Federal statistical agencies (FSAs) produce the gold standard economic data that employers, investors, job seekers, workers, and policymakers rely on to assess the health of the U.S. economy. Today, FSAs face historically unprecedented threats to their capacity and even their independence. This raises the specter of a future where FSA data cannot be relied upon to honestly report whether the U.S. economy is experiencing dysfunction.

This dashboard was initially created to display a range of data not collected or disseminated by FSAs to shed some light on the economy during the pause in federal data collection during the 2025 government shutdown. Now—perhaps even more importantly—it serves to provide an accountability check against efforts to manipulate FSA data in the future.

This set of “next-best” data sources is clearly inferior to the datasets that have historically been collected and analyzed by the nonpartisan, expert professionals who staff FSAs. Among many other relative weaknesses, these next-best data offer no insights on how the economy is affecting U.S. households differently by race, gender, or ethnicity.

Indeed job postings vs. BLS JOLTS

    

Indeed job postings correlate strongly with total job openings from the Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey (JOLTS). JOLTS job openings tend to fall in recessions and rise in expansionary periods.

The Indeed Hiring Lab, the research arm of job search website Indeed.com, publishes a job postings data index that aggregates a complete count of all job postings on the Indeed website. This includes a measure of new job postings, which only counts job postings the first time they are visible. The data—available starting in February 2020—are collected daily and reported as a seven-day average. For this comparison, we take monthly averages of the seasonally adjusted daily data.

In the figure, we show that Indeed new job postings track closely with job openings from JOLTS. The correlation between these measures between February 2020 and August 2025 is quite high (0.95).

While Indeed data are only available for the last five years, JOLTS data go back to 2000 and show a clear relationship between job openings and business cycles. Job openings tend to fall in recessions and rise in expansionary periods. That relationship is clearest in the 2001 and 2007 recessions and expansions, where a fall in job openings preceded the start of the recession.

In the wake of the government shutdown, the Indeed new job postings can give use some information on the state of new positions needed by employers. Moving forward, a strong and sustained divergence of trends between the Indeed and BLS measures could provide a worrying signal of degraded data quality or integrity in BLS reports.

ADP employment vs. BLS private-sector payrolls

    

Monthly changes in ADP employment levels tend to track changes in private-sector payroll employment from the BLS Current Employment Statistics, and both measures show that private-sector employment growth falls in recessions and rises in expansionary periods.

The ADP National Employment Report is a monthly measure of the private-sector labor market based on aggregated payroll data of more than 26 million U.S. workers. ADP Research, a research arm of the ADP payroll processing firm, releases the report monthly. While the report provides much detail of employment by firm characteristics, the topline number in the report is private-sector employment changes, available since January 2010.

ADP employment changes track closely with the Bureau of Labor Statistics (BLS) measure of private-sector payroll employment in the Current Employment Statistics survey, data that is published every month as part of the Employment Situation Summary, also known as jobs day. In the figure, we compare seasonally adjusted monthly changes in employment for each measure smoothed to three-month moving averages. These smoothed changes are highly correlated (0.76).

While ADP data are only available as of 2010, BLS private-sector employment data goes back to 1938 and shows a clear relationship between the number of jobs and business cycles. Employment falls in recessions and rises in expansionary periods. The close relationship between these measures allows us to track any notable and sustained divergence, which would indicate a concern about the quality of government data.

Revelio vs. BLS employment data

    

Revelio Labs generates monthly U.S. employment estimates by counting social networking profiles on sites like LinkedIn. Total nonfarm employment changes from Revelio generally track BLS-based estimates.

Seasonally adjusted and nonseasonally adjusted estimates from Revelio are released monthly by industry, occupation, and geographic region. National data are available as of 2021. The data are normally published the day before the BLS employment report is released. Historically, Revelio’s monthly change usually falls below the BLS estimate, but over relatively short periods of time, the data series do tend to rise and fall together.

Challenger, Gray & Christmas vs. BLS unemployment rate

    

The Challenger job cut report data are somewhat noisy on a month-to-month basis, but spike noticeably during recessions.

Challenger, Gray & Christmas collects its job cut data by tracking public announcements made by U.S. companies in both the private and public sectors. The job cuts can include cuts in multinational plants (i.e., outside the United States). The report has been published monthly since 1994 and is typically released at the end of every month or the first week of the following month. The figure shows that large increases in announced job cuts occur in recessions (and when the unemployment rate spikes).

Of note, the spike in layoffs in spring 2025 was partially driven by announced layoffs in the federal government.

State-level UI claims vs. BLS unemployment rate

    

Monthly changes in unemployment insurance claims track the unemployment rate and provide a useful indication of recessionary periods.

While the U.S. Department of Labor (DOL) aggregates unemployment insurance (UI) claims data and is the source of the national data, it relies on administrative data processed at the state level that are generally posted on state government websites, potentially allowing a real-time accuracy check if concerns are raised about the accuracy of data released through the DOL portal. During the shutdown, the number of initial and continued claims has been updated weekly on the 539 report, a DOL-compiled dataset based on information submitted by state unemployment insurance offices. Right now, the data are only available on a nonseasonally adjusted basis because of the shutdown. The figure displays continued (or insured) UI claims and the unemployment rate, both as 12-month moving averages to remove some volatility and seasonality.

Continued UI claims closely track the unemployment rate: They spike during recessions and fall during economic recoveries. The close relationship between UI claims and the unemployment rate allows us to track any notable and sustained divergence, which could indicate a concern about the quality of government data. More information on the UI claims data, including initial claims, federal claims, and state-specific data, is updated weekly on EPI’s UI claims page.

Google Trends vs. BLS unemployment measures

    

Google Trends provides real-time data on the relative frequency of search terms for a given keyword, category of keywords, or a topic. With the right search terms, we can construct an index that tracks the overall unemployment rate

Google Trends is a publicly available database maintained by Google that provides Search Volume Indices. Search Volume Indices are a measure from 0–100 of the relative search intensity (number of searches for a given keyword divided by total searches) by geographic location and period. The data are updated in real time and are available from 2004 onward.

