Marketplace - So, about those tax cuts from Trump’s first term…

Episode Date: February 6, 2025

In 2017, President Trump overhauled the federal tax structure. Eight years later, the corporate tax part of the deal hasn’t quite “paid for itself,” as promised. But the personal income part, which is set to expire this year, did help some lower-income Americans pay off debt and keep up with the cost of essentials. Will Congress act to renew it? Also in this episode: The legal outlook on Elon Musk gaining access to the Treasury’s payment system; Los Angeles fire property insurance payouts could reach historic levels; and the services sector is stronger than manufacturing right now.

On the program today, this economy and the law from American public media. This is Market Class. In Los Angeles, I'm Kai Rizal. It is Wednesday today, the 5th of February. Good as always to have you along, everybody. We are all becoming more familiar this week with parts of this economy that until now had just worked, most prominently the critical treasure department payments system. Elon Musk and his allies have taken some degree of control of that system and others, and

that and all the rest of what's happening get right to the heart of how this economy is run. Blake Emerson is a professor of law and political science at UCLA. Blake, it's good to have you on the program again. Thanks, Kai. It's good to be here. I think it's important to avoid euphemism and innuendo in this conversation and all the conversations that are being had about this.

What is happening in the federal government right now? Elon Musk, his minions, what the executive branch is doing and doing to itself, I suppose. How is this not illegal? Or is it illegal? Yeah. So, I do think we're dealing with a serious and systemic set of constitutional violations right now that include several clear violations of both statutory law passed by Congress as well as provisions of the Constitution. Just to give one example, the way that Musk and the Trump administration have attempted

to shut down government agencies like USAID and to take control of the treasury payment system really takes away Congress's power to make the laws, which includes the power to spend money, the power to create administrative agencies. And these actions really strike at the core of those constitutional powers that are held by Congress and not by the executive branch. I wonder if what's happening here actually is that they're trying to set up an extra constitutional way to run this chunk of the American economy. That's right.

I mean, I see a risk that there is a kind of shadow executive branch that's operating alongside of and within and maybe displacing the structure that is set up by the Constitution and by the laws enacted by Congress. And so when you have Musk and Musk's assistance taking over a system that's housed in the Treasury without meeting the requirements for appointments that are's housed in the Treasury without meeting the requirements for appointments that are set up in the Constitution. That subverts the accountability structures that the framers designed. What's not clear now is who exactly is running the show. And that includes questions about whether

the Treasury Secretary is in charge or is Musk in charge, but also more fundamentally, who holds the executive power right now? I mean, the Constitution says that the executive power shall be vested in a president of the United States. And at the moment, with this kind of sweeping delegation of executive power to Musk, I think there's some genuine doubt about whether that executive power is where it's supposed to be. One wants government to be as best as possible risk free.

And it seems to me by doing all of this, they are exposing the United States writ large, all of us and our interactions and negotiations and contracting and all of this to an immense amount of risk. That's right. So I think one problem here is that transactions and decisions that the government routinely makes concerning payments, concerning regulations that would not have been in doubt previously are now uncertain. So it's uncertain what decisions have been made, whether those decisions are going to hold up when courts review them. And when

you have that degree of systemic uncertainty, it creates really grave risks, I would say, for market stability, but also more profound risks about political stability. Because when the usual structures of government that have been in place for over a couple hundred years now are being displaced with a new system that we don't understand, that seems to be going outside the law. The results of that become quite unpredictable and frankly scary. You are a professor of law,

also though a professor of political science at UCLA. So put on your political science hat for me here for a second. The institutions of this economy work, it seems to me, in no small measure because the institutions of this economy work, it seems to me, in no small measure because the institutions of this democracy work, that is to say the rule of law, fair and adequate regulation. What's the macro threat to the basic breakdown in the predictable enforcement of federal

law. That touches really every nook and cranny of the economy. So, you have actions, for instance, like Trump removing officials from the National Labor Relations Board, which he is not permitted by law to do. The statute says you have to provide some kind of a good cause reason for that, which he did not provide. And that's just one example of myriad violations of impairing the functioning of regulatory agencies

up and down the line from the board to something like the Federal Reserve that I think are now in question. And when that happens, you lose that basic predictability that enables people to make transactions in the marketplace based on reasonable expectations about what's going to happen in the future and what the laws really are. So we're losing that stable framework and replacing it with something much more discretionary and even arbitrary and unaccountable. This is a little bit sideways, but roll with me here.

