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Boston Globe
01-06-2025
- Business
- Boston Globe
Can Trump fix the national debt? Republican senators, many investors, and even Musk have doubts.
'All of this rhetoric about cutting trillions of dollars of spending has come to nothing — and the tax bill codifies that,' said Michael Strain, director of economic policy studies at the American Enterprise Institute, a right-leaning think tank. 'There is a level of concern about the competence of Congress and this administration and that makes adding a whole bunch of money to the deficit riskier.' The White House has viciously lashed out at anyone who has voiced concern about the debt snowballing under Trump, even though it did exactly that in his first term after his 2017 tax cuts. Get Starting Point A guide through the most important stories of the morning, delivered Monday through Friday. Enter Email Sign Up White House press secretary Karoline Leavitt opened her briefing Thursday by saying she wanted 'to debunk some false claims' about his tax cuts. Advertisement Leavitt said the 'blatantly wrong claim that the 'One, Big, Beautiful Bill' increases the deficit is based on the Congressional Budget Office and other scorekeepers who use shoddy assumptions and have historically been terrible at forecasting across Democrat and Republican administrations alike.' House Speaker Mike Johnson piled onto Congress' number crunchers on Sunday, telling NBC's 'Meet the Press,' 'The CBO sometimes gets projections correct, but they're always off, every single time, when they project economic growth. They always underestimate the growth that will be brought about by tax cuts and reduction in regulations.' Advertisement But Trump himself has suggested that the lack of sufficient spending cuts to offset his tax reductions came out of the need to hold the Republican congressional coalition together. 'We have to get a lot of votes,' Trump said last week. 'We can't be cutting.' That has left the administration betting on the hope that economic growth can do the trick, a belief that few outside of Trump's orbit think is viable. Most economists consider the nonpartisan CBO to be the foundational standard for assessing policies, though it does not produce cost estimates for actions taken by the executive branch such as Trump's unilateral tariffs. Tech billionaire Musk, who was until recently part of Trump's inner sanctum as the leader of the Department of Government Efficiency, told CBS News: 'I was disappointed to see the massive spending bill, frankly, which increases the budget deficit, not just decreases it, and undermines the work that the DOGE team is doing.' The tax and spending cuts that passed the House last month would add more than $5 trillion to the national debt in the coming decade if all of them are allowed to continue, according to the Committee for a Responsible Financial Budget, a fiscal watchdog group. To make the bill's price tag appear lower, various parts of the legislation are set to expire. This same tactic was used with Trump's 2017 tax cuts and it set up this year's dilemma, in which many of the tax cuts in that earlier package will sunset next year unless Congress renews them. But the debt is a much bigger problem now than it was eight years ago. Investors are demanding the government pay a higher premium to keep borrowing as the total debt has crossed $36.1 trillion. The interest rate on a 10-year Treasury Note is around 4.5 percent, up dramatically from the roughly 2.5 percent rate being charged when the 2017 tax cuts became law. Advertisement The White House Council of Economic Advisers argues that its policies will unleash so much rapid growth that the annual budget deficits will shrink in size relative to the overall economy, putting the US government on a fiscally sustainable path. The council argues the economy would expand over the next four years at an annual average of about 3.2 percent, instead of the Congressional Budget Office's expected 1.9 percent, and as many as 7.4 million jobs would be created or saved. Council chair Stephen Miran told reporters that when the growth being forecast by the White House is coupled with expected revenues from tariffs, the expected budget deficits will fall. The tax cuts will increase the supply of money for investment, the supply of workers, and the supply of domestically produced goods — all of which, by Miran's logic, would cause faster growth without creating new inflationary pressures. Most outside economists expect additional debt would keep interest rates higher and slow overall economic growth as the cost of borrowing for homes, cars, businesses, and even college educations would increase. 'This just adds to the problem future policymakers are going to face,' said Brendan Duke, a former Biden administration aide now at the Center on Budget and Policy Priorities, a liberal think tank. Duke said that with the tax cuts in the bill set to expire in 2028, lawmakers would be 'dealing with Social Security, Medicare, and expiring tax cuts at the same time.' Advertisement Kent Smetters, faculty director of the Penn Wharton Budget Model, said the growth projections from Trump's economic team are 'a work of fiction.' He said the bill would lead some workers to choose to work fewer hours in order to qualify for Medicaid. 'I don't know of any serious forecaster that has meaningfully raised their growth forecast because of this legislation,' said Harvard University professor Jason Furman, who was the Council of Economic Advisers chair under the Obama administration. 'These are mostly not growth- and competitiveness-oriented tax cuts. And, in fact, the higher long-term interest rates will go the other way and hurt growth.' The White House's inability so far to calm deficit concerns is stirring up political blowback for Trump as the tax and spending cuts approved by the House now move to the Senate. Republican Senator Ron Johnson of Wisconsin and Rand Paul of Kentucky have both expressed concerns about the likely deficit increases, with Paul saying Sunday there are enough GOP senators to stall the bill until deficits are addressed. Four Republican holdouts would be enough to halt the bill in the Senate, where the party holds a three-seat majority. The White House is also banking that tariff revenues will help cover the additional deficits, even though recent court rulings cast doubt on the legitimacy of Trump declaring an economic emergency to impose sweeping taxes on imports. When Trump announced his near-universal tariffs in April, he specifically said his policies would generate enough new revenues to start paying down the national debt. Ernie Tedeschi, director of economics at the Budget Lab at Yale University, said additional 'growth doesn't even get us close to where we need to be.' Advertisement The government would need $10 trillion of deficit reduction over the next 10 years just to stabilize the debt, he stated. 'It's treading water,' Tedeschi said.