Google Trends data can be benchmarked to several different economic indicators. In fact, academics have used Google Trends data to “nowcast” GDP, private consumption, unemployment, recessions, and health outcomes. The figure shows the monthly average of select labor market-related search terms and the unemployment rate. The Google Trends relative search frequency for these terms tracks the unemployment rate and spikes during recessions. The close relationship between these measures allows us to track any notable and sustained divergence. Any prolonged increase in the search frequency of these select search terms could indicate a recessionary period.

Economic policy uncertainty vs. recession indicators

    

The economic policy uncertainty (EPU) index clearly responds to business cycle downturns—spiking sharply during the recessions of the early 1990s, early 2000s, late 2000s, and the COVID-19 pandemic.

The EPU index is calculated by Baker, Bloom, and Davis, and their full methodology can be found here. The index aggregates information from three basic components: search results from 10 large national newspapers measuring the volume of news articles discussing economic policy uncertainty; the number of federal tax code provisions set to expire over the next year; and the degree of disagreement among economic forecasters about future levels of key economic variables.

While the EPU is clearly cyclical, it does rise during some non-recessionary periods, most notably in the early 2000s and from 2011–-2013. The early 2000s increase is almost surely driven by the Iraq War. From 2011–2013, a rolling series of economic crises in the Eurozone, as well as short-term extensions of expiring provisions from the tax cuts passed in the first George W. Bush administration explain the spikes. The very large spike in early 2025 was related to the “Liberation Day” tariff announcements.

University of Michigan consumer sentiment data vs. recession indicators

    

Sharp falls in consumer sentiment are often followed shortly by recessions.

The University of Michigan consumer sentiment index has been calculated since 1960 (and has been calculated monthly since 1978). The index is derived from answers to five survey questions that have categorical answers (that is, their questions provide survey respondents with two to three possible responses to choose from, for example, “Would you say that your (and your family) are better off, or worse off financially than you were a year ago?”).

For each question, the University of Michigan researchers calculate a relative score for answers that subtracts the unfavorable responses from favorable responses. The sum of responses is then compared with a base value from 1966.

The index reached lows in 2022 that were comparable with most recessionary periods, despite a very strong economy. The clear explanation for that was the sharp inflation spike in late 2021 through mid-2022. Early 2025 saw similarly low measures, likely driven by concerns over the potential effects of tariffs.

Because the 1966 base year was a long time ago, it seems fair to ask if there are structural changes that might reliably change the level of consumer sentiment over time. For example, if rising inequality (or anything else) made U.S. households consistently less happy about their relative economic situation over time, they might generally have a lower “baseline” level of favorable sentiment.

To assess this, and to evaluate whether the University of Michigan consumer sentiment index might be useful for assessing the broader health of the economy, the figure below shows changes in the level of consumer sentiment and changes in inflation-adjusted personal consumption expenditures (the broadest level of household spending). The theory is that consumers’ sentiment about the economy should correlate positively with their actual spending patterns. The pattern is clear: Changes in consumer sentiment do indeed coincide tightly with changes in consumer spending.

Data Accountability Dashboard

Chicago FED's flow consistent unemployment rate (FCR) vs. BLS unemployment

    

The Chicago Federal Reserve flow-consistent unemployment rate (FCR) combines several sources of labor market data to predict monthly unemployment rates. The Chicago Fed FCR closely predicts the official unemployment rate published by the Bureau of Labor Statistics (BLS).

Twice a month, the Chicago Federal Reserve publishes the Real-Time Unemployment Rate Forecast, which predicts the BLS unemployment rate in advance of its official release. The key ingredient in this prediction is the Chicago Fed’s flow-consistent unemployment rate, which is in turn a prediction of Current Population Survey job finding and separation rates using real-time data like UI claims; Google Trends index for unemployment; Bloomberg consensus unemployment rate forecasts; Indeed and Lightcast job openings; ADP employment levels; weekly Morning Consult unemployment and job search activity; Conference Board labor market differentials; and JOLTS layoffs, discharges, and hiring rates. As a result, the Chicago Fed labor market indicators are partially based on U.S. government data, but they can be extended even in the absence of government data releases.

Key takeaways

• The Child Care and Development Fund (CCDF) was created to provide child care for low-income families while parents work or obtain education and training. But the program is so underfunded that it provides subsidies to just 16% of eligible children. 
• Child care is so costly that a full-time minimum-wage worker in Alabama would need to work 29 weeks, from January to July, and use every penny of their earnings to cover the cost of unsubsidized child care for one infant. 
• The Trump administration is proposing a new plan to divert CCDF funds from current recipients and give the resources to married couples with a stay-at-home parent. This will result in low-income working families losing CCDF funds, leading to increased child care costs for everyone and possibly resulting in the closure of some child care providers. 

Reporting in The New York Times describes an upcoming proposal from the Trump administration to use funds from the Child Care and Development Fund to provide “parent-based child care” in which a married parent could receive financial assistance to stay home to care for their children, while the other parent works. Providing additional income to support economically struggling families, including support for family members who want to be full-time caregivers for children, is a great idea. Pulling the funds to do so from the Child Care and Development Fund is not. 

The CCDF was created in the 1990s to provide child care subsidies for low-income families, so parents, primarily mothers, could work or go to school. The program is severely underfunded, however. It serves just 16% of all eligible children and just 17% of eligible children, age 5 and younger. That leaves hundreds of thousands of eligible children sitting on waitlists. Worse, some states don’t maintain a waitlist or have simply implemented an “enrollment freeze,” turning eligible applicants away rather than adding them to a waitlist. 

Who are the families that rely on subsidized childcare? 

Not adequately funding the CCDF hits low-income families, families with infants and toddlers, and families headed by single parents the hardest. To even be eligible for the program, federal criteria require families to earn less than 85% of the state median income. And states can make the income requirement even more stringent. For example, in seven states, a family with an income above 150% of the poverty line—just 47% of the state median income in Florida or 41% in Ohio—would not qualify for child care assistance. In 20 states, a family with an income above 200% of the poverty line would not qualify. This is just 55% of the state median wage in Michigan. 

