In this episode Feliciano School of Business economics professor, Todd Federman, offers a compelling analysis of President-elect Donald Trump’s proposed economic policies. Todd demystifies the intricate connections between mass deportation of undocumented workers, sweeping tariffs, and the decision to maintain current income tax rates until 2026. By dissecting these proposals, Federman provides a glimpse into how they might affect the GDP—a critical measure of the nation's wealth—and explore their potential ripple effects on employment and income distribution across America.
As we navigate through the complexities of federal budget dynamics, Todd sheds light on the implications of the projected $2 trillion deficit for 2024 and the mounting national debt, which now exceeds the annual GDP. This episode provides listeners with anunderstanding of how these economic elements interplay, influencing tax revenues, government spending, and ultimately, the nation's fiscal health.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
My name is Todd Fetterman.
I teach economics here at theFeliciano School of Business at
Montclair State University.
Well, the election's over.
Today I'll be discussing threekey economic policies that
Donald Trump, thepresident-elect, has been
promoting, to try to understandwhat impact these policies will
have on the economy.
Those three important policieshe's been talking about are
(00:20):
number one, the mass deportationof undocumented workers.
Number two, across the boardtariffs.
And number three, continuingthe current income tax rates,
which are set to automaticallyincrease by law on January 1st
2026.
Before we begin the discussionof the impact of what these
proposed policies will have onthe economy, we need to discuss
(00:43):
two important concepts.
First, what do we mean by theeconomy?
When economists and politiciansrefer to the economy, they're
referring to something calledthe GDP, the gross domestic
product.
Gdp is the total value of finalgoods and services made in the
United States.
All the new houses built, thenew cars sold food, gasoline,
going to restaurants, services,getting your teeth cleaned at
the dentist, houses built, thenew cars sold food, gasoline,
(01:03):
going to restaurants, services,getting your teeth cleaned at
the dentist, going to theaccountant.
It's a measure of how wealthythe country is, how much stuff
we have when we divide GDP, thatgross domestic product by the
population, we get the amount ofstuff per person.
Gdp is also the measure of thetotal income of the country.
How is it that the value of allthe goods and services is equal
(01:25):
to the income of the country?
Let's take as an example a$35,000 car.
Half of that money a littlemore than half goes to pay wages
, which is income for theworkers.
Some of the money goes to payinterest on debt that the car
company used.
They borrowed the money tobuild the plant.
That money is income to peoplewho lent the money to the
automobile company and, inaddition, whatever's left over
(01:46):
is the profits, that's, theincome to the car company owners
.
So GDP is both the value of thegoods and services and it's the
income of the country.
And, in addition, every levelof GDP corresponds with a level
of employment.
More GDP means more jobs.
So when we're thinking aboutpolicy, we want to understand
(02:07):
the impact on GDP, both themeasure of all goods and
services and also the measure ofthe income of the country,
which will then correspond withthe level of employment.
For 2024, the gross domesticproduct of the United States is
going to be approximately $29trillion.
Divide that by a population of337 million people, and that's
(02:28):
approximately $86,000 per capitaor per person.
Now that's not evenlydistributed.
Taylor Swift has a whole lotmore.
Over the last four years, usGDP growth every year has been
between 2 and 4 percent, farahead of the rest of the
developed world.
So when considering economicpolicy, we want to anticipate
what's going to be the impact toGDP.
(02:51):
The second important concept weneed to consider is the federal
budget and how policy willaffect it.
The federal government collectsmost of its tax revenue from
households in the form of one,income taxes and two Social
Security, payroll taxes and, toa lesser extent, business taxes.
Where does that money go?
The federal government spendsthe money on two broad types of
(03:13):
expenses Mandatory expensesthose required by law, and
discretionary expenses itemsthat are set annually by the
federal budget.
The main mandatory expenses areMedicare, social Security and
interest on the debt.
This is more than 60% offederal government spending.
The second type of expenseswhich are set annually by
(03:34):
Congress are the discretionaryexpenses items, like money for
the FDA, the FBI, the CIA, theNSA, the military, congressional
staff all the other stuff thatmakes Washington run.
So when thinking about policy,we need to consider the impact
on taxes that will be collectedand the impact on federal
spending.
(03:55):
When we and by that I mean thefederal government spends more
than we take in in taxes, we runa deficit.
The government funds thisdeficit by borrowing the
shortfall and that adds to thenational debt.
For 2024, the federalgovernment will take in
approximately $5 trillion intaxes and spend approximately $7
trillion.
That's a $2 trillion deficit,which means we're adding $2
(04:18):
trillion to the national debtthis year.
