2025 will be a year of change, as a new administration enacts policies that will ignite debate and conversations that could be confusing. To prepare, here’s a cheat sheet of five terms that you are likely to hear.
TariffsA tariff is a tax or duty imposed on a particular class of imports or exports. The exporting country does not pay for the tariff; rather the company that imports the good is on the hook for the extra charge.
The importer may choose to absorb the extra cost, reducing its profit, or pass it along to consumers. The concern among economists is that a fresh round of tariffs could reignite the inflation rate, though most agree that we are not likely to see that frightening 9.1 percent post-COVID inflation rate as a result of new tariffs.
Those who favor tariffs see them as a bargaining chip in international negotiations; as a means to beef up tax revenue; and as a way to shield domestic producers from foreign competition.
They also note that there could be special carve-outs for some countries and products that might tamp down the overall impact of tariffs. President-elect Donald Trump pledged that he would slap a 25% tariff on products coming into the U.S. from Mexico and Canada and an additional 10% tariff on Chinese products, though those percentages could change.
ImmigrationTrump has promised to clamp down on immigration, potentially deporting some portion (perhaps up to 1 million) of the approximately 11 million undocumented population. There will also be an effort to clamp down on border crossings.
The total economic impact of these policies is difficult to gauge, because according to Capital Economics, “undocumented immigration is disinflationary, while deportations would likely be hugely disruptive for those sectors most reliant on undocumented workers, including agriculture, food processing and construction.”
TaxesThe 2017 Tax Act and Jobs Act (TCJA), which took effect in January 2018, made corporate tax cuts permanent, but tax changes for individuals are set to sunset at the end of 2025.
The Trump Administration will seek to extend most of the provisions of the individual code, including: lower tax rates, a higher standard deduction amount, increased family tax credits, a cap on state and local tax deductions, repeal of the Alternative Minimum Tax, and an expansion of the estate tax exemption.
During the campaign, Trump suggested that there would be additional tax cuts, but there may not be an appetite for further reductions due to the impact on the nation’s finances – more on that in the next section.
Deficit and debt ceilingWhen Congress debates the extension of the TCJA, there will be an analysis of the impact on the nation’s balance sheet — primarily whether the cuts increase the budget deficit.
A federal deficit is the amount of money the government spends (outlays) minus the amount of money it collects from taxes (revenue) each year.
According to the Congressional Budget Office (CBO), in fiscal year 2024, the federal budget deficit totaled $1.8 trillion — an increase of 8% from the shortfall recorded in the previous year. The cumulative amount of money the government has borrowed over time is the national debt, which currently stands at over $36 trillion.
The debt ceiling is the legal limit on the total amount of federal debt the government can accrue. If the debt limit is reached, the government must raise it, suspend it, or risk defaulting on its legal obligation to pay its bills.
Increasing the debt ceiling IS NOT authorizing new spending – it is simply allowing lawmakers the ability to pay for the obligations it has already made.
Jill Schlesinger, CFP, is a CBS News business analyst. A former options trader and CIO of an investment advisory firm, she welcomes comments and questions at askjill@jillonmoney.com. Check her website at www.jillonmoney.com.