The most recent data on the characteristics of families served by CCDF show that in 2023, 82% were headed by a single parent. In many states, an even larger share of families participating in the CCDF program are headed by single parents: 95% in Alabama, 93% in Illinois, North Carolina, and Ohio, and 92% in Pennsylvania. These are families with little choice but for the head of household—mothers in 75% of cases—to engage in formal employment if the family is to survive.

Then there are parents of infants and toddlers, pre-school-age children for whom child care is the most costly. The program provides subsidies for children up to age 13, but younger children are more likely than older children to receive subsidies. This reflects the fact that infants and toddlers have the greatest need for care, but parents often face a shortage of affordable qualified providers. This is in part due to younger children requiring more qualified providers than older children require and smaller child-to-staff ratios. In a Pulse Household Survey, 15% of all parents reported not working because they were caring for children, but for parents of the youngest children aged 0 to 4, it was 35%. 

Consequences of moving forward with the Trump–Vance plan

If married couple families are added to the list of eligible families without substantially increasing funding to provide subsidies to all eligible families, as is reportedly proposed, it will do significant harm to families of all types, whether they are married or not and whether they rely on subsidies or not.

With the new strain on available funds, families currently relying on the CCDF could lose the subsidies that allow them to provide even a modest living for themselves and their children. Without the subsidized care provided by the CCDF, these families could work full-time for most of the year just to pay for child care. In Alabama, for example, a minimum-wage worker working full-time would have to work 29 weeks—the equivalent of working from January to July—and use every cent of those wages to be able to cover unsubsidized child care for one infant. In North Carolina and Ohio, these workers would need to work from January to October. 

These are parents who want to work to support their families but cannot afford unsubsidized child care. They also cannot afford not to work.

Reducing the availability of child care funding for working mothers and fathers will not only hurt families who rely on child care subsidies, it will hurt all families who rely on child care. Siphoning these funds away from working families—disproportionately Black single mothers—will also deprive child care providers of a key source of revenue, potentially leading them to charge other families more for care, be forced to shed staff, or even close down. With families in so many communities across the nation already experiencing a child care crisis, this would exacerbate the shortage issue. 

We should fully fund the CCDF and provide needed support to all families

So many American families are already struggling to pay for the basic necessities, including rent, food, and gas. In an economy that requires dual-earner households where possible, child care subsidies provide struggling families with some basic support at a time when prices continue to rise, and safety nets, including health care subsidies, food assistance, and even heating assistance, continue to be cut. It’s notable that instead of providing real solutions to the affordability pressures many Americans face, Vice President Vance—who has championed this policy—and Trump’s Department of Health and Human Services are proposing what is effectively an attack on single parents, working parents, and working women in an effort to center married households and to push a political and cultural agenda about supporting supposedly “traditional” values. We must invest in families, regardless of their composition—married couples, single mothers, or grandparents caring for their grandchildren. We should fully fund the CCDF to ensure all eligible families are supported. 

Key takeaways

• Years of government funding cuts are undermining the U.S.’s position as a global leader in providing the reliable statistical information that businesses and policymakers need for sound decision-making.
• The Trump administration has accelerated the funding cuts and worked to degrade the effectiveness and independence of data-collecting agencies.
• The Bureau of Labor Statistics (BLS) is a prime example of an agency whose data collection in areas like employment and wages is integral to our understanding of the economy’s health and whether it is heading into a recession.
• A decline in response rates to one of the BLS’s key surveys was already underway but, absent funding increases and survey modifications, it will be harder for economists and policymakers to make timely sense of changes in the labor market.

Historically, the U.S. has been a leader in providing reliable and timely statistical information to support business strategy and policymaking. The value of information provided publicly and free of charge to businesses, households, and governments is immense. Yet underinvestment over the past 15 years is a key reason why the U.S. lost its position on the cutting-edge of public statistical services worldwide.

Since the beginning of the second Trump administration, this underinvestment has accelerated, and the administration has made intentional efforts to degrade the effectiveness and independence of the federal statistical agencies (FSAs). This accumulation of threats to the effectiveness of the FSAs will rapidly degrade the value of the key public good they provide, unless policy changes course sharply.

This blog post provides just one example of how cumulative underinvestment has blocked the ability of a key FSA to respond to developments, making its data less reliable over time. The Bureau of Labor Statistics collects a range of necessary data tracking the performance of the U.S. labor market. This BLS data are a key input into high-stakes decisions across the U.S. economy—including for both public and private actors. For example, the Federal Reserve relies on BLS data about unemployment rates, payroll job growth, wage growth, and price indexes to set monetary policy. The more volatile the BLS data are from month to month, the worse the information that guides Federal Reserve decisions.

Private industry also relies heavily on these statistics. A 2018 survey conducted by the National Association for Business Economists found that 95% of businesses responded “yes” to the question: “Are government data important for analyses and forecasting that drive business decisions?” Employment and unemployment data produced by the BLS were rated as the most important data source for informing business decisions.

Yet over the past 15 years, the BLS has gradually lost personnel and funding, which has been undermining their mandate of producing timely, accurate statistics on wages, prices, and the labor market. More recently, the Trump administration’s choices to freeze BLS hiring has further strained Census field staff charged with collecting household survey data. Worst of all, the Trump administration took the unprecedented step of firing the commissioner of the BLS simply because the agency accurately reported data that the administration happened to find politically inconvenient.

Even without further blatant political pressure on the BLS’s independence, the agency will encounter growing difficulty in doing its job effectively in coming years. One of their most important efforts is the fielding of the Current Population Survey (CPS), a survey of thousands of households across the U.S. taken every month, which provides detailed employment and wage information. The CPS is the source data for the monthly estimate of the nation’s unemployment rate, for example. This is in turn a key criterion for assessing whether the economy is heading into recession. In recent years—after the COVID-19 pandemic—the response rates for the CPS have sharply declined. These declines, if not countered with greater investment in response rates, may make it harder for economists and policymakers to make timely sense of changes in labor market, particularly for populations that already have small sample sizes, such as rural areas or detailed demographic groups.