Right now, the national debt isestimated to be approximately
$36 trillion.
That's even more than theannual GDP gross domestic
product of $29 trillion.
For historical perspective, thelast time national debt was
greater than GDP was at the endof World War II, when we had
(04:40):
issued a lot of debt to pay forthe war.
Before any economic policies byTrump are enacted, most
estimates are for the annualdeficit for the foreseeable
future to be in excess of $2trillion a year Means we're
already planning on adding $2trillion in national debt every
year for the next decade.
(05:02):
So, to recap, when we considereconomic policy, we want to
consider the impact on GDP, theincome of the country and the
impact on the federal budget andthe national debt.
Do we expect the policy toincrease GDP or decrease it.
An increase means more goods,more income, more employment.
A decrease means less goods,less income, less employment.
(05:25):
And how will it impact thebudget?
Will it increase the deficitand require even more borrowing?
That was a long introduction,but now that brings us to policy
.
The number one policy, repeatedby President-elect Trump like a
drumbeat, is to deportimmigrants that do not have
proper documentation, a visa ora green card.
(05:45):
Estimates of the goal runanywhere from 2 to 10 million
people.
A recent paper by the BrookingsInstitution estimated that
deporting 750,000 workers wouldcut GDP by approximately half a
percent.
If the deportations are larger,the impact would be more severe
.
Deporting 1.5 million workerswill probably reduce the GDP by
(06:08):
1%.
Then there's a multipliereffect.
All of that GDP reduced meansthere's going to be less people
spending money at Walmart, lesspeople spending money at
McDonald's and we're going tosee a fall off in business
across all different sectors ofthe economy.
Also, many, but not all, ofthese undocumented people are
(06:29):
paid on the books, which meansthey're currently paying into
Social Security.
So this will reduce federal taxrevenue, but this will be very
difficult to measure.
But it will reduce revenue andtherefore increase the deficit
and the debt needed to coverthat deficit.
The effect on certainindustries would be catastrophic
.
Agriculture, construction andhospitality, restaurants and
(06:52):
hotels all employ large numbersof undocumented workers.
A mass deportation would be amajor disruption, causing all
kinds of shortages, and when agood or a service is in short
supply, the price invariablygoes up.
It's inflationary.
Finally, a mass deportationwill be expensive.
The billions needed to do thiswill most likely be borrowed,
(07:16):
adding to the national debt.
The next big economic policypromoted by President-elect
Trump is tariffs.
A tariff is a fee or a taxcharged by a government to bring
goods into the country.
The company that imports thegoods must pay the cost of the
tariff.
When the goods are allowed toenter the country, then they
(07:36):
often pass along this tax byraising prices.
The president is allowed to dothis.
He's allowed to impose tariffsbecause in 1934, congress passed
a law that allows a presidentto place tariffs on goods
without additional approval byCongress.
Previously, when Trump waspresident, he placed tariffs on
some goods coming in from China,primarily steel.
(07:59):
A tariff like this on a productthat we make in this country has
the effect of making theimported goods more expensive
relative to a productmanufactured in make in this
country has the effect of makingthe imported goods more
expensive relative to a productmanufactured in the US.
Therefore, it will makeAmerican products more
competitive.
But a tariff like this hasnegative impacts.
By placing a tax on steel,everything made with steel is
more expensive.
(08:19):
The additional money spent onproducts containing steel takes
away from other spending,costing jobs that will be lost
from those products.
But what about products that wedon't make here?
Less than 5% of the clothingsold in the United States is
made in the country.
The overwhelming majority ofconsumer electronics, phones and
(08:39):
computers are imported.
An across-the-board tariff onitems like these isn't going to
promote domestic production.
It's simply going to raise theprices and cause more inflation.
There is almost universalagreement by economists of all
stripes, liberals toconservatives, that an
across-the-board tariff on allgoods would be inflationary and
(09:01):
cost jobs.
In response to the previousTrump tariffs, china retaliated
by putting a 25% tariff on $100billion worth of US agricultural
products like soybeans andother crops.
This caused American farmers tolose a lot of business to China
as China stepped up buying fromSouth America.
(09:22):
For those of you who want to doa deeper dive into the negative
impacts of tariffs, especiallyan across-the-board tariff.
Look up Smoot-Hawley that'sS-M-O-O-T.
Smoot-hawley Tariff Act of 1930.
It was implemented by Congressin reaction to the Depression,
thinking they would make foreigngoods more expensive.
Almost everyone agrees it justsimply made the Depression
(09:44):
deeper because it madeeverything more expensive.
This year, we will importalmost $4 trillion of foreign
goods, from electronics toclothing to steel.