You probably have some classes this afternoon out at UCLA. What's it like teaching the law at this moment in the law? Yeah, it's a moment where you're trying to teach a moving target. And I think one of the things that's really interesting and challenging about this moment is that the law around the executive branch is already in flux. And so the Supreme Court has already been, over the past 10 to 15 years or so, changing rules around presidential power, around judicial review of administrative agencies.

And now Trump is stepping into that space and trying to exploit some of those ambiguities and changes. And when you look at what's happening now, I think that Trump's actions fly in the face of the kind of constitution that the Supreme Court has been trying to defend. One that when agencies act, they are bound by the laws enacted by Congress. And that also when agencies act, there is a clear line of accountability to the White House and to the president. The seizure of treasury payments and the like create this risk that that hierarchy of accountability

is being displaced by something that is very difficult to challenge and to hold to account. And these are problems that the Supreme Court ought to take seriously given its recent preoccupation with the administrative state and problems around presidential power. Let's talk about accountability here for a second before I let you go off the glass.

If we don't know who's in charge, if we don't know who is making these decisions and what the lines of authority are, and yes, lawsuits have been filed, but how do you know who to hold accountable? Yeah, and that is a tough question. What we can do is that there are officials who by law are vested with authority, right? So if we're talking about the treasury system, we have the secretary of the treasury and

we have assistance to the secretary. And so we can rely on kind of the official chain of command. It's just going to be hard for the courts to get their grip on what's really happening if the people who are being sued are not the true decision makers. Because if the true decision maker is somebody else, then your injunction on the Treasury Secretary is not going to be super useful. Right.

Blake Emerson, across town at the UCLA School of Law. Blake, thanks for your time. I appreciate it. Thanks very much, Kai. Take care. Wall Street today, traders still not concerned. We'll have the details when we get the government's unemployment report, which is this week, it's coming to us on Friday, on Wednesday of those weeks, we get a report from ADP. They process payrolls for 25 million workers here. And by ADP's estimates, this economy added 183,000 jobs last month. That's pretty good.

But the data does also show a pattern settling back in. This country's economy is less about producing goods than it is about producing services. Marketplace's Sabri Benishaw has that. Part of this economy makes things, manufacturing, mining, building. And part of the economy does things, healthcare, lawyering, internetting.

In January, according to ADP, the making things part of the economy lost 6,000 jobs. The servicy part gained 190,000. That's been the story of the U.S. labor market and occupational employment really since the mid 2000s. Christophe Combeau-Mall is an assistant research professor of engineering and public policy at Carnegie Mellon. The overall share of U.S. manufacturing has been declining pretty consistently for decades.

And yet there is one part of the making economy that could be, should be, much stronger than it is, and that is construction. There's ample construction demand. Jim Corredor is senior analyst for industrials at PitchBook. Economic indicators are not all that strong right now, but projects are long lived, so there's stuff that's been planned years ago that's ongoing. So why then, in this country recovering from hurricanes and fires, were just 4,000 construction jobs added in January? The industry has been experiencing a long run skilled labor shortage.

Labor. Robert Dietz is chief economist at the National Association of Home Builders. To be fair, construction is facing a lot of problems from zoning to supply chains, but labor is one of the big ones. In any given month, the construction industry is short, three to four hundred thousand workers. Output of the sector could be larger if the workforce was larger. Construction lost a million and a half workers, Deet says, in the housing bust after the Great Recession. It is still clawing its way back.

You've got more people going to college today. There's been kind of a move away from careers in the trades, for example, not offering shop class in high schools. Or emphasizing college over trade schools or community colleges that prepare for careers that are actually very much in demand. In New York, I'm Sabri Benishur for Marketplace. Early estimates of the Eaton and Palisades fires here in LA last month said they could wind up being the most expensive in U.S. history. A new report from UCLA puts more concrete numbers to those estimates.

It says that between them, those two fires likely caused $75 billion worth of just insured losses. That is three times more than the next four most instructive California wildfires combined. Marketplace's Kelly Wells has more on what made this pair of fires so devastating. The simple answer, they're urban fires. The more structures that burn, the more expensive the fire is. Thing is, urban fires aren't a new problem. What we're really talking about is a return to the urban conflagrations of the 19th century is what we're actually seeing.

Michelle Steinberg with the National Fire Protection Association says the majority of the homes in the Eaton Fire footprint, for example, were built before 1950, long before modern fire codes, which makes them more flammable. These are legacy structures with legacy vegetation on small lots really close together, like a set of dominoes ripping through these structural fuels. But it's more expensive when those old homes burned in 2025 because those homes, and California in general, got more expensive, says economist Tom Corringham.