The rest of this blog post highlights the problem of falling response rates, demonstrates that they have made some labor market measures more volatile month to month, and shows that these falling response rates have occurred over the same period as the retrenchment in resources for the BLS.

Nonresponse reduces sample size in the Current Population Survey

The Current Population Survey asks questions about employment and other labor market characteristics to 60,0000 households or about 110,000 individuals every month. Between 2005–2016, the Current Population Survey household survey was able to steadily receive responses from around 107,000 people, ages 16 and older. However, as noted by others and shown in Figure A, the number of households responding to the survey has declined since the mid-2010s and then fell precipitously after the COVID-19 pandemic. In the first few months of 2026, just over 75,000 individuals, ages 16 and older, had responded to the monthly CPS.

Figure A

The decline in response rate has likely occurred for a few reasons. The Bureau of Labor Statistics notes that the rate of refusals had been increasing as early as the 1990s, likely as the world became more connected with computers and the internet, leading to less reliance on in-person interactions to conduct business. Social trust has also gone down over the past few decades, and the share of adults who agree that “most people can be trusted” has decreased by more than 15% since 1984.

More recently, the COVID-19 pandemic, coupled with concerns for privacy and distrust in the government, may be the reason that the rate of decline grew in recent years. The COVID-19 pandemic forced many workers to transition to remote work, and concerns about contagion limited overall social interactions, making response collection increasingly difficult. Additionally, concerns about privacy or retribution from the state felt by groups like immigrants may make some people more reluctant to answer questions for fear of deportation. 

Finally, distrust in the federal government, fueled by recent overtly political activity, could be behind some of the reduction in response rates. For example, when the Bureau of Labor Statistics published two consecutive months of large negative revisions to the number of payroll jobs in mid-2025, the Trump administration leveled charges—which were baseless and never backed up by any evidence—that the BLS had manipulated the data for political purposes and fired then Commissioner Erika McEntarfer. People are less likely to trust government if they think publicized information and facts are politically motivated. 

Smaller sample sizes are linked to less precision in key labor-market estimates

If the size of sampled households is large enough, declining participation does not have to significantly affect the reliability of statistics produced from the survey. However, if declines in participation reduce usable sample sizes too much, this can lead to estimates with less precision, which can reduce researchers’ ability to parse a signal from statistical noise in a timely manner, especially for economically vulnerable groups.

For example, because the unemployment rate for Black workers is volatile, it can be difficult to accurately diagnose labor market softness for this group. If the sample size is too small to generate statistical precision in each month, researchers will require increasingly more months of data to be able to diagnose labor market softness, which could jeopardize the timeliness of proper policy responses to support the labor market.

Every month, the Bureau of Labor Statistics publishes statistical significance summary tables, identifying whether changes in labor force indicators are statistically significant at the 90% level. BLS publishes these statistical significance tests for dozens of indicators across several demographic groups, including for Black workers. We collected these tables over time and documented the margin of error needed in order to claim a 1-month change in unemployment was statistically significant, shown in Figure B.

While the margin of error that is needed to claim a change is statistically significant varies with the level of unemployment rate, the reduction in precision from lower response rates is evident when we hold the unemployment rate constant. The two red lines in Figure B identify the effect size needed to claim statistical significance for a change from a starting unemployment rate of 7.3%. In November 2017, when the sample size of the labor force was 63,346, a 0.66 percentage point change in unemployment would have been considered a statistically significant change. In April 2026, when sample size of the labor force decreased to 45,416 respondents, a 0.84 percentage point change in unemployment is required to claim statistical significance.

If the declines in survey participation are not random across the U.S. population, estimates may also be biased, which runs the risk of conveying inaccurate information about the state of the economy. For example, if nonresponse is more likely to occur among unemployed respondents compared with employed respondents, the statistics derived from these samples may suggest labor market softness when there is none. These concerns are already materializing: The Census reported that nonresponse had biased income statistics from the CPS Annual Social and Economic Supplement upward by 2%–3% since 2020.

Researchers and field staff at Census and the BLS are aware of potential concerns of bias in their estimates and do their best to weight estimates using population counts from administrative data and other sources so that these issues don’t happen. However, if sample size declines continue on this trajectory, the BLS will need to create new methodologies and sampling strategies, all of which will require funding.

Steady throttling of BLS funding makes all decision-makers—public and private—less well informed

The declining precision of estimates in the Black unemployment rate is just one of the key indicators affected by a BLS that lacks resources to respond effectively to growing data collection challenges. Achieving a larger sample size for key surveys requires a well-functioning and well-funded BLS with personnel who can take on the challenges of administering surveys in the 21st century. Yet this is the exact opposite of what is happening. Figure C shows that from 2005 to the present, the staffing at the BLS went from roughly 2,500 employees to just over 2,150, a drop of about 15%.

Figure C

Funding has followed a similar trajectory. Since its high-water mark in 2010, the BLS budget has declined from $810 million to $636 million in inflation-adjusted terms, a decrease of 20%. These cuts don’t hurt just the estimates generated by the Current Population Survey. In the past couple of years, the BLS has been forced to reduce data collection for the Consumer Price Index and to discontinue certain Producer Price Indexes in an effort to cut costs. At a time when affordability and price changes are top of mind for U.S households and businesses, depriving public and private decision-makers of accurate and timely information about prices makes little sense.

Increased funding would allow the BLS to maintain all their current functions and implement new procedures to address declining sample sizes. In 2023, BLS began to modernize the collection process of the CPS to improve response rates by allowing online self-completion of the survey and other collection process improvements for certain data products. This BLS initiative is happening in parallel to similar initiatives in several other countries undertaking modernization efforts. The United Kingdom, the Netherlands, Australia, and Canada have all received funding to launch similar modernization efforts for their own household surveys to address declining response rates. However, the BLS requests for increased funding for the modernization efforts have not been fully granted.

