, it appears that President Trump’s 2020 election loss was a blessing in disguise. Had Donald Trump been re-elected in 2020, he would not have gained the mandate he achieved this time around, nor would he have secured control of both the U.S. Senate and the House of Representatives.
The four years out of office afforded the former president an opportunity to plan his comeback. During this time, he faced numerous challenges and obstacles. With his third presidential campaign, Trump had a clearer understanding of the opposition and challenges he would confront. He navigated the environment skillfully, mounting a successful campaign for the White House.
This time in the “wilderness” allowed Trump to develop a more refined governing game plan. He swiftly appointed key players to his incoming administration. The speed and caliber of these nominations suggest that the new administration will be ready to get to work from day one. Many of his appointees are outsiders, signaling a commitment to combating entrenched bureaucracy. While it remains to be seen whether the administration will succeed in overcoming the entrenched “swamp,” the agenda for change is clear.
The End of Bidenomics
If the administration hits the ground running and Republicans in the legislature remain united, President Trump will have an opportunity to correct many of the perceived mistakes of Bidenomics and set the U.S. economy on a pro-growth course for years to come. However, the Trump administration faces a narrow two-year window. Historically, the party in power tends to lose seats in midterm elections, and the Senate electoral map favors Democrats.
If voters are dissatisfied with the economic performance during the first two years, they are likely to opt for divided government. Consequently, Democrats could regain control of both chambers, particularly if Trump’s policies fail to meet voter expectations. Furthermore, Trump will not be eligible to run for re-election, meaning that Republicans will likely begin plotting their post-Trump future after the midterms.
In short, if Republicans lose control of Congress, President Trump risks becoming a lame duck, with diminishing influence over his party’s legislative agenda. The critical question is what to expect during the administration’s first two years and what policies it is likely to pursue.
Trump and Taxes
During a presidential debate, Trump defended his income tax cuts, arguing that lower rates stimulate incentives to work, save, and invest. He suggested that these cuts would lead to higher GDP and increased revenues, though he did not claim they would pay for themselves.
Extending the tax cuts would likely boost the economy, but achieving this legislatively poses challenges. Republicans would need 60 Senate votes to pass permanent tax cuts, requiring support from at least seven Democrats. If this proves unattainable, they may resort to budget reconciliation to extend the cuts temporarily.
Trump also campaigned on no taxes on social security income. This proposal aims to eliminate double taxation, as Social Security recipients already paid taxes on their wages. While it reduces the tax base, the argument against double taxation remains compelling.
While Trump’s proposal for no taxes on tip has political appeal, it risks significant revenue losses and potential tax loopholes, such as income shifting through tips. A broader tax base with lower rates, akin to Trump’s first-term policy, would be more economically sound.
Trump and Reduced Regulation and Spending (DOGE)
During Trump’s first term, his administration reduced regulatory burdens by requiring the elimination of two regulations for every new one. The federal register saw an 11% decline in pages compared to the Obama administration. Biden reversed these reductions, increasing regulatory complexity.
Trump has pledged to eliminate ten regulations for every new one and appointed Elon Musk and Vivek Ramaswamy to lead the Department of Government Efficiency (DOGE). While DOGE lacks executive authority, it could wield influence, particularly given Musk’s reputation for innovation. Critics point to the challenges of cutting government spending, but low-hanging fruit, such as consolidating government real estate, may provide opportunities for cost savings.
Trump and Trade
Trump has consistently championed tariffs to address economic and political issues, including trade imbalances and reshoring. Tariffs raise revenue, potentially offsetting deficits, but their impact depends on implementation. Policies promoting tariff reciprocity or reshoring could strengthen the economy, but they also carry risks of trade wars.
Trump has suggested renegotiating trade agreements, such as USMCA, using tariffs as leverage. While Canada has adopted a conciliatory stance, Mexico’s antagonism could complicate negotiations. The outcomes remain uncertain. Trump’s use of tariffs as a foreign policy tool, such as applying pressure on Iran, reflects a U.S.-centric approach prioritizing domestic objectives over global considerations.
Buckle Up
In summary, Trump will need to make quick work of implementing people and policy as the clock is ticking for results to be at least somewhat visible before mid-term elections in 2026. His clear election mandate provides a rare opportunity for a makeover of the federal government but is wholly reliant on Republican unity and the execution of a multi-pronged policy effort that will rest upon extending existing tax cuts, cutting government regulation and spending while strong arming global trade partners via tariffs and the power of the world’s strongest and most innovative economy. The goals of a Trump administration are clear as is the fact that it is likely to be a bumpy ride.
IMPORTANT DISCLOSURES
The information in this report was prepared by Timber Point Capital Management, LLC. Opinions represent TPCM’s and IPI’s opinion as of the date of this report and are for general information purposes only and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally. IPI does not undertake to advise you of any change in its opinions or the information contained in this report. The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular investor or potential investor.
This report is not intended to be a client-specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon.
This communication is provided for informational purposes only and is not an offer, recommendation, or solicitation to buy or sell any security or other investment. This communication does not constitute, nor should it be regarded as, investment research or a research report, a securities or investment recommendation, nor does it provide information reasonably sufficient upon which to base an investment decision. Additional analysis of your or your client’s specific parameters would be required to make an investment decision. This communication is not based on the investment objectives, strategies, goals, financial circumstances, needs or risk tolerance of any client or portfolio and is not presented as suitable to any other particular client or portfolio. Securities and investment advice offered through Investment Planners, Inc. (Member FINRA/SIPC) and IPI Wealth Management, Inc., 226 W. Eldorado Street, Decatur, IL 62522. 217-425-6340.
Recent Comments