Donald Trump Can’t Dodge the Costly K-Shaped Economy
When Trump was running for a second term, he pilloried Democrats for failing to cut costs and help working families. Now, Trump is the incumbent president. Try as he might, he cannot easily dissociate himself or his party from a costly K-shaped economy. Even after his reversal of tariffs on beef and other food products, most of his levies remain in place, and millions of Americans face year-end hikes in the cost of health insurance. None of his recent programs address the affordability challenge, and his health care proposal could make the situation worse.
Trump got his idea from a fifty-year mortgage MAGA loyalist Bill Pulte, director of the Federal Housing Finance Agency, who reportedly presented it as a way to offer home buyers lower monthly payments. But Pulte appears to have neglected to communicate to the president some relevant facts. Since mortgage holders pay off most of the interest on a loan before they begin to significantly eat away at equity, it may take several decades for someone with a fifty-year mortgage to build up much equity. And, because of the longer term of the loan, they would come with higher interest rates than shorter-term loans. Analysts at UBS Securities calculated that, under Trump’s plan, a typical borrower with a four hundred and twenty thousand dollar mortgage would save one hundred and nineteen dollars a month, but they would pay for an additional twenty years and end up paying twice as much interest.
After widespread backlash over the idea, Trump’s enthusiasm for the idea appeared to wane, and Policy reported that White House officials were furious with Pulte for selling the president “a bill of goods.” Pulte also seemed to be moving backwards. He said the administration is considering another option, “portable mortgages,” which would allow homeowners to move their loan from one property to another. The idea would be to break the current logjam in which many people are reluctant to move because they would have to take out a new mortgage at a higher rate. But Pulte provided no details on how the loan transfers would work, or even whether banks would accept them.
Sending direct payments to households is something Trump has done twice in his first term, during the COVID-19 pandemic. But reviving this idea in the form of tariff dividends is another problematic idea. For one thing, the tariffs don’t generate enough revenue to send two thousand dollar checks. The Commission for a Responsible Federal Budget estimates that the project would cost six hundred billion dollars. So far, Trump’s levies have only brought in about a hundred billion dollars. Given that shortfall, the payments would have to be financed by additional borrowing, which may be why Treasury Secretary Scott Bessent, who has claimed that Trump’s policies would eventually reduce the yawning budget deficit, doesn’t seem very enthusiastic. (Last week he said, “There are a lot of options here.”)
Rising health care costs are a headache for every president, but Trump made the problem even worse by signing the One Big Beautiful Bill Act, which phased out expanded Obamacare subsidies that the Biden administration had introduced during the pandemic at the end of this year. Nine out of ten people who take out insurance on the exchanges have benefited from increased subsidies, and many of them now face the prospect of big increases in their premiums. During the government shutdown, Democrats demanded that Republicans restore the subsidies. In an apparent attempt to deflect blame, Trump endorsed an alternative approach, proposed by Republican Sen. Bill Cassidy: depositing money directly into personal health savings accounts, which people could then use to buy insurance.
Health insurance experts have called the proposal reckless and dangerous. If health savings account payments allowed individuals to purchase any insurance plan they wanted, rather than the plans offered through the Obamacare exchanges, many young, healthy people would likely choose cheaper “junk” plans that don’t cover pre-existing conditions and have limits on the amount they pay in the event of a serious illness. This would harm those with junk policies who would become seriously ill, as well as everyone still relying on Obamacare policies, because proportionately this population would be older and sicker than they currently are. With this deterioration of the insurers’ “risk pool”, premiums would increase even further. Some observers believe it could even lead to the collapse of the system and a rise in uninsured rates.