The decision to steadily defund the BLS is especially striking when weighed against the large economic benefits provided by the agency and other federal statistical agencies. The BLS provides up-to-date precise estimates of economic indicators that policymakers and business leaders alike rely on. Previous research finds that increased economic uncertainty can have negative effects on the economy, proving the important role that the BLS plays. Moreover, some economists have estimated in 2025 that the BLS generates economics benefits of about $25 for every $1 spent on the agency’s budgets. The 2025 FY BLS budget was approximately $636 million, meaning the BLS currently generates about $15.9 billion in economic benefit. Across all agencies, in FY 2022, the combined budget request for statistical agencies was $7.1 billion or 0.3% GDP, yet the benefits have been measured to be around $770 billion.

Conclusion

At a time when more information on the economic and social well-being of people and communities is needed, not less, funding the BLS should be a top priority. Addressing nonresponse will require substantial effort and creativity to counteract declining levels of social trust and anti-government sentiment. It will, for example, require public campaigns to convey that information provided to the BLS is confidential and safe, and changes in methodology to render the correct statistical adjustments, such that the statistics generated are unbiased. 

Rather than tackle these challenges head on however, the Trump administration put forward a proposal that would reduce the number of statistics about rural and less populous substate areas that could be published without running the risk of disclosing personally identifiable information. These proposals are a lazy solution to the real but solvable problem of making public data widely available and fully confidential. They would provide less information on the economic and social well-being of citizens, likely leading to delays in accurately diagnosing economic and social problems.

When agencies like the BLS are underfunded and understaffed, they aren’t able to conduct the critical functions of their agency or serve the public to the degree their mission entails. Funding for these organizations shouldn’t be up for debate, given how strong of an economic benefit they deliver.

Key takeaways

• The 2025 Census data on earnings, income, and poverty may reflect how the Trump administration’s policy choices were beginning to impact the economic well-being of workers, families, and children last year.
• Last year’s economy was characterized by slowing job growth, rising wage inequality, and growing policy uncertainty. We expect to see little to no improvements in key economic indicators such as lower-end household income and supplemental poverty rates between 2024 and 2025.
• The 2026 story is still unfolding and is likely to be worse, given these factors: decelerating nominal wage growth, higher inflation, and the 2025 budget reconciliation law that will leave more families and children vulnerable to poverty.

Next week, the Census Bureau will release the latest data on earnings, income, and poverty for 2025. This data could show early signs of how the Trump administration’s policy choices impacted the economic well-being of workers, families, and children across the country. The initial strong recovery from the pandemic recession measurably slowed in 2025 as the labor market softened and the policy climate grew more uncertain. To help place the upcoming data release in context, we highlight key trends that have characterized the economic and policy landscape in 2025. Though the economy continued to soften as inflation worsened in 2026 and the safety net grew increasingly more difficult to access as a result of the Republican Budget Reconciliation Law, the data in the Census will only provide specific insights for living standards in 2025.

In summary, we find:

1. 1. The U.S. economy in 2025 grew more slowly than in 2024, adding fewer than half as many jobs—only 764,000 jobs compared with 1.825 million in 2024. The unemployment rate slowly rose over the course of 2025, and the hires rate was depressed, making it harder for young people in particular to break into the labor market. While the prime-age employment-to-population remained relatively resilient to labor market softening, prime-age Black workers experienced large declines in their employment rate.
   2. With more moderate inflation, strong nominal wage growth translated into decent average hourly wage gains between 2024 and 2025, but gains were not shared equally. Lower-end wage growth stalled in 2025, which could have implications for lower-end incomes and poverty rates.
   3. Because the Republican budget reconciliation law is making basic needs programs like SNAP increasingly more difficult for families to access, we don’t expect to see any significant improvements in supplemental poverty between 2024 and 2025. We expect to the see the full impact of the Republican law in the years ahead.
   4. While the release will only provide data for 2025, our examination of the economic and policy landscape for 2026 suggests that a weaker job market, safety net cuts, and high inflation will worsen outcomes.

The labor market recovery softened in 2025

Because the vast majority of people in the United States rely on labor market income for their economic well-being, the labor market data we already have for 2025 should provide some insights into what the Census data may tell us. Overall, job growth has slowed, and the unemployment rate has ticked up as employment rates softened, particularly for certain demographic groups.

After the tremendous rebound from the pandemic recession, the labor market cooled somewhat. Payroll employment growth went from 3.3 million in 2023 to 1.8 million in 2024 and then 764,000 in 2025. A slowdown would be expected after such a strong recovery, and the number of jobs needed to keep up with population growth declined with lower net immigration in the wake of Trump’s draconian mass deportation policies. Nearly 100,000 federal jobs (96,000) were lost in the massive DOGE cuts (when comparing annual averages, which obscure more massive downward trends later in the year), and even manufacturing employment faltered in Trump’s first year, falling by 156,000 jobs between 2024 and 2025. If not for job growth in health care and social assistance, overall payroll employment would have fallen outright.

This weakening led to a mild increase in the unemployment rate, from 4.0% to 4.3% between 2024 and 2025. Figure A displays the change in some key labor market indicators for certain demographic groups. While the overall unemployment rate rose modestly, the increase was far greater for young workers, ages 16 to 24. It’s likely that the depressed hires rate has made it harder for young workers to break into the labor market. Older workers experienced much milder increases in their respective unemployment rates.

The share of the population with a job—the employment-to-population ratio fell from 60.1% to 59.7%, a drop of 0.4 percentage points. Prime-age workers—those between 25 and 54 years old—were more resilient to the labor market softening. However, prime-age Black workers experienced a tremendous decline of 1.3 percentage points between 2024 and 2025. This weakness may show up in the income and poverty data released next week. At the same time, prime-age Hispanic workers experienced an increase in their employment-to-population ratio.

Figure A

Wage inequality increased in 2025

Employment changes alone have important implications for family and household income, but wages are also an important part of the economic story. Figure B illustrates several key price and wage changes between 2024 and 2025. Though the economy was a bit weaker, the labor market delivered strong nominal wage growth for private-sector workers, measured by the Current Employment Statistics. Nominal average hourly wages increased 4.0% between 2024 and 2025. Inflation moderated—remember this is before the spike in 2026—and therefore, real hourly wages rose a modest 1.5%.