Increasing the cost of $4trillion in goods will likely
mean the level of imported goodswould drop and we would be
making some of these productshere in.
Goods will likely mean thelevel of imported goods would
drop and we would be making someof these products here in the
United States and they'd be morecompetitive.
Taxfoundationorg estimates thata 20% across-the-board tariff
(10:07):
would raise taxes by over $500billion annually, putting upward
pressure on prices andshrinking GDP as a result by up
to eight-tenths of one percent.
The last main economic policytouted by Trump is tax policy.
In 2017, congress passed theTax Cut and Jobs Act.
It reduced tax rates forcompanies and individuals across
(10:28):
the board.
These lower tax rates are setto expire on December 31st 2025.
Trump has said that a mainpriority is to make these tax
cuts permanent.
Current budget forecasts assumethat these tax rates will be
going back up and bringing inmore revenue to the government
by making the tax cuts permanent.
Economists at the WhartonSchool estimate that the deficit
(10:49):
will grow by an additional $400billion annually, or $4
trillion over the next decade,requiring even more borrowing by
the federal government.
If the rates are made permanent,then consumer spending and
savings will be higher than ifthe tax cuts expire.
So keeping the rates where theyare will be a boost to
anticipated consumer spending.
However, the increase inconsumption will probably only
(11:12):
have a modest positive impact onGDP because most of the taxes
paid come from the top 20% andthey're the least likely to
increase spending when they getmore money.
Keeping the tax cuts permanentwill also most likely cause a
slight increase in inflationfrom the additional consumer
spending when people have moremoney.
So to recap the three mainimportant policies mass
(11:34):
deportations will have anegative effect on GDP while
simultaneously putting upwardpressure on prices coming from
the shortage of goods.
Taxes paid by undocumentedworkers will be lost and the
operation will cost a lot ofmoney, money that will probably
be borrowed, adding to thenational debt.
Tariffs will have a strongupward push on inflation, while
(11:57):
also having a negative effect onGDP as spending is taken away
from some goods to pay for thetariff, costing jobs.
In addition, retaliation byforeign governments would cut
exports for many US-made goods,costing even more jobs.
Tax cuts.
Making the tax cuts permanentwill increase the deficit,
(12:17):
causing more borrowing andputting upward pressure on
interest rates.
It looks as if most of thepolicies Trump has proposed will
be inflationary, hurt GDP andemployment and tack on
additional trillions in debt.
Stay tuned.
I hope you enjoyed thisdiscussion.
If you have any questions orcomments or suggestions, please
email me at Federmanantea atmontclairedu.
(12:38):
I'd love to get some feedbackand responses and some ideas for
future podcasts.
See you in the next podcast.
My name is Todd Fetterman.
I teach economics here at theFeliciano School of Business at
Montclair State University.
Well, the election's over.
Today I'll be discussing threekey economic policies that
Donald Trump, thepresident-elect, has been
promoting, to try to understandwhat impact these policies will
have on the economy.
Those three important policieshe's been talking about are
(00:20):
number one, the mass deportationof undocumented workers.
Number two, across the boardtariffs.
And number three, continuingthe current income tax rates,
which are set to automaticallyincrease by law on January 1st
2026.
Before we begin the discussionof the impact of what these
proposed policies will have onthe economy, we need to discuss
(00:43):
two important concepts.
First, what do we mean by theeconomy?
When economists and politiciansrefer to the economy, they're
referring to something calledthe GDP, the gross domestic
product.
Gdp is the total value of finalgoods and services made in the
United States.
All the new houses built, thenew cars sold food, gasoline,
going to restaurants, services,getting your teeth cleaned at
the dentist, houses built, thenew cars sold food, gasoline,
(01:03):
going to restaurants, services,getting your teeth cleaned at
the dentist, going to theaccountant.
It's a measure of how wealthythe country is, how much stuff
we have when we divide GDP, thatgross domestic product by the
population, we get the amount ofstuff per person.
Gdp is also the measure of thetotal income of the country.
How is it that the value of allthe goods and services is equal
(01:25):
to the income of the country?
Let's take as an example a$35,000 car.
Half of that money a littlemore than half goes to pay wages
, which is income for theworkers.
Some of the money goes to payinterest on debt that the car
company used.
They borrowed the money tobuild the plant.
That money is income to peoplewho lent the money to the
automobile company and, inaddition, whatever's left over
(01:46):
is the profits, that's, theincome to the car company owners
.
So GDP is both the value of thegoods and services and it's the
income of the country.
And, in addition, every levelof GDP corresponds with a level
of employment.
More GDP means more jobs.
