Edward Lotterman

The 2024 national election is over. In seven weeks, a new Congress will be in session with a GOP majority in the Senate and perhaps in the House. Seventeen days later, Donald Trump again will be president.

So one’s best strategy now is to follow lyricist Harold Arlen’s admonition to “ac-cent-tchu-ate the positive.” This is more for Kamala Harris voters and “never-Trumpers.” But if history is our guide, all of us can be sure the coming four years will be eventful.

Also, remember that U.S. institutions are strong, even if not to the degree many of us once thought. So go ahead in hope.

Yet nearly everyone wonders what, exactly, the second Trump administration will attempt to do. What will it accomplish? What effects will those actions have on our society? What will happen to our economy — as much for the world as well as for us?

The United States is the world’s largest economy. Financial markets based here play proportionately ever larger roles in the global economy. Consider the way worldwide financial dominoes toppled in 1930 following the New York stock market crash — even though we were much less powerful then than now. Consider what happened globally after the U.S. real estate crash in the late 2000s.

Trump has proposed many things financial, including abolishing or cutting a wide range of taxes, expelling millions of workers not in our country legally, imposing stiff tariffs on all imports, reducing federal spending — including by the elimination of entire Cabinet departments — and more. He has called for changes in foreign and defense relations with the rest of the world that could have profound effects, not just on our economy, but globally.

Start by looking at promised actions and ask at least the following questions:

• Is congressional action required? Is that likely?

• Can it be done by executive order? Who has legal standing to challenge that?

• How will the action affect key donors to his campaign?

• How will the action affect key groups that voted for him?

For example, let’s start with the often-touted promise to eliminate the Department of Education. This would require detailed legislation by Congress. It could not be done by executive order. Congress could, in theory, terminate every one of the department’s functions now existing. Or it could eliminate some programs and close the department, but leave other programs operating in other Cabinet departments or independent agencies, as was before education became a Cabinet-level agency in 1980. A filibuster-free Senate might pass this, as might a GOP-majority house.

The issues involved are not key either way to multi-billionaire Trump donors like Elon Musk, Bill Ackman, John Paulson or Miriam Adelson. No broad economic sector like agriculture or manufacturing or energy would have crucial concerns.

But when it comes to groups of Trump voters, however, the effects might be large.

Total Department of Education outlays are about $650 billion. Of that, $125 billion, nearly a fifth, goes to local school districts. On average, federal money makes up 14% of all local school budgets. But that varies widely by state. Connecticut, New Jersey, Delaware and New York are around 8%, Illinois at 11%, Minnesota at 12% and Iowa at 13%. But “Red States” Alabama, Mississippi, Louisiana, Arkansas, Tennessee, Kentucky, West Virginia and North Carolina all cluster in the 19% to 23% range. (For much useful information on education financing, see “Revenues and Expenditures for Public Elementary and Secondary Education: School Year 2021–22 from the National Center for Education Statistics).

These are not just GOP-voting states. They are ones in which Trump’s MAGA movement most dominates that party. Elimination of federal money would gut the budgets of their local schools.

This ironic paradox applies to other federal spending channeled through states. From Medicaid funds for nursing home care to SNAP and WIC nutrition benefits or to grants for local water and sewer systems, federal funds are much more important, using Mitt Romney’s parlance, to “taker” states that vote Red than to “maker” states that vote Blue. So when its comes down to approving bills eliminating Education or Health and Human Services, and the funding they provide, votes for complete erasure, even from a GOP congressional majority, is about as likely as Mexico building us a border wall.

What about Trump’s much touted proposal to eliminate taxation of income from tips, overtime, Social Security or special treatment of capital gains or earnings of hedge fund managers? Here, congressional action also is needed. And nearly all GOP members in either house would support these. Democrats, burned in the past as favoring high taxes, might not oppose. So expecting approval is realistic.

Setting aside effects on the general economy, a large majority of households would benefit to one degree or another. Many billionaire donors would not be harmed and many greatly aided. Nor would specific sectors such as transportation, manufacturing, agriculture or IT be hurt directly.

However, with almost immediate effect, these tax cuts would blow an even larger hole in the federal budget. Millions of taxpayers would adjust their withholdings or quarterly submissions. Economic distortions rapidly would result from jury-rigging job circumstances to convert ordinary compensation into “tips” or “overtime.”

If passed by large GOP majorities, this outcome might be a useful step toward meaningful reform. For 40 years the GOP has campaigned on lower taxes, enacting additional cuts whenever a balanced budget appears likely, making the old “supply side” argument that lower taxes spurs private investment in the economy. But we’re already also hearing GOP deficit hawks in Congress squawking.

Federal revenues as a fraction of GDP are two percentage points lower than during the four balanced-budget years of the Clinton administration. There will be no resolution to increasing deficits and debt that does not include restoring taxes to historic levels and considering changes in the age-structure of the population — all unpopular political options for either party.

Now, what about Trump’s headline promise to expel workers here illegally?

First, recognize that this would require a massive and expensive federal effort. It would take a long time. The economics of this is a subject in itself.

Would congressional action be needed? Perhaps not for taking action, but would be for appropriation of large budget amounts needed.

How about opposition from big donors? Probably not to a great degree.

However, businesses in sectors like production, agriculture, meat packing and construction would all be smitten if large numbers of their workers were rounded up and hauled off. Food prices and the costs of new homes and of remodeling would rise sharply. The Federal Reserve would be forced to clamp down sharply on the money supply and send interest rates soaring.

Concretely, for the milk-producing Upper Midwest and for consumers of dairy products everywhere, large-scale sweeps for illegal workers on dairy farms would cause havoc. Modern cows are milked every eight hours. A cow not milked is one in pain and on the way to permanent impairment of its ability to lactate. Not only would the financial blow to dairy farm owners be crippling, consumers could face an immediate supply issue on top of the long-term price issue of hiring higher-wage replacement workers. Similar issues would confront broiler and turkey producers if poultry processing plants suddenly saw their workers forced into buses or army trucks.

There would also be blows to local economies. Many small Minnesota school districts struggling to survive would lose 30% or more of their students if unauthorized parents were rounded up. The same applies to small-town main street grocery stores struggling to survive as customers increasingly make monthly or twice-monthly forays to Aldis or Sam’s Clubs in regional centers like Worthington, Marshall or Wilmar. Lose a third of local customers buying bread, milk and produce and you may as well lock your doors.

Much more could be said. Tariff impacts deserve a column in themselves. Potentially rewarding Russia’s aggression in Ukraine could encourage China to grab Taiwan. And North Korea’s troop deployment in Ukraine prefaces a World War III that Trump has vowed to prevent. The economies of both Europe and East Asia would change in fundamental ways as would our trade and finance relations with both regions.

So while a Broadway lyricist advised us to “accentuate the positive,” our moms bade us at least 10 times more to “hope for the best and expect the worst.” The good news for economists is we have four years to hash these issues out, with many more unseen ones to come.

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St. Paul economist and writer Edward Lotterman can be reached at stpaul@edlotterman.com.