Yahoo Finance I’m an Economist: What a Trump Win Could Mean for Rising Costs of Living
The rising cost of living has been evident for the past several years. Everything from new and used cars to grocery store food costs everyone more. Even the price of housing has been on a tear, even with higher interest rates.
With things costing more, many people start looking for reasons and need someone to point their finger at. Often, that person is the president. But how closely is your cost of living tied to the presidency? And what could a Trump victory in November mean for costs of living going forward?
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How To Measure the Rising Cost of Living
The best way to understand the shifts in the cost of living is to understand inflation. This is typically done with the Consumer Price Index (CPI), which measures how prices on goods and services rise or fall.
The CPI is calculated by the U.S. Bureau of Labor Statistics and tracks prices for groceries, clothing, fuel, housing and automobiles. It is used to determine how the prices of different items fluctuate from month to month.
For example, you might hear someone say the price of goods increased 4% year over year from the previous month. Most people assume that the price of everything tracked went up by 4%. However, CPI is weighted based on where most people spend their money. This means while groceries went up by 4% on average, the price of clothing might have only increased by 2%.
According to Federal Reserve policymakers, an inflation rate of 2% is acceptable for a stable economy.
Here are the past several years’ average inflation rates, including the years that Trump was president:
2017: 2.1%
2018: 2.4%
2019: 1.8%
2020: 1.2%
2021: 4.7%
2022: 8.0%
2023: 4.1%
“Both chief presidential candidates have advanced policies, at least verbally, that will put upward pressure on prices, both consumer and producer,” said Creighton University economics professor Ernie Goss. “Both candidates have proposed almost no cuts to the current level of spending. In fact, both have identified areas in which the federal government should spend more. Thus, the outlook for both candidates is an increase in federal spending and a boost in the federal debt.”
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Trump’s Policies and the Predicted Effects on Cost of Living
Trump has made some policy statements during his campaign that could affect the cost of living for some Americans. In particular, Trump’s promised tariffs on imports and his tax policies could increase the cost of living, especially for middle-class Americans.
Tariffs on Imports
”Trump has proposed increasing tariffs and trade restrictions,” said Goss. “Contrary to the assumed outcomes by the political class, this action would result in trade retaliations from U.S. trading partners and much lower tax collections than expected. The result will be reductions in U.S. sales of agriculture and manufacturing abroad and a consequent fall in growth and federal tax collections.”
Trump’s proposal involves replacing the income tax with a 10% general tariff on imports of various goods and services. He also wants to place a 60% tariff on Chinese imports.
An increase in tariffs will likely increase the cost of many goods and services. Businesses will be forced to pass on the increased costs to their customers, which would likely increase the cost of living for Americans.
Goss added, “This will raise the price of foreign goods sold in the U.S., result in retaliation from U.S. trading partners, slow U.S. economic growth by reducing U.S. agriculture and manufacturing activity, and heighten U.S. inflationary pressures with a hawkish Federal Reserve raising interest rates.”
According to the Center for American Progress Action, the proposed tariff increases would amount to around $1,500 in increased annual taxes for the typical household, including a $90 tax increase on food, a $90 tax increase on prescription drugs, a $70 tax increase on clothing, an $80 tax increase on electronics, a $220 tax increase on cars, auto parts and other vehicles, and a $120 tax increase on oil and petroleum products.
Tax Policies
During his first term, former President Trump successfully passed a comprehensive overhaul of the tax code, the Tax Cuts and Jobs Act, in 2018. The Act introduced significant changes to the tax code for individual, corporate and estate tax rates. Several key tax provisions are set to expire in the coming year, and Trump has already said that he plans to make some of them permanent if he is reelected.
Some of the effects of the Tax Cuts and Jobs Act included overhauling how tax deductions worked. This could affect how much money taxpayers receive back for their taxes.
It’s also important to note that extremely wealthy households — those making $500,000 or more per year — would receive a larger tax cut than everyone else. This difference would be in dollars and as a percentage of their after-tax income. Without that additional tax money from the extremely wealthy, the nation’s debt will continue to rise.
“If elected, former President Trump would continue his 2017 tax reform bill — not a bad policy and is supportive of growth, but supportive of higher inflation,” said Goss.
The Bottom Line
While it’s difficult to predict the cost of living with a second Trump term, the best predictions we can make are based on his first term in office and his campaign promises. However, Trump’s proposed tariffs on imported goods and tax policies are especially concerning to many experts.
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This article originally appeared on GOBankingRates.com: I’m an Economist: What a Trump Win Could Mean for Rising Costs of Living
