Policy Implications Under New Trump Administration
Dec. 6, 2024
The prevailing sentiment is that the new Administration will create a more favorable tax environment. Changes to much of the 2017 Tax Cuts and Jobs Act (TCJA) provisions will be on the table in 2025, including, but not limited to, individual, corporate and capital gains tax rates. These could have meaningful consequences for individual investors and businesses, as well as for US debt and deficits. A removal of the $10,000 cap limiting the state and local tax (SALT) deduction, for example, could add about $200 billion to the federal deficit. Republicans also have proposed decreasing the corporate income tax rate from 21% to as low as 15% and may seek to revive the 100% depreciation bonus. This would likely add further to the deficit but may boost corporate earnings and temporarily cause markets to rally on the news. In contrast to tax policy, which is dependent on congressional approval, trade and tariff policy in the US can often be influenced and sometimes directly implemented by executive orders. Taken together, Trump’s proposals to impose a 60% tariff on Chinese goods and potentially a universal 10% tariff may negatively impact economic growth and put upward pressure on inflation.
Deregulation could be a major theme of a second Trump term. Although US crude oil production (left figure) is currently at a record level and additional supply could be a drag on oil prices, oil and natural gas producers are nonetheless likely to benefit from deregulation. For example, Trump is likely to lift a Biden administration pause on new natural-gas permitting approvals, accelerate approval timelines and create an easier permitting process. Conversely, certain sectors might face increased risks under Trump’s policies. The clean energy sector, in particular, could suffer if clean-energy tax credits are rolled back, despite their popularity in some Republican circles. The electric vehicle industry and related infrastructure might also see less federal support, impacting growth in this innovative sector. Some areas might see bipartisan support. For instance, policies supporting the development and reshoring of the semiconductor industry, as well as broader national security concerns such as defense spending and cybersecurity, are expected to remain robust, driven by ongoing geopolitical tensions and the strategic need to reduce reliance on foreign critical materials.
Source: EIA, McQuilling Services
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