Election Insight: Trump second term agenda 

Trump administration priorities for a second term

David Joy | Vice President – Chief Market Strategist September 16, 2020 

For the first time since 1856, the Republican party chose not to construct a platform outlining a policy agenda for the next four years at this year's convention. Instead, the GOP decided to renew its platform from 2016. The 2016 platform was a far-reaching document that addressed the party's position on everything from the role of government and the judiciary to the primacy of the Constitution, family values, immigration, and its economic priorities.

Among the major provisions of that document with implications for the economy and markets were:

  • The reformation of the tax code, including lower corporate income tax rates.
  • Free and fair trade policies, including the use of tariffs where necessary.
  • Reduced regulation of financial markets, including in particular limitations on the Consumer Financial Protection Bureau.
  • Housing reform.
  • Transportation finance reform.
  • Promotion of technological and space exploration competitiveness.
  • Upgrading the electrical grid.
  • Promotion of small business creation.
  • Limiting the growth of the national debt through economic growth and spending restraint.
  • Support for a balanced budget amendment.
  • Promotion of energy and agriculture through less regulatory oversight.
  • Shifting of environmental oversight to the states and the rejection of UN climate agreements.
  • The repeal of the Affordable Care Act and preservation of Medicare, Medicaid, and Social Security
  • Modernization of our armed forces and the Veteran's Administration

While the Trump administration has followed through on a number of these initiatives, by renewing the 2016 platform, the implication is that there is still more work to do. But the president's reelection campaign went a step further by issuing a set of fifty core priorities for a second term. Among the items that relate to the economy are the following:

  • Cut taxes to increase take-home pay.
  • "Made in America" tax credits.
  • Expand opportunity zones.
  • Continue deregulation to promote energy independence.
  • Tax credits for jobs brought back from China.
  • 100 percent expensing for essential industries, such as pharmaceuticals and robotics, which bring manufacturing back to the U.S.
  • No federal contracts for companies that outsource to China
  • Cut prescription drug prices.
  • Lower health insurance premiums.
  • Improve infrastructure.

And while not specifically among the list of core priorities, the president has also spoken about wanting to lower the capital gain tax rate and index the rate to inflation. The administration has yet to address the business provisions of the 2017 Tax Cuts and Jobs Act, which are set to expire beginning in 2022. But it has supported the extension of the individual provisions which expire after 2025.

What the administration has outlined so far provides some insight into the philosophical direction of its economic and tax policies, but with as yet insufficient detail to conduct a quantitative analysis of its impact. As the Tax Foundation concluded, "Without further details or clarification, it is difficult to fully analyze President Trump's second term tax policy agenda…As the campaign releases more details, we will update our analysis."

Further insight into the administration's plans for a second term can be found in its $4.8T fiscal 2021 budget, submitted back in February. Although it is Congress which approves spending, the document does provide insight into the administration's priorities. At a high level, the budget continues the funding direction established in the president's first term. Among the departments which could receive level funding, or an increase are:

  • Defense
  • Treasury
  • Homeland Security
  • NASA
  • Veteran's Affairs

Departments that could see a reduction in funding include:

  • Commerce (due to expiring spending on the census)
  • EPA
  • State Department
  • HUD
  • Interior
  • Transportation 
  • Labor 
  • HHS
  • Agriculture
  • Energy
  • Education
  • Justice

Of course, it is at the program level of detail where the real budgetary impacts can be discerned. At the time the budget was submitted on February 10, the Congressional Budget Office estimated this year's deficit would total 4.9 percent of GDP and 4.4 percent in 2021. It estimated the cumulative deficit under the proposed budget would total $13.1T and average 4 percent of GDP over its ten-year horizon, below its 4.8 percent baseline projection due to the budget's proposed spending cuts that would more than offset reductions in revenue.

That analysis was based upon the CBO's January economic projection compiled before the economic impact of the pandemic on both growth and spending. In its subsequent September 2020 budget update, incorporating the economic and fiscal impacts of the pandemic, the CBO estimated that after totaling 16 percent of GDP this year, the deficit would total 8.6 percent in fiscal 2021, and subsequently begin to decline. The new, ten-year cumulative budget deficit forecast remained virtually unchanged at $13T.