Unfortunately, the gains were not broad based. Unlike the faster wage growth among lower-wage workers through 2024, lower-end wage growth stalled in 2025. While the fall wasn’t large, it reversed the trends experienced between 2019 and 2024. The stair-step increase in wage growth, as shown in the right half of Figure B, suggests a return to a K-shaped recovery, wherein higher-wage workers experienced much faster wage growth than those at the middle or the bottom. While stronger average wage growth and modest median wage growth may suggest modest improvements in median household income—though tempered by slower job growth—weaker low-end wages may translate into losses for lower-income households and possibly rising poverty rates, particularly for groups hit hardest by falling employment.

Figure B

Republicans weakened SNAP last year and any chance at poverty alleviation in the years ahead 

The end of the expanded social safety net in 2022 eroded all of the gains in poverty reduction experienced between 2020 and 2021. Since 2022, poverty has continued to climb. This unfortunate trend in poverty is unlikely to reverse course in the latest Census release for 2025. This is partly because the Republican budget reconciliation bill signed into law by President Trump in July of last year significantly cut and limited access to basic needs programs like SNAP, one of the most successful programs in our country’s fight against poverty and hunger. Because the implementation of these changes and spending cuts is still ongoing, we are unlikely to see the full impact of the Republican law in next week’s data.

In 2024 alone, SNAP lifted more than 3.5 million people out of poverty. Nearly 40% of these individuals were children (see Figure C). In fact, both SNAP and the National School Lunch Program (NSLP), which provides reduced-cost or free lunches to low-income children in public and nonprofit private schools, lifted more than 2 million children out of poverty in 2024. After refundable credits, these programs, along with Social Security, make up the most effective anti-poverty strategies for children in the United States.

Figure C

Instead of strengthening the country’s nutritional assistance programs to improve access and the adequacy of benefits amid growing food insecurity, the Republican reconciliation package cut funding for the U.S. Department of Agriculture (USDA), imposed strict and costly work requirements, and eliminated waivers for areas with chronically high unemployment. The ongoing implementation of some of these changes, including factors associated with staff limitations, has led to a decline in SNAP participation by more than 4.5 million people. This drop will not be entirely reflected in the upcoming poverty statistics since some of this decline occurred in 2026. Yet the cutting back of resources for USDA and SNAP initiated by congressional Republicans and the administration will continue to translate into higher poverty rates and increased food insecurity, as states struggle to implement the costly and harmful changes now required by the new law.

The administration has also taken steps to ensure that we don’t have the data we need to trace the painful impact of these changes on food insecure families. In September 2025, Trump’s USDA canceled the country’s leading survey that documented the magnitude and severity of hunger and food insecurity in the U.S. They claimed that the USDA survey and report  were “redundant” and “politicized.” Soon after this, the administration allowed SNAP benefits to lapse for the first time in the history of the program, while at the helm of the longest full government shutdown in U.S. history, lasting 43 days and creating a chaotic situation for SNAP beneficiaries, many of whom needed to turn to food pantries for help. 

As we will be reminded when the Census releases its poverty statistics for 2025, the impact of all these harmful policies hit Black and brown families with children particularly hard. This is because families of color are disproportionately more likely to rely on SNAP to avoid food insecurity, and children of color are also more likely to be burdened by poverty than their peers.

In 2021, the United States demonstrated to the world that it had the capacity to reduce poverty to historically low levels by expanding access to SNAP and other basic needs programs. In 2025, Trump and congressional Republicans showed the world that they were willing to gut basic needs programs to pay for tax cuts that disproportionately favor the wealthy. We should not be surprised when we fail at poverty reduction in the years ahead.

Next week’s data will be about the economic story of 2025. The 2026 story is still unfolding and is likely to have a worse ending.

As noted earlier, the earnings, income, and poverty statistics the U.S. Census will publish next week are for 2025. While we don’t yet know the full economic story for 2026, it is unlikely to be a more promising one. This is because the slowdown in job growth that began in 2025 has further solidified throughout 2026. This weaker job market continues to be particularly harmful to Black and young workers. The softer labor market in 2026 has also coincided with worsening inflation. Higher inflation is largely due to Trump’s ongoing war in Iran, which has already wiped out 1.5 years of real wage growth in a matter of months.

The policy landscape for 2026 also looks bleaker. The spending cuts to the U.S. social safety net that Trump signed into law in the summer of 2025 will continue to hurt the ability of families to access basic services like Medicaid and SNAP. This will leave increasingly more economically insecure families vulnerable to poverty and unnecessary hardship in the face of a worsening affordability crisis.

The latest SHED survey also shows that the harm caused by the administration’s economic chaos has not affected all people equally. Structural inequities embedded in the U.S. economy and labor market have historically left communities of color disproportionately vulnerable to economic insecurity and poverty, and the Federal Reserve’s survey shows that this trend is continuing. While the overall financial well-being of most adults held steady in 2025, the financial well-being of Black adults declined. These individuals were also more likely to experience layoffs, leaving a higher share of Black adults and their families with increased fear of finding or keeping a job in 2025. The added employment uncertainty of Black adults also left them significantly more likely to report major concerns about making ends meet. The survey also shows that education largely failed to protect these individuals from the experience of increased economic fragility.

Black adults find themselves in the worst financial position in nearly a decade

In 2025, Black adults were most likely to report a decline in their financial standing. The share of Black adults “doing okay” or “living comfortably” declined by almost 5 percentage points last year to 60% (see Figure A). This is the lowest figure the Survey of Household Economic and Decisionmaking survey has recorded since 2015. The 2025 figure also reflects a steep decline from the high of 2023, when nearly 68% of Black adults answered questions about their financial well-being positively. We find that the bulk of the decline last year took place among the individuals who reported “living comfortably,” as this share declined from 23% in 2024 to 19.0%.