He's with Scripps Institution of Oceanography at UC San Diego. The fact that the prices have risen in the last five years, that really drives the increase in costs associated with this event. Corincam says not only are the houses more expensive, there are just more houses too. Los Angeles has grown so dramatically in the last 50 years. Just the increase in population within these hazard zones really raised that headline number. And the thing is, that headline number might actually be too small. UCLA economist Zhiyun Li authored the report and says she had to estimate the cost of these

fires based on the number of people who had private insurance in other recent fires. But that may not be true in reality, because more people are losing their private insurers. Meaning the real total cost of L.A.'s most expensive wildfires might be even higher. I'm Kaylee Wells for Marketplace. Coming up. You can live on the water for a fraction of the price that you could live on land. Affordable housing in unexpected places.

But first, let's do the numbers. Dow Industrial is up 317 points today, 7 tenths percent, 44,873. NASDAQ added 38 points, about two tenths percent, 19,692. The S&P 500 found 23 points in the couch cushions, four tenths percent, 6,061. Alphabet reported lower than expected revenues from its cloud computing business. Google's parent also said it plans to invest another $75 billion into its AI business. Alphabet, nonetheless, gave up 7.3%. Today, strong demand for Hot Wheels helped Mattel beat Wall Street's fourth quarter sales

and profit estimates, and it projects higher than expected profits for the fiscal year. Mattel sped up 15.3%. That is a lot. Hot wheels, tell you that. Bonds rose, yield on the 10-year T-note down 4.42%. You're listening to Marketplace. Hey, everybody. It's Kai.

We've got an exciting offer for you now through Valentine's Day. You can show off your love for Marketplace by grabbing an investor t-shirt when you donate $5 a month. Invest in the nonprofit journalism you love and get a shirt to show off your support. Give now at marketplace.org slash donate. This is Marketplace. I'm Kai Rizdal.

With a plea not to shoot the messenger, I note here for the record that tax season has officially started. And however painful they might be for the individual taxpayer, 2025 is going to be excruciating for tax policy. Congress is going to have to decide the fate of some of the 2017 Trump tax cuts, officially the Tax Cuts and Jobs Act, that are set to expire at the end of the year. And given that Congress sometimes needs help focusing, we thought we would give them a hand and take a look at what those cuts have actually meant for this economy.

Stacy Vanek-Smith has the story. Let's be real. Taxes are important. But they're important in a sensible shoes, getting enough fiber in your diet kind of way. I had an advisor who referred to corporate tax as the intersection of boring and boring. This is Eric Zwick, an economist at Chicago's Booth School of Business. And he has spent much of his career at this very intersection. Zwick just co-authored a study on the economic impact of Trump's 2017 tax cuts, which slashed corporate taxes from 35% to 21%. And he found

that companies invested that extra money. Either building a factory or buying a new machine, buying some computers, buying trucks. This is the hope with corporate tax cuts. The companies will take their extra dollars and put them back into the economy. Expand, hire more workers, workers who will pay taxes. It's why the Trump administration said the tax cuts would pay for themselves. And that's just not true at all. Princeton economist Owen Zadar teamed up with Swing to study the impact of the tax cuts. They found that after the 2017 cuts, corporate spending rose between 10 and 20 percent, totaling billions of dollars a year.

But it's not nearly enough to make up for the more than $100 billion per year the government loses because of the lower corporate tax rates. These are enormous and staggering amounts of money. So I would just say focus on the numbers. But nobody is focused on the numbers, because right now everybody's talking about personal income taxes.

That part of the tax cuts is set to expire this year. The corporate tax cuts, they were able to make it permanent. However, the individual tax cuts were too expensive and so for budget reasons had them expire after 10 years. Caroline Bruckner is managing director of American University's Tax Policy Center. She says to keep those tax cuts in place, Congress would have to take action to extend them. Under the bill, almost all of us saw our taxes go down in 2017. And Bruckner's looked at how middle income and lower income taxpayers spent their extra money.

I always ask my students, what do you think people pay for? And they're always like, a trip to Disney or like a vacation. And I'm like, no, these folks are paying off credit card debt. They're paying off medical debt. They are paying rent. Lower income taxpayers tend to have pent up demand, things they need or want, but can't afford. So when they have extra money, they will spend it. And that ripples through the economy. In fact, Bruckner remembers how she spent one tax refund back in the 90s when she was So, when they have extra money, they will spend it. And that ripples through the economy. In fact, Bruckner remembers how she spent one tax refund back in the 90s when she was a poor law student. That tax felt incredibly important to me.

