Former President Donald J. Trump has been elected to be the 47th president of the United States, winning both the popular vote and the electoral college.
As of now, the Republicans have control of the Senate, albeit with fewer than the 60 seats needed for a super-majority which would remove the possibility of a filibuster on legislation by the minority Democrats.
Control of the House of Representatives remains undecided; it could take days or weeks before all outstanding races are finalized, though the trend appears to favor the GOP. This result will likely allow the incoming Trump administration to translate several of its pre-election policies on taxation, tariffs, regulation, and fiscal policy into law.
If Democrats are able to win control of the House, there would be a divided government. With the smaller Republican majority in the Senate and the filibuster in play, any tax and budget legislation would likely require bipartisan support.
If Republicans win a majority in the House, Congress could enact tax and budget legislation through the reconciliation process. This process allows for expedited passage of certain taxation, spending, and debt-limit legislation through the Senate with a simple majority vote of 51. In the event that enough Republican senators vote with the Democrats for a 50-50 tie, Vice President-elect JD Vance would cast the tie-breaker.
According to the Center on Budget and Policy Priorities, the Congressional Budget Act permits using reconciliation for legislation that changes spending, revenues, and/or the federal debt limit. On the spending side, reconciliation can be used to address most “mandatory” spending — that is, programs such as Medicare, Medicaid, federal civilian and military retirement, SNAP (formerly known as food stamps), and farm programs — though the Budget Act specifically prohibits using reconciliation to change the Social Security program. Mandatory spending is determined by rules set in authorizing laws, so changing spending usually requires amending those laws.
Tax Cuts
The Tax Cuts and Jobs Act (TCJA) expires at the end of 2025. If TCJA were extended (which would be expected in Republican-controlled Congress), income and capital gain taxes will remain unchanged. However, according to studies done by the International Monetary Fund, authors affiliated with the Joint Committee on Taxation and Federal Reserve Board, and Harvard economists, among others, the TCJA cuts did not pay for themselves, as promised, which makes it unlikely that any extension would have a positive effect on revenue.
The Republican platform calls for an end to taxes on tips for restaurant and hospitality workers, on overtime pay, and on Social Security. It also calls for a reduction in corporate taxes from 21% to 15%. Many experts have said that these changes could result in an increase in inflation.
Tariffs
Under the Constitution, the president can enact tariffs by executive order and does not need Congressional approval to do so. President-elect Trump has floated a “universal tariff” of 10% to 20% on most foreign products and tariffs of 60% or more on China. To ban Chinese cars from coming into the United States via Mexico, he has said he would impose “whatever tariffs are required — 100%, 200%, 1,000%.”
It’s important to note that tariffs are not a source of government revenue. Customs duties still make up just 2% of federal revenues — while the individual income tax made up almost half of federal receipts in 2023, according to the Office of Management and Budget.
Tariffs directly increase the cost of domestic sales by artificially increasing the price of imports. American consumers could lose between $46 billion and $78 billion (or $362 to $624 per household) in spending power each year if new tariffs on imports to the United States are implemented, according to a new study released by the National Retail Federation.
Student Loans
The new Trump administration is expected to unwind much of President Biden’s broad-based student-debt relief. This could result in a decline in spending. President-elect Trump has also vowed to shut down the Department of Education altogether, but that would require lawmakers to vote to disband the agency.
Deregulation
For banks, the incoming Trump administration is expected to stave off any capital increases under rules proposed by the Basel Committee on Banking Supervision, the Switzerland-based primary global standard-setter for the regulation of banks, of which the United States is one its 45 members. The U.S. is represented on the Basel Committee by the Federal Reserve Board in Washington, D.C., the New York Federal Reserve Bank, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation. The Committee has no legal authority to impose the minimum standards to which its members agree. Adopting rules is the responsibility of the governments who comprise the committee. The proposed rules would strengthen the regulation, supervision, and risk management of banks, with a focus on the amount of capital that banks must have against the credit, operational, and market riskiness of their business.
Going forward, new regulatory leadership at the Office of the Comptroller of the Currency in 2025 will likely refuse to move forward on the Basel rules.
Analysts and investors expect Trump’s pro-growth policies to boost dealmaking and IPO volumes and generally accelerate capital markets activity.
Oil and energy
The timeline for oil projects to start production can vary significantly based on several factors, including the type of project, location, regulatory environment, and the complexity of the extraction process.
The price of oil is set on a global market, subject to global supply and demand, and world events. Both U.S. and world producers react to those prices, shying away from producing more if the price is low. The U.S. President has no control over the price of oil
According to the Energy Information Administration (EIA), the U.S. became energy independent (producing more energy than it consumed) in 2019, mostly because of the fracking boom to free oil from shale which began in earnest in 2005. In 2023, the U.S. became the largest producer of crude oil in the world.
Fiscal Deficit and Debt
The incoming Republican administration inherits a large fiscal deficit, as has every administration since 2001.
Government spending rose precipitously during the 2020-21 pandemic and stayed high. According to the Office of Management and Budget, it is now expected to reach 124.3% of Gross Domestic Product in 2024.
It’s important to note that the deficit and the national debt are not the same. The deficit is annual. The debt is the total amount outstanding.
Including the higher interest rates, the annual cost of debt service has more than doubled since 2020. This line in the federal budget is only expected to grow further as interest rates may stay higher for longer while the Fed investigates the new fiscal policy being put forward by the new administration. Thus, lawmakers will need to take into consideration any potential benefits from fiscal policy against the long-term costs.
Conclusion: Bumpy Ride Ahead
The ultimate effect of the election on markets remains uncertain. There are additional dimensions to policy proposals that need to be assessed as a package of growth and inflation. It is also hard to figure out what proposals may result in actual policy and when and how.
Though the initial reception of the stock market was favorable to a Trump victory, the bond market was not as favorable. The size and scope of the bond market is much, much larger than that of the stock market. Bonds fell off, indicative of concerns about potential higher interest rates, budget gaps, and ongoing concerns about the upcoming change of economic policy.
Bank stocks responded favorably to the election results, indicating that the long end of the yield curve may be rising, which may be another sign of rising interest rates. All evidence points to a volatile market.
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