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07 NOV 2024 / TAXES
It’s official: Donald Trump has reclaimed the Oval Office, marking his second term with a strong mandate after winning 295 electoral votes and securing 72,641,564 popular votes (50.9%). Addressing his supporters last night, Trump declared, “America is back on track, and the best is yet to come.” With fewer speed bumps in Washington this time around, he’s poised to make big moves on everything from taxes to tariffs. His loyal supporters, along with big-name allies like Elon Musk, believe his policies will supercharge the economy. But critics? They’re waving red flags, warning that his plans could be a one-way ticket to inflation-ville. Let’s dive into what Trump’s second term might mean for America’s economy, financial markets, taxes, foreign policy, and even his own legal battles.
Trump’s economic vision is nothing if not bold, with a clear "America First" trajectory at its core. On the campaign trail, he promised “skyrocketing” incomes, “vanishing inflation,” and a middle class that would “prosper like never before.” That’s a tall order. The core of Trump’s economic pitch? Big tax cuts, hefty tariffs, and a laser focus on boosting American manufacturing. His allies, including Musk, are all in, seeing a boom ahead. But economists are scratching their heads, warning these moves could end up lighting a fire under inflation instead—especially with the recent spike in U.S. debt causing waves across the board.
A major factor in Trump’s plan is his proposal for a blanket 20% tariff on all imports—think of it as the economic version of a “great wall” around America. Trump’s supporters see this as a move to create jobs and boost local businesses, while critics worry it’s going to make goods more expensive, especially for the average Joe. Economists predict that this tariff alone could tack on an extra $2,600 per year to household spending. The International Monetary Fund (IMF) predicts that Trump’s proposed tariffs on imports from China and Europe might knock 0.8% off U.S. GDP in 2025 and even more in 2026. Safe to say, it’s not all rainbows and sunshine when it comes to Trump’s plan to bring costs down.
Wall Street’s reaction to Trump’s second-term win was like a shot of adrenaline—stocks surged, with the S&P 500 hitting new highs. Bank stocks, too, have jumped on expectations of lighter regulations. The mood? Optimistic. For now, the “Trump trade” is back: investors are betting on big gains from industries like banking, fossil fuels, and private equity, which are expected to thrive under looser regulations.
But some are wondering if this hype will hold up, especially when Trump’s tariff plans start biting. But here’s the catch—markets are fickle. As Trump rolls out tariffs and targets foreign imports, companies with global supply chains could feel the squeeze. Finance professionals are likely keeping one eye on market sentiment and another on Trump’s policies that could change the game in a heartbeat.
Remember the Tax Cuts and Jobs Act (TCJA) from Trump’s first term? Well, he’s back with even bigger tax-cutting ambitions. Trump’s plan includes making TCJA permanent, slashing corporate tax rates even further, and nixing taxes on tips, Social Security benefits, and overtime pay. He’s even floated the idea of tax-free status for certain professions like police officers, firefighters, and military members. The goal, he says, is to make life more affordable for everyday Americans—“so everyone can afford groceries, a car, and a beautiful home,” as he puts it.
But as rosy as it sounds, there’s a hefty price tag. The Penn Wharton Budget Model estimates that making TCJA cuts permanent and adding new ones could add a whopping $5.8 trillion to the deficit over the next decade. Supporters argue that these tax breaks will “pay for themselves” by boosting growth and increasing tax revenues, but critics say that’s like hoping to win the lottery to cover your mortgage. Accounting and tax professionals might want to keep their calculators handy as they steer the shifting tax landscape for clients.
Another cornerstone of Trump’s agenda? Giving the IRS a serious haircut, especially after it received an $80 billion budget boost under the Inflation Reduction Act. Trump’s team wants to reel back IRS enforcement, particularly audits on middle-income earners, and focus instead on improving taxpayer services. He’s not thrilled about the IRS’s expanded budget for audits, especially on the wealthy, and has hinted that these cuts could help “everyday taxpayers” breathe a little easier.