Boston Globe
20-05-2025
- Business
- Boston Globe
Trump scolded companies for raising prices. Do they have a choice?
'Fundamentally, what we're seeing in both instances is that the president makes a policy mistake, that policy mistake leads to an increase in consumer prices and the president who made the policy mistake is blaming the businesses,' said Michael Strain, an economist at the right-leaning American Enterprise Institute. Advertisement In the case of Trump's tariffs, which are set at 30 percent on Chinese imports until mid-August, the effects will reverberate across the economy, either pushing up prices for consumers or, if companies do absorb some of the costs, lowering profits for businesses. Those responses could drive inflation, slow growth and raise unemployment. Get Starting Point A guide through the most important stories of the morning, delivered Monday through Friday. Enter Email Sign Up Yet while mainstream economists are generally in agreement that there is nothing unseemly about raising prices when companies' costs spike, that view is hardly universal outside the profession. A variety of populist-minded thinkers across the political spectrum think that there may be grounds for concern about price gouging, and that Trump wasn't necessarily wrong to call out companies for raising prices. 'I'm not here to tell you whether he's right about certain industries,' said Elizabeth Wilkins, the president of the Roosevelt Institute, a liberal think tank. 'But the basic idea that companies have more pricing power than we believe that they did is something we should interrogate.' Advertisement Trump suggested that Walmart use its billions in profits from last year -- 'far more than expected,' he wrote on his platform Truth Social on Saturday -- to cushion consumers against price increases. But the size of a company's profits has little effect on its decision to raise prices, said Chad Syverson, an economist at the University of Chicago. Most companies want to preserve their profits whether they are large or small, because failing to do so would incur the wrath of their owners or shareholders, some of whom are pension funds and small-time investors. They pass along price increases to consumers instead. Pricing decisions come down to factors other than profitability, like how much competition companies face and how sensitive consumers are to price increases. If you splurge on a latte only now and then, you may balk when the coffee shop raises prices. If you can't live without your daily caffeine and sugar hit, you may suck it up and pay the higher amount. And if, in some cases, companies increase prices by even more than the jump in their costs, that doesn't necessarily reflect nefarious behavior, said Alexander MacKay, an economist at the University of Virginia. It may reflect the fact that consumers are no longer as turned off by price increases. This appeared to happen during the pandemic, when some companies raised prices by a small initial amount in response to higher costs. Companies that saw little drop in demand often continued to raise their prices. Advertisement Jared Bernstein, who served as Biden's top White House economist, said many consumers during the pandemic were less deterred than usual by price increases because they were flush from a series of government cash infusions. But, Bernstein added, those idiosyncratic circumstances have largely disappeared, so firms are likely to be more restrained in raising prices in response to Trump's tariffs as a way to bolster profits. He said he still expected them to pass along cost increases, however. Populist critics of mainstream economics see companies' pricing decisions much more cynically. Oren Cass, a former Republican policy aide, said in an email that a large company like Walmart had far more influence over its prices than it let on. 'If Walmart were to simply adopt a policy that 'we will not change our prices in response to the tariffs,' there would be some situations where suppliers ate the costs, some where suppliers shifted to other sources of supply to avoid the tariffs, and some where Walmart accepted lower margins,' said Cass, whose think tank, American Compass, pushes Republicans to adopt more worker-friendly policies. Walmart argues that its options are still limited. In an interview with CNBC last week, Walmart's chief financial officer, John David Rainey, said that the company is 'well equipped' to navigate price increases of 2 percent or 3 percent but not a tariff of 30 percent, the current rate on goods from China. Rainey added that Walmart would in fact absorb some of the cost increases. Nick Iacovella, executive vice president of the Coalition for a Prosperous America, which has advised the Biden and Trump administrations on efforts to expand domestic manufacturing, noted a dubious logic to price-setting by companies: An automaker will scream about the need to raise prices when costs increase, but when an automaker takes advantage of a trade deal to shift production to Mexico, it rarely passes the savings along to consumers. Advertisement 'Can you tell me what car they lowered the price for when they saved all that money?' said Iacovella, a former Senate aide to Secretary of State Marco Rubio. 'The answer is none.' On the left, Wilkins of the Roosevelt Institute argued that large companies do not merely raise prices when their costs increase, or when shoppers become willing to pay more. She said companies sometimes exploit widespread concerns about inflation to actively manipulate prices. In a competitive industry, she said, a company should be reluctant to announce a price increase, for fear that other companies would undercut it. But in a market with only a few actors, a large company might signal its intention to raise prices on an earnings call as a way to encourage other large companies to follow suit. 'It's not explicit collusion, but you can kind of throw those one-sided invitations out there,' said Wilkins, a former chief of staff to Lina Khan, Biden's head of the Federal Trade Commission, who considered looking into these practices. MacKay, the University of Virginia economist, conceded that this sort of coordination was possible. He pointed to a recent study arguing that airline industry executives have effectively coordinated to reduce seats on competitive routes by telegraphing their intentions during earnings calls. But MacKay wasn't entirely convinced. 'Executives need to make disclosures about what they're doing as a public company,' he said. 'Often when firms face common industrywide trends, they're making similar decisions. So it's hard to say conclusively.' Advertisement This article originally appeared in .