So when we're thinking aboutpolicy, we want to understand
(02:07):
the impact on GDP, both themeasure of all goods and
services and also the measure ofthe income of the country,
which will then correspond withthe level of employment.
For 2024, the gross domesticproduct of the United States is
going to be approximately $29trillion.
Divide that by a population of337 million people, and that's
(02:28):
approximately $86,000 per capitaor per person.
Now that's not evenlydistributed.
Taylor Swift has a whole lotmore.
Over the last four years, usGDP growth every year has been
between 2 and 4 percent, farahead of the rest of the
developed world.
So when considering economicpolicy, we want to anticipate
what's going to be the impact toGDP.
(02:51):
The second important concept weneed to consider is the federal
budget and how policy willaffect it.
The federal government collectsmost of its tax revenue from
households in the form of one,income taxes and two Social
Security, payroll taxes and, toa lesser extent, business taxes.
Where does that money go?
The federal government spendsthe money on two broad types of
(03:13):
expenses Mandatory expensesthose required by law, and
discretionary expenses itemsthat are set annually by the
federal budget.
The main mandatory expenses areMedicare, social Security and
interest on the debt.
This is more than 60% offederal government spending.
The second type of expenseswhich are set annually by
(03:34):
Congress are the discretionaryexpenses items, like money for
the FDA, the FBI, the CIA, theNSA, the military, congressional
staff all the other stuff thatmakes Washington run.
So when thinking about policy,we need to consider the impact
on taxes that will be collectedand the impact on federal
spending.
(03:55):
When we and by that I mean thefederal government spends more
than we take in in taxes, we runa deficit.
The government funds thisdeficit by borrowing the
shortfall and that adds to thenational debt.
For 2024, the federalgovernment will take in
approximately $5 trillion intaxes and spend approximately $7
trillion.
That's a $2 trillion deficit,which means we're adding $2
(04:18):
trillion to the national debtthis year.
Right now, the national debt isestimated to be approximately
$36 trillion.
That's even more than theannual GDP gross domestic
product of $29 trillion.
For historical perspective, thelast time national debt was
greater than GDP was at the endof World War II, when we had
(04:40):
issued a lot of debt to pay forthe war.
Before any economic policies byTrump are enacted, most
estimates are for the annualdeficit for the foreseeable
future to be in excess of $2trillion a year Means we're
already planning on adding $2trillion in national debt every
year for the next decade.
(05:02):
So, to recap, when we considereconomic policy, we want to
consider the impact on GDP, theincome of the country and the
impact on the federal budget andthe national debt.
Do we expect the policy toincrease GDP or decrease it.
An increase means more goods,more income, more employment.
A decrease means less goods,less income, less employment.
(05:25):
And how will it impact thebudget?
Will it increase the deficitand require even more borrowing?
That was a long introduction,but now that brings us to policy
.
The number one policy, repeatedby President-elect Trump like a
drumbeat, is to deportimmigrants that do not have
proper documentation, a visa ora green card.
(05:45):
Estimates of the goal runanywhere from 2 to 10 million
people.
A recent paper by the BrookingsInstitution estimated that
deporting 750,000 workers wouldcut GDP by approximately half a
percent.
If the deportations are larger,the impact would be more severe
.
Deporting 1.5 million workerswill probably reduce the GDP by
(06:08):
1%.
Then there's a multipliereffect.
All of that GDP reduced meansthere's going to be less people
spending money at Walmart, lesspeople spending money at
McDonald's and we're going tosee a fall off in business
across all different sectors ofthe economy.
Also, many, but not all, ofthese undocumented people are
(06:29):
paid on the books, which meansthey're currently paying into
Social Security.
So this will reduce federal taxrevenue, but this will be very
difficult to measure.
But it will reduce revenue andtherefore increase the deficit
and the debt needed to coverthat deficit.
The effect on certainindustries would be catastrophic
.
Agriculture, construction andhospitality, restaurants and
(06:52):
hotels all employ large numbersof undocumented workers.
A mass deportation would be amajor disruption, causing all
kinds of shortages, and when agood or a service is in short
supply, the price invariablygoes up.
It's inflationary.
Finally, a mass deportationwill be expensive.
The billions needed to do thiswill most likely be borrowed,
(07:16):
adding to the national debt.
The next big economic policypromoted by President-elect
Trump is tariffs.
A tariff is a fee or a taxcharged by a government to bring
goods into the country.
The company that imports thegoods must pay the cost of the
tariff.
When the goods are allowed toenter the country, then they
(07:36):
often pass along this tax byraising prices.
The president is allowed to dothis.
