Assessing the fiscal implications of a second Trump term
Trump’s policy proposals, if enacted, would substantially increase budget deficits
On Monday, the Biden Administration released its 2025 budget, along with a projection that quantifies how that budget affects the fiscal outlook. However, we know of no corresponding analysis of how former President Donald Trump’s policy proposals would affect the deficit. In an effort to add to the debate, we construct an initial accounting of the fiscal impact of Trump’s major policy priorities, using our understanding of his policies and the best available budget scores.
We find Trump’s policy proposals, excluding tariffs and discretionary spending cuts, would increase the deficit by $5.3 trillion over the next 10 years. Trump has proposed raising revenue with a universal 10 percent import tariff, but when Trump enacted a tariff against China in 2018, the majority of the tariff revenue was used to provide payments to domestic groups negatively affected by the Chinese counter-tariffs. Adding in the net tariff revenue would lower the deficit increase to $1.4 trillion to $5.0 trillion, depending on how much of the tariff revenue is redistributed. A second Trump Administration would likely propose to offset the remaining deficit increase with deep cuts to non-defense discretionary spending. While Trump proposed large non-defense discretionary spending cuts in his 2017-2021 budgets, actual non-defense discretionary spending increased in each year.
Methodology
We focus our analysis on policies with a clear fiscal impact. The policies discussed below have been advocated by Trump or discussed in policy reports by Project 2025, a presidential transition project staffed by former Trump advisors intended to lay the policy groundwork for a second Trump Administration.
The policies can be divided into the following buckets: tax reforms; repealing Inflation Reduction Act (IRA) tax, prescription drug, and clean energy provisions; and repealing the Affordable Care Act (ACA). Trump has also proposed a universal 10 percent tariff on imported goods and large cuts to non-defense discretionary spending (NDD).
We construct our scores for the 2025-2034 budget window, which would correspond to the initial budget window of a second Trump Administration. We use the most recent scores from the Congressional Budget Office (CBO) to underpin our estimates when available and reasonable. When we lack appropriate CBO scores, we use analysis by the Office of Management and Budget (OMB) or the Treasury Department.
Our main adjustments are to rescale these scores to the most recent GDP projections and extrapolate to fill in the last few years of our 2025-2034 window (since these scores were based on earlier timeframes). We use conventional scores that do not account for the dynamic effects. A full dynamic analysis would need to account for the effects of both tax cuts and tariffs, which would operate in offsetting directions. Consistent with the standard approach taken by the Congressional Budget Office, the debt service costs are not included. We describe key methodological decisions below and provide more details on the sources and assumptions in the appendix.
Trump’s policy proposals, excluding tariffs and discretionary spending cuts, would raise the federal deficit by $5.3 trillion over the next 10 years
TCJA extensions and corporate tax cuts would add $4.7 trillion to the deficit over the next 10 years
Former President Trump has stated that he wants to permanently extend the tax cuts in the Tax Cuts and Jobs Act (TCJA), many of which expire at the end of 2025. The expiring provisions include lower income tax rates, modifications to the child tax credit, modifications of income tax exemptions and deductions, and a doubling of the estate tax exemption.
We use CBO’s May 2023 estimate of the TCJA extension as the basis for our analysis, rescaling and extrapolating as mentioned above. We estimate that an extension of the individual and estate provisions would add $3.0 trillion to the deficit. Combined with the business tax provisions and bonus depreciation, we estimate that the TCJA extensions would raise budget deficits by a cumulative $3.5 trillion over the 10-year window.
Reporting indicates that former President Trump and his advisors are considering reducing the corporate tax rate from 21 percent to 15 percent, and Project 2025 has advocated for reducing it to 18 percent. Using OMB estimates on the impacts of reducing the corporate tax rate from 28 to 21 percent as a benchmark, we estimate that a six percentage point reduction in the corporate rate would raise deficits by $1.1 trillion over the next 10 years. A three percentage point reduction would raise deficits by $628 billion.
Repealing the IRA’s tax enforcement and corporate tax provisions would add $836 billion to the federal deficit over the next 10 years
Former President Trump and Project 2025 have advocated for the repeal of the IRA’s tax enforcement provisions and corporate tax reforms. CBO estimates that the IRS will receive $70 billion for tax enforcement and technology modernization over 2025-2034, and we assume that repealing these provisions would yield that amount in savings.
However, repealing the IRA's IRS reforms would also reduce revenues that would otherwise be gained from enhanced tax enforcement and technology modernization. Using Treasury Department analysis of the additional revenue from enforcement and modernization, we estimate $540 billion in lost revenue from repeal. It is possible that some of the benefits of technology modernization (which is currently underway) would continue even if funding were repealed, but given complementaries between technology and other tax enforcement, it is unclear how much additional revenue would be recovered.
The IRA included two significant corporate tax reforms which, if repealed, would increase the deficit by lowering corporate tax revenues. Using CBO estimates, and rescaling and extrapolating as before, we find that the elimination of the 15% minimum tax on corporations’ book income would increase the deficit by $272 billion over the next 10 years, and the repeal of the IRA’s one percent excise tax on stock buybacks would have an estimated negative budgetary impact of $94 billion over the next 10 years.
