Trump 2.0’s impact on social mobility: the good, the bad, and the uncertain

As President-elect Donald Trump prepares to take office for a second term, the U.S. economy is a top priority. According to CNN exit polling, nearly 50 percent of voters asked about their families’ financial situation today said it is “worse than 4 years ago.” Trump won 81 percent of their votes.

What will the next four years look like, particularly in terms of social mobility? There are reasons for optimism, pessimism, and uncertainty.

Here’s the good: Regulation (or lack thereof). According to QuantGov’s data on the Code of Federal Regulations, the 2017–2019 period saw positive trends towards the deceleration of growth in regulatory restrictions. A study by the American Action Forum found that once you account for independent agencies that can enact their own rules and regulations, Trump oversaw net regulatory saving of $1 billion during his first term.

Regulations, while often seen as protecting consumers from “big business,” actually tend to benefit already-large companies at the expense of small businesses and would-be entrepreneurs. Economists James Bailey and Diana Thomas show that more heavily regulated industries experience fewer firm births; in another study of theirs (along with Joe Anderson), they find that regulation leads to lower wage growth that particularly hits low-wage workers. This paints a very clear picture on the detrimental impacts of regulation, particularly for the poorest Americans. Given the downward trajectory for the last 20 years in business dynamism in the U.S., regulatory reforms can make strides in addressing this.

However, here’s the bad: Tariffs. On Joe Rogan’s podcast, Trump claimed the “most beautiful word in the dictionary today is the word tariff”—in fact, more beautiful than love! Unfortunately, tariffs only increase U.S. cost of living. A tariff agenda is not pro-mobility. For a Republican who wants to reduce taxes, Trump’s plan of a flat 10-percent tariff is akin to the higher taxation of U.S. consumers. As of 2021, the effective U.S. tariff rate was just 1.47, meaning an almost seven-fold increase under this plan.

Tariffs fail because consumers bear the burden, not foreign governments. While the stated purpose of Trumpian tariffs was to bring manufacturing jobs back to the U.S., a study from two Federal Reserve economists found that “manufacturing industries more exposed to tariff increases experience relative reductions in employment,” in addition to increased costs for producers that are passed onto consumers. The Tax Foundation collected a variety of studies to conclude a 10 percent universal tariff would make Americans drastically poorer and increase our cost of living.

Now, here’s the uncertain: DOGE. Elon Musk and Vivek Ramaswamy have been tasked to lead the new quasi-government department called the Department of Government Efficiency. Musk stated that they could find “at least $2 trillion” in spending to cut. Since the announcement of DOGE, the department’s X feed, along with Musk’s “America PAC” has pointed out several examples of government waste. They include $38 million of payments to Americans who have passed away and $100,000 to test if tequila or gin makes sunfish more aggressive. At first glance, they all seem reasonable to cut. The government wasting money means Americans pay higher taxes and take on higher inflation via debt accumulation. For starters, a quasi-federal agency cannot directly cut funding to other agencies.

While silly, such examples do not make even a tiny dent in the amount of government spending. In the fiscal year of 2023, the federal government spent about $6.7 trillion. About 80 percent is set in stone, either practically or according to Trump’s own promises. 

The president-elect has made consistent promises to not cut healthcare and Social Security, which combined amount to nearly half of the government’s budget. Another 10 percent is just interest on the debt. Defense spending sits at 13 percent. Both Trump and JD Vance have stated that they want the Child Tax Credit (CTC) increased to $5,000 (up from $2,000 today), which translates to higher government spending. Benefits provided to veterans and federal retirees then make up about seven percent of the budget, and cuts to them are doubtful.

Even if you cut all other spending, you cut just $1.1 trillion in total. While it is in vogue to discuss reckless government spending and much is in fact wasted, the truth is that most federal spending won’t be fair game for Trump. If DOGE is serious about saving $2 trillion a year, exactly how remains unclear. 

Justin Callais is Chief Economist at the Archbridge Institute and an Assistant Professor of Economics at the University of Louisiana at Lafayette.

AI image with prompt from Olivia Murray

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