Figure A

Higher education largely failed to protect Black individuals from added financial insecurity under the Trump-Vance economy. While nearly all Black adults with varying levels of education experienced a deterioration of their financial position last year, the situation of adults with a college education worsened the most (see Figure B). The share of these individuals doing okay or living comfortably, for example, declined by nearly 7 percentage points last year.

Figure B

Black adults were more likely to experience a sharp increase in layoffs last year

By summer 2025, job growth had slowed considerably, and Black workers were among the first to experience this slowdown with a rising rate of unemployment. The uneven impact of these debilitating forces last year comes across clearly in the Federal Reserve survey. The share of Black adults who reported experiencing a job loss increased by about 3 percentage points between 2024 and 2025 (see Figure C). This reflects the largest increase among all racial and ethnic groups. In fact, Black adults were more than twice as likely as their white, non-Hispanic peers to report layoffs last year. This reality aligns with the broader labor market position of Black workers, who experienced a steeper rise in their unemployment rate in 2025 and who remained about twice as likely as their white peers to be unemployed. 

Figure C

As the pace of job growth slowed and the unemployment rate rose in the first year of the Trump-Vance administration, people’s concern with finding or keeping a job increased. But this increased employment vulnerability and insecurity fell most heavily on Black individuals and their families (see Figure D). More than half of Black adults said that finding or keeping a job was either a minor or major concern for them or their families last year. This figure increased by nearly 10 percentage points between 2024 and 2025. In fact, Black adults of all education levels reported increased concerns about finding or keeping a job last year. 

Figure D

Black adults and their families have grown increasingly more concerned about their economic security

The added employment vulnerability, combined with the impact of the ongoing affordability crisis, has also left more Black individuals and their families worried about their ability to make ends meet. More than 3 out of 4 (77.5%) Black adults reported that making ends meet was at least a minor concern for them and their families last year (see Figure E). This figure increased by about 8 percentage points between 2024 and 2025, leaving Black adults of all education levels more economically vulnerable last year. In contrast, the share of white, non-Hispanic adults who reported similar concerns declined marginally during the same period.

Figure E

We cannot address the affordability crisis without dealing with its root causes

The Federal Reserve survey points to the relationship between employment, economic security, and well-being. The uneven impact of the weaker job market last year resulted in increased employment and economic uncertainty for Black adults and their families. The survey findings are a reminder that ongoing discussions about the affordability crisis shouldn’t ignore the role of employment, wages, and income. Affordability remains an outcome of a race between income and prices, and we know that the pace of job and wage growth is a policy choice. While there is no silver bullet, we know that a broad basket of policies is needed, including a higher wage floor, increased union density, and macroeconomic policies that reduce inequality.

In the last two years, Republicans in Tennessee have attempted to push legislation that would violate Plyler to set the stage to challenge the court decision (although neither proposal passed). Last year, the state proposed charging undocumented students tuition for public schools, and this year, Tennessee attempted to pass legislation to track the immigration status of all public school students.

The 1982 ruling of Plyler v. Doe is notable because it stated that the harm of not educating undocumented children would be worse for society than providing a basic education to all children in the U.S. The ruling recognized the huge positive spillovers public education has on the U.S. labor market, public health, and civil society and that leaving immigrant children out of public education would create an “underclass” in U.S. society.

Moreover, if the move to deny public education to children in the U.S. is successful, particularly in pockets of the country where immigrant children are a substantial share of the student population, it will lead to an extraordinarily high cost for the students who remain in public school.

Some school costs are hard to adjust, regardless of the number of students

Across the country, an estimated 17% of school-aged children live with at least one noncitizen adult, according to the Kaiser Family Foundation. If these students were to leave suddenly, schools would be left to educate a fewer number of kids without any time to adjust their fixed costs. For example, when Alabama passed an immigration data collection law, more than 13% of Hispanic schoolchildren withdrew from classes.

At first, it would seem that reducing enrollment would reduce both total revenue and the number of students needing educational services proportionately, which should leave the schools’ ability to provide education unaffected. But schools can’t adjust every educational cost quickly: School bus routes still need to circulate to all stops, even if there is one fewer child in need of transit; buildings need to be heated and cooled, even if classroom size goes down; and guidance counselors and support staff are still required to support the remaining students.

School districts will pay more per pupil if student enrollment declines because of immigration enforcement

Since these fixed costs can’t be adjusted in the short run, when total revenue declines due to families’ fears of deportation, districts are stuck paying more per pupil on costs they can’t adjust. Effectively, native-born students who remain in public schools receive no additional benefit when immigrant students are denied services and rights. Districts instead will be paying more on costs that can’t be adjusted and getting less on the costs that can be adjusted for fewer students.

Calculating the cost under two different scenarios

We call all the costs of downward adjustment that occur when enrollment is reduced the fiscal externality. This means the per-pupil funds each district would require to maintain the same level of spending for remaining public school students due to a rapid decline in enrollment. This cost is entirely borne by state and local education budgets and leaves districts unable to deliver the same level of instruction to the remaining public-school pupils.

For districts with a large share of school-aged children in immigrant families, the costs of losing these students could be substantial. Table 1 shows the top-25 school districts, based on the number of K–12 students that are in immigrant families and the corresponding fiscal externality for two scenarios. In the first scenario, half of these students stop attending public school (referred to as the lower bound in the table). In the second scenario, all of these students stop attending public school (referred to as the upper bound in the table).

<

The implications of a reversal of Plyler v. Doe or any type of policy restricting immigrant children’s access to public education would be extreme for these districts. In Houston, Texas, where 62% of students in the school district are Hispanic, we estimate that nearly 63,000 students may live in a household with immigrants and as such, might be vulnerable to dropping out of school due to anti-immigration efforts. The lower bound shows the costs if half of these students stopped showing up. Houston School District would have to reduce services by $1,654 for each remaining (and disproportionately native-born) public school student. This decline translates to a total fiscal externality of $268 million a year, or 11% of the total budget for the school district.