How much was it for, do you remember? $500. You still remember the amount. Absolutely. I was working three jobs and going to school full-time. Now, the economics of income tax cuts is pretty different for wealthier people. Absolutely. I was working three jobs and going to school full time. Now the economics of income tax cuts is pretty different for wealthier people. They don't necessarily have unpaid bills or pent up demand for stuff they can't afford. For higher

earners, extra money will often go into savings. And that doesn't really help the economy. And extending the income tax cuts won't come cheap. The Congressional Budget Office estimates it would cost the government nearly $3.5 trillion over the next 10 years. Economist Eric Zwick expects Congress will have a big fight over this. The big debate, the quote unquote super bowl of tax is going to be played, I like to say, on the field of individual income tax policy. Zwick worries the debate will get political and the boring stuff will get lost. Stuff like how can the government bring in enough money to pay for all the things it wants to

do? That's a question we've been dodging for decades. And the result is a national debt that totals $35 trillion. And that makes our whole economy vulnerable. Add to that President Trump's plan to cut corporate taxes further from 21 percent to 15 percent, and you've potentially got even less money coming in. But balancing taxes and spending isn't some Hail Mary pass, says Zwick. We've done it before. In the late 90s, the U.S. had a vibrant economy and a tax system that raised as much revenue as we were spending. So, yeah, I think the tax system can party like it's 1997.

If there are Prince fans out there, maybe they'll forgive me. I think they will. I mean, who better to spice up a tax conversation, bring a little flair to the corner of boring and boring, then Prince. In New York, I'm Stacy Vanek Smith for Marketplace. Home prices, as I think most people are aware, hit record highs last year. So would-be home buyers are looking where they can for cheaper options.

Rural communities are an increasingly affordable choice. According to a report out of the University of Virginia, 63% of small or rural counties have seen significant growth in that 25 to 44 year old demographic. But living a rural life doesn't look the same for everybody. Here's today's installment of our series Adventures in Housing. Hi, my name is Sarah Jones. I'm Brandon Jones.

We are the Joneses and we live on a floating cabin on Lake Fontana in Western North Carolina. So this is a really beautiful area. We're in the mountains, and so there's a lot of vacation homes. So real estate in general in our areas is not cheap, but then all of a sudden you see these floating cabins. And when I first saw them,

I didn't figure that that was accessible for like a working class person. And then we realized you can live on the water for a fraction of the price that you could live on land so we bought our very first floating cabin for just 22 grand. So we bought our first floating house it was sight unseen we didn't go inside but we knew what it looked like on the outside. And then of course it wasn't livable was definitely a fixer-upper. It was our first tiny home to ever

even try to attempt to build. It was my first anything to attempt to build. Yes, Sarah didn't even know. I had zero experience. I had a screwdriver. She called the Phillips at a star bit. I didn't know. So we spent some money on the renovation,

but even so, we came out better than you would buying even a single wide trailer on land. So there was no comparison in terms of affordability. So the mooring fees on Fontana Lake and our harbor or on the lake in general they range from $450 a year upwards to $5,000 so So you could take one month's worth of rent, mortgage payment in a house with your bills and have a whole solid year on the water. Our front porch looks out over the Great Smoky Mountains National Park.

There's no houses there. We have a million dollar view. So we don't mind paying that $5,000 a year. The first thing that comes to mind for a lot of people would be that this sounds like a really inconvenient lifestyle. And in some ways it is. And where we are on the water, you don't just say, I'm gonna run down to Starbucks

or I might go down and get a burger or I'm gonna stop by the gas station. There is none of that. So it can be inconvenient in some ways, but on the other hand, so is none of that. So it can be inconvenient in some ways, but on the other hand, so many things that are valuable to us became so much more convenient. You know, our free time, we can hop in a kayak right off the front porch or a paddleboard, we can hop on the boat right off the front porch, we can just jump in the water off the front porch. So it made the

inconvenient things convenient and the convenient things inconvenient. Yeah, I would say so, but in a way that was good. It worked out great, conveniently inconvenient. Brandon and Sarah Jones on the waters of Lake Fontana in western North Carolina. Whether you are a shore or a float, share your adventure in housing with us because everybody's got a story. Marketplace.org is where you can do that. This final note on the way out today, I saw this in the Wall Street Journal, good news, bad news on the retirement front.

Data from the Labor Department shows that for the first time, half of private sector workers in this economy are saving for their retirements in 401k plans. However, comma, researchers at Boston College say 40% of the American working population is not saving enough to keep up their lifestyle through retirement. Our media production team includes Brian Allison, Jake Cherry,

Jessen Dueller, Drew Johnstead, Gary O'Keefe, Charlton Thorpe, Juan Carlos Tirado, and Becca Weinman. Jeff Peters is the manager of media production and I'm Kyle Rizdal. We will see you tomorrow everybody. This is APM.