New York Times
08-04-2025
- Automotive
- New York Times
Will Retaliation Work for Europe? It's a Gamble.
The European Union is responding to President Trump's sweeping trade war with a handshake and a punch: It is promising the administration potential wins while also preparing its own retaliatory tariffs on American products starting next week. The questions are whether the enticements are enough, and whether a show of strength could backfire. 'Europe can hurt America, and retaliating seems like a good strategy if you believe that Trump cares about the political fallout from economic pain here at home,' said Michael Strain, director of economic policy studies at the conservative think tank American Enterprise Institute, in Washington. 'The worry is that he doesn't care.' Mr. Trump has threatened to impose huge additional tariffs on Chinese goods to punish the nation for retaliating against his previous tariffs, and his team appears to be giving some nations that did not retaliate and have close economic ties to the U.S. — notably Japan — priority in negotiations. At the same time, Mr. Trump has yet to grab the carrots that Europe has dangled in front of him. Ursula von der Leyen, the president of the European Commission, offered on Monday to drop tariffs on imported American cars and other industrial products to zero if the U.S. does the same, a 'zero-for-zero' strategy. Asked about that possibility, Mr. Trump said 'it's not' enough to make him back down. Instead, the administration appears to be standing by its spate of recently-announced tariffs, at least for now. The Trump administration has announced 20 percent across-the-board levies on the E.U., in addition to even higher ones on steel, aluminum and cars. Want all of The Times? Subscribe.
Axios
05-04-2025
- Business
- Axios
Americans will have less money to spend in high-tariff world
The fallout of high tariffs on most Americans is simple and painful: They'll have less money to spend. Why it matters: The tariffs will likely increase the prices of necessities like food, clothing and cars, and leave folks with less disposable income to spend on other things. State of play: That's the view of the Federal Reserve chair, and most economists, even ones on the right. "The Trump tariffs will shrink the amount of money in Americans' wallets," says Michael Strain, an economist at the conservative American Enterprise Institute. The Wall Street Journal editorial page agrees: "There will certainly be higher costs for American consumers and businesses," they write. "Tariffs are taxes, and when you tax something you get less of it." By the numbers: The tariffs hit to earning power amounts to an average 2.3% "pay cut," or decrease in disposable income, for every American household, according to a widely cited estimate from the Yale Budget Lab. That translates to $3,800 a year. Stunning stat: Lower earners can't afford to lose much. The bottom 20% of earners spent a third of their after-tax income just on food in 2023, per the USDA. How it works: Adding a high tax on imports means those goods will cost more — especially on items we don't make or grow in the United States, like clothing or shoes or chocolate. Or, the iPhone. Made in America goods could see prices rise, as well. The cost of running a factory will rise because manufacturers typically need "inputs" (parts, raw materials, etc.) from other countries. There's also the chance that costs rise for items unaffected by tariffs. That's what happened in Trump's first term — tariffs on washing machines also increased the price of dryers, as manufacturers took the opportunity to raise prices overall. Yes, but: Supporters argue that free trade has been bad for Americans — especially workers in manufacturing and their families — and that Trump is moving the U.S. back into an era that puts these folks first. Tariffs "Prioritize the national interest and the flourishing of the nation's working families," said Oren Cass, chief economist at American Compass, in a statement this week. "We support tariffs and any policies that will lead to the creation of good union jobs and bring back manufacturing to the United States," says Kara Deniz, a spokesperson for the Teamsters union. "Cost is always a scare tactic. And it's a choice. Corporations are raking in massive profits (off of the backs of workers)". The bottom line: Globalization and free trade was certainly catastrophic for some factory workers and towns in the U.S.
The Hill
31-03-2025
- Business
- The Hill
Trump's economic test
Trump has described Wednesday as ' Liberation Day,' when his administration will impose sweeping reciprocal tariffs on other nations with duties on U.S. goods. The March jobs report will also be released Friday, providing additional data about the strength of the labor market, particularly in the wake of thousands of federal government employees being fired by the administration. Experts described the economy as at something of a crossroads. Data about the labor market and wages have been generally positive, economists said. But the closely watched University of Michigan Survey of Consumers issued a report Friday that found consumer sentiment dropped to its lowest point since November 2022 amid fears of rising prices that could be worsened by tariffs. 'The big question is: Do the sentiment data converge to the hard data, or do the hard data converge to the sentiment data?' said Michael Strain, director of economic policy studies at the American Enterprise Institute (AEI). 'Because that divergence can't persist for very long.