This move could create a few speed bumps, though, especially for those in the accounting world who rely on IRS efficiency for timely audits and filings. By trimming enforcement and audit budgets, the IRS’s modernization efforts, including the new Direct File tax prep program, might face delays or disruptions. Fewer audits might sound nice to some, but for tax professionals, a sluggish IRS can mean longer wait times and a potential backlog of unresolved issues.
Trump’s foreign policy outlook is as America-first as ever, but this time he’s doubling down. He’s pledged to cut off military aid to Ukraine and rethink the US’s role in NATO, famously stating he expects allies to “pay their bills” or risk losing US support. His tough stance on China includes floating tariffs as high as 60% on Chinese goods, with hints at going as far as 200% if China threatens Taiwan. This hard-line approach could send ripples through global markets, especially in industries heavily reliant on international trade. European leaders are already feeling uneasy, as Trump’s proposed 20% tariffs on imports, particularly from Europe, could hurt their economies.
In a twist that has global implications, Trump’s second term might also redefine America’s relationship with BRICS nations—Brazil, Russia, India, China, and South Africa. He has hinted at being open to negotiating with these countries, even as they explore alternatives to the US dollar. Aligning more closely with BRICS could send shockwaves through traditional US alliances, particularly in Europe and Asia. For US businesses, this means preparing for possible shifts in trade policies and currency fluctuations, presenting both new opportunities and the risks of volatility and economic instability.
Trump’s policies are setting up a clear divide between industries that could come out on top and those that might struggle. Fossil fuels, manufacturing, and private equity are set to thrive under Trump’s deregulation agenda. For the energy sector, he’s promised to “bring back American energy,” pledging support for oil, gas, and coal, and rolling back what he views as restrictive green regulations. On the flip side, renewable energy might be left in the dust as Trump’s administration shifts focus away from wind and solar.
For financial services, Trump’s deregulatory push is expected to unleash a wave of mergers and acquisitions, which could be a windfall for Wall Street. Private equity firms are particularly optimistic about his pro-growth policies. With Musk in Trump’s corner, Tesla and other high-tech firms might benefit from favorable policies. However, Trump’s tariffs could complicate matters for those reliant on global supply chains. Recently, Tesla shares soared 15% on the anticipation that Musk, as Trump’s high-profile backer, will face fewer regulatory roadblocks.
This surge in Tesla’s stock price reflects the market's excitement about the potential for a more business-friendly environment under Trump.
With Trump back in office, curiosity about his personal wealth and the legal battles he faces is at an all-time high. Donald Trump's net worth adds nearly $300 million after his election win, thanks to a surge in Trump Media shares. Support from influential business figures like Carl Icahn and Stephen Schwarzman, who back his pro-business agenda, may further bolster his financial standing. However, this renewed political power comes with its own set of complications.
Now, let’s talk about the legal elephant in the room. Trump is currently grappling with several high-stakes cases, including federal charges related to the 2020 election and mishandling classified documents. His re-election could afford him immunity from federal prosecution, at least while he’s in office. State cases, particularly those in New York and Georgia, are trickier. Legal experts are divided on this front, with some predicting that Trump’s status as a sitting president could slow or stall these cases. Trump has even hinted at the possibility of pardoning himself, a move that would likely spark a constitutional showdown.
Trump’s second term promises to be as unpredictable as his first, with sweeping changes across taxes, trade, and regulation. From promises of “prosperity like never before” to ambitious (and divisive) foreign policy plans, Trump’s return to the Oval Office has the world watching. Supporters are banking on a stronger economy, while critics warn of inflation, trade conflicts, and rising costs for American households.
As Trump sets his sights on ambitious policy shifts, the effects on industries, markets, and taxes will unfold in real-time. And while his allies cheer for deregulation and lower taxes, the final score won’t be clear until the policies start to hit Main Street. One thing’s for sure: the next four years are shaping up to be a wild ride. As we navigate the ever-evolving landscape of Trump's second term, there's no shortage of developments that could shape our economy and industries. Stay tuned for more intriguing stories and insights! Don't forget to subscribe to our weekly newsletter for the latest updates and analysis delivered straight to your inbox. Your front-row seat to the news that matters is just a click away!
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