Repealing the IRA’s prescription drug-related provisions would add $340 billion to the federal deficit over the next 10 years
Project 2025 has advocated for the repeal of the Inflation Reduction Act’s health policies. The IRA includes several reforms to prescription drug pricing that, if repealed, would impact the deficit over the next 10 years. Using CBO estimates of the original law, we estimate that repealing the IRA’s requirement that Medicare negotiate drug prices would add $179 billion to the deficit. Eliminating the IRA’s requirement that drug manufacturers pay rebates for price increases above inflation for drugs used by people with Medicare would increase deficits by an additional $81 billion, while eliminating changes to Medicare Part D, including the benefit redesign and an out-of-pocket spending cap, would reduce deficits by $31 billion over this window. The net effect of these policies would be a $229 deficit increase over the 10-year window.
The IRA also delayed the implementation of the Trump Administration’s drug rebate rule as a pay-for to offset other costs. If this provision was repealed along with the other prescription drug-related provisions, it would increase the deficit by another $131 billion over the 10-year window, according to CBO estimates of the original bill. Repeal of other provisions would generate $20 billion in deficit reductions. The combined effect of these and the other prescription drug provisions would be a $340 billion deficit increase over 10 years.
Repeal of the IRA’s funding for clean energy would reduce the federal deficit by $800 billion
President Trump has proposed repealing the IRA’s clean energy provisions. Based on CBO’s latest February 2024 projections, repeal of the IRA’s clean energy tax credit would decrease the deficit by $690 billion over 10 years. Repealing the IRA’s direct federal spending provisions (grant and loan programs to support clean energy) would decrease the deficit by an additional $110 billion, for a total deficit decrease of $800 billion over 10 years.
Repealing the ACA would add $292 billion to the deficit
President Trump has repeatedly called for the Affordable Care Act (ACA) to be repealed. We use the average score of two bills that have been proposed (one in the House, one in the Senate) after removing the effects of zeroing out the individual mandate penalty (since that has already become law). Adjusting for national healthcare expenditure growth, we calculate that a full repeal of the ACA would lead to an increase of $292 billion in the deficit.
Tariffs would reduce the deficit by $0.3 to $3.9 trillion over the next 10 years, depending on how much of the revenues were redistributed
President Trump has proposed enacting a universal 10 percent tariff on all imported goods. (While he has also discussed a reciprocity tariff and a 60% tariff on China, we focus on the universal tariff proposal for simplicity.) Based on Tax Foundation analysis, we estimate that the tariffs would reduce the deficit by roughly $3.9 trillion.
To cushion the impact of the 2018 China tariffs, and the resulting counter-tariffs by the Chinese on U.S. exports, the Trump Administration authorized payments equivalent to 92 percent of the tariff revenues to offset the impact on negatively affected groups. A 10 percent tariff on all imported goods, and any resulting counter-tariffs, could generate a similar impulse for offsetting payments.1 Depending on the size of any rebate payments, the net revenue from a 10 percent tariff could range from $313 billion to $3.9 trillion over a 10-year window.2 These amounts would be lowered if reduced tax revenue from workers and businesses affected by the tariff were taken into account.3
Adding in net tariff revenue to the non-tariff impacts calculated above yields a deficit increase of between $1.4 trillion (if none of the tariff revenue is spent on transfers) to $5.0 trillion (if 92 percent of the tariffs were spent on transfers).
Closing the remainder of the gap with non-defense discretionary spending would require deep cuts which history suggests may not be feasible
A second Trump Administration would likely propose to offset the increase in deficits with large reductions to non-defense discretionary spending (NDD), and both former President Trump and Project 2025 have proposed a range of these reductions. The NDD category includes spending on transportation and economic development, veterans’ medical care and services, law enforcement and governance, science, environmental protection, and energy.4 Because NDD accounts for a small share of government spending (15 percent or $0.9 trillion out of $6.1 trillion in 2023, see figure), obtaining large savings from this category would require deep cuts. Specifically, we estimate that closing the $1.4 trillion to $5.0 trillion net deficit increase would require 16 to 56 percent reductions in non-defense discretionary spending over the 10-year window.
Moreover, history suggests that deep cuts to non-defense discretionary may not be feasible. In his 2018-2021 budgets, Trump called for substantial reductions to NDD each year. In practice, these cuts were not realized, with NDD spending increasing each year.
Conclusion
The effect on the budget is a key metric – but certainly not the only metric – for evaluating the implications of the economic policy issues at stake in the 2024 election. Assessing the distributional and welfare effects of the candidates’ policies is also critical. As the general election nears, we hope these issues will be the subject of more analysis, and we look forward to engaging with other budget analysts to improve our understanding of the fiscal, distributional, and welfare effects of the candidates' policy priorities.
Appendix: Methodology Table
Works Cited
OMB score of increasing the corporate tax rate from 21 to 28
CBO September 2022 final score of the Inflation Reduction Act
CBO June 2022 estimate of the Bipartisan Safer Communities Act score
The Washington Post reported that Trump’s advisers have “discussed proposals to…use the revenue from the proposed tariffs to pay a dividend to U.S. households.” (Jeff Stein, “Trump advisers plot aggressive new tax cuts for second White House term,” September 13, 2023.)
The Tax Foundation estimates that a 10 percent tariff would reduce GDP by 0.4-1.1 percent and eliminate 505,000-825,000 full-time equivalent jobs, depending on whether reciprocal tariffs were enacted. We could not determine if the revenue estimate cited above accounts for effects on economic activity. If they don’t, then these revenue estimates are likely too generous. Similarly, a more precise score would include the approximately 25% offset that CBO applies to indirect taxes.
 | A guest post by
|
 | A guest post by
|
 | A guest post by
|