He's allowed to impose tariffsbecause in 1934, congress passed
a law that allows a presidentto place tariffs on goods
without additional approval byCongress.
Previously, when Trump waspresident, he placed tariffs on
some goods coming in from China,primarily steel.
(07:59):
A tariff like this on a productthat we make in this country has
the effect of making theimported goods more expensive
relative to a productmanufactured in make in this
country has the effect of makingthe imported goods more
expensive relative to a productmanufactured in the US.
Therefore, it will makeAmerican products more
competitive.
But a tariff like this hasnegative impacts.
By placing a tax on steel,everything made with steel is
more expensive.
(08:19):
The additional money spent onproducts containing steel takes
away from other spending,costing jobs that will be lost
from those products.
But what about products that wedon't make here?
Less than 5% of the clothingsold in the United States is
made in the country.
The overwhelming majority ofconsumer electronics, phones and
(08:39):
computers are imported.
An across-the-board tariff onitems like these isn't going to
promote domestic production.
It's simply going to raise theprices and cause more inflation.
There is almost universalagreement by economists of all
stripes, liberals toconservatives, that an
across-the-board tariff on allgoods would be inflationary and
(09:01):
cost jobs.
In response to the previousTrump tariffs, china retaliated
by putting a 25% tariff on $100billion worth of US agricultural
products like soybeans andother crops.
This caused American farmers tolose a lot of business to China
as China stepped up buying fromSouth America.
(09:22):
For those of you who want to doa deeper dive into the negative
impacts of tariffs, especiallyan across-the-board tariff.
Look up Smoot-Hawley that'sS-M-O-O-T.
Smoot-hawley Tariff Act of 1930.
It was implemented by Congressin reaction to the Depression,
thinking they would make foreigngoods more expensive.
Almost everyone agrees it justsimply made the Depression
(09:44):
deeper because it madeeverything more expensive.
This year, we will importalmost $4 trillion of foreign
goods, from electronics toclothing to steel.
Increasing the cost of $4trillion in goods will likely
mean the level of imported goodswould drop and we would be
making some of these productshere in.
Goods will likely mean thelevel of imported goods would
drop and we would be making someof these products here in the
United States and they'd be morecompetitive.
Taxfoundationorg estimates thata 20% across-the-board tariff
(10:07):
would raise taxes by over $500billion annually, putting upward
pressure on prices andshrinking GDP as a result by up
to eight-tenths of one percent.
The last main economic policytouted by Trump is tax policy.
In 2017, congress passed theTax Cut and Jobs Act.
It reduced tax rates forcompanies and individuals across
(10:28):
the board.
These lower tax rates are setto expire on December 31st 2025.
Trump has said that a mainpriority is to make these tax
cuts permanent.
Current budget forecasts assumethat these tax rates will be
going back up and bringing inmore revenue to the government
by making the tax cuts permanent.
Economists at the WhartonSchool estimate that the deficit
(10:49):
will grow by an additional $400billion annually, or $4
trillion over the next decade,requiring even more borrowing by
the federal government.
If the rates are made permanent,then consumer spending and
savings will be higher than ifthe tax cuts expire.
So keeping the rates where theyare will be a boost to
anticipated consumer spending.
However, the increase inconsumption will probably only
(11:12):
have a modest positive impact onGDP because most of the taxes
paid come from the top 20% andthey're the least likely to
increase spending when they getmore money.
Keeping the tax cuts permanentwill also most likely cause a
slight increase in inflationfrom the additional consumer
spending when people have moremoney.
So to recap the three mainimportant policies mass
(11:34):
deportations will have anegative effect on GDP while
simultaneously putting upwardpressure on prices coming from
the shortage of goods.
Taxes paid by undocumentedworkers will be lost and the
operation will cost a lot ofmoney, money that will probably
be borrowed, adding to thenational debt.
Tariffs will have a strongupward push on inflation, while
(11:57):
also having a negative effect onGDP as spending is taken away
from some goods to pay for thetariff, costing jobs.
In addition, retaliation byforeign governments would cut
exports for many US-made goods,costing even more jobs.
Tax cuts.
Making the tax cuts permanentwill increase the deficit,
(12:17):
causing more borrowing andputting upward pressure on
interest rates.
It looks as if most of thepolicies Trump has proposed will
be inflationary, hurt GDP andemployment and tack on
additional trillions in debt.
Stay tuned.
I hope you enjoyed thisdiscussion.
If you have any questions orcomments or suggestions, please
email me at Federmanantea atmontclairedu.
(12:38):
I'd love to get some feedbackand responses and some ideas for
future podcasts.
See you in the next podcast.
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