The extraordinarily high cost to native-born students of losing students in immigrant families due to anti-immigrant policies highlights the hypocrisy in the anti-immigrant movement. If all students in immigrant families stopped attending public school tomorrow, not only would those students suffer from the lack of public education, but the quality of public education would be much worse for the remaining students in those same schools. In short, no one wins. When the costs are tallied up, it’s clear that these policies are not about improving education quality for native-born students, but instead are malicious attacks on the institution of public education in the U.S.

Since the second Trump administration swept into office in January 2025, it has undertaken a range of damaging and destabilizing actions that have weakened the economy, undermined workers, hurt businesses and consumers, and threatened core elements of our democracy. While Trump has targeted numerous Democratic-led states and cities, the Washington, D.C., region has faced acute and prolonged harms since day one. From the first set of executive actions signed on Inauguration Day, the Trump administration has attacked people and businesses in the capital region repeatedly and intensely. These initial actions announced the president’s dubious claims of authority to fire large segments of the federal workforce, eliminate long-standing federal agencies and programs, and begin a campaign of illegal and inhumane mass deportations.  

The Trump administration’s damaging actions have been enabled and abetted by Republican members of Congress. Their passage of H.R. 1, the bill that the White House has referred to as the “One Big Beautiful Bill Act” (OBBBA), amplifies the administration’s mass deportation agenda and shreds critical health care and food supports for lower-income families to finance tax cuts for the wealthy. This funding bill will only cause more pain in the years ahead for Washington, D.C.-area households and throughout the country.

Congress also passed a federal spending bill that constrained the District of Columbia’s ability to spend its own tax revenue (Koma 2025) and a resolution that may force the district to adopt local tax code changes that match the OBBBA, whether the city wants to or not—changes that will jeopardize hundreds of millions of dollars for city programs (D.C. Fiscal Policy Institute 2026).

In this report, we assess the early indicators of the damage of Trump’s actions and their effects on the Washington, D.C., regional economy, with particular attention to effects on workers and the labor market. We focus on this region due to its prominence as an early target of the Trump administration, in part due to its large federal workforce. Additionally, the district’s unique status as a non-state means that its leaders have far less legal authority to resist Trump’s interference than other target areas do.

Throughout this report, unless otherwise indicated, the data describe economic conditions for the Washington, D.C., metropolitan statistical area (MSA), which includes the District of Columbia, four nearby counties in Maryland, six cities and 11 counties in northern Virginia, and one county in West Virginia. We also refer to this region as the DMV (Washington, D.C.; Maryland; and Virginia). While we do not yet have the requisite data to fully and precisely document all the effects of the administration’s actions, we can see clear signals that the regional economy is already struggling, with more severe impacts likely to register in the data soon.

We then explore some of the factors that make other regions particularly vulnerable to significant economic harm from the Trump administration’s agenda. These include counties with large concentrations of federal workers, areas where federal transfer income (such as Medicaid and Social Security) makes up a significant portion of the region’s economic base, and places with significant immigrant populations. Though Trump has largely targeted prominent, Democratic-led areas, many of the regions most susceptible to the harmful economic consequences of the administration’s actions are rural counties, frequently represented in Congress by Republicans.

Trump’s actions in Washington, D.C., have led to reduced employment and rising unemployment

The clearest sign of the harm that the Trump administration’s actions have done to the Washington, D.C., regional economy is the substantial drop in the region’s employment rate. Based on EPI analysis of Current Population Survey data from the Bureau of Labor Statistics, from December 2024 to December 2025, the share of the regional working-age population with a job fell by 3.2 percentage points.1 As shown in Table 1, this compares with a decline of just 0.4 percentage points for the country over the same period. Among prime-age workers (those ages 25–54), the share employed in the DMV fell by 2.7 percentage points, compared with a decline of just 0.1 percentage points for the country overall.

This dramatic drop in regional employment is a direct result of the Trump administration’s relentless attacks on federal government workers, cuts to federal programs and agencies, and their cascading effects on connected regional industries. Prior to Trump’s taking office, federal employees made up 11.2% of the metro area’s total workforce (BLS-CES-SAE 2025).2 Between the end of 2024 and 2025, federal employment in the DMV region fell by more than 53,800 jobs (-14.2%) (BLS-CES-SAE 2026).3 These losses reverberated through the regional economy as affected households pulled back on spending, and many may have even opted to move, as data show the DMV region had the largest increase in home sale listings of any major metro last year (Brookings Institution 2026).

These significant cuts to federal employment, though highly damaging on their own, are only the first layer of the administration’s harm on the regional labor market. The DMV has a non-federal workforce of over three million people (BLS-CES-SAE 2026), many of whom work at firms that consult with, contract with, are funded by, or are otherwise connected to the government.4 The Trump administration has terminated thousands of grants to scientific research institutions (Kozlov, Tollefson, and Garisto 2026) and frozen or delayed funding for tens of thousands of nonprofit organizations, causing those targeted to limit operations or lay off staff (Tomasko et al. 2025). These cuts have also shrunk the funding pool for nonprofit groups, causing budget challenges even for those not previously receiving federal funding, as they must compete with groups previously funded through federal programs that are now scrambling to fill gaps with private support (Barrett 2025). The administration has also moved to cancel contracts with any company that maintains a commitment to DEI standards (Singh 2026). Although these cuts affect organizations everywhere, the DMV is disproportionately vulnerable to the economic harms of attacks on this sector as it has one of the highest concentrations of nonprofits in the country (Friesenhahn 2025). This is evident in the region’s slight dip (-0.3%) in private-sector employment from December 2024 to December 2025, a change from the consistent, albeit slowing, growth that had marked the years following the COVID-19 pandemic. At the national level, private-sector employment experienced slow but still positive change (0.5%) over the same period (BLS-CES-SAE 2026).5

The widespread impact of the administration’s actions can be seen in the breadth of employment declines across racial, ethnic, gender, and age groups in the region. As shown in Table 1, the employment rate fell by at least 2 percentage points for every demographic category of workers in the DMV. Notably, young workers under age 25 (-4.3 percentage points), workers age 55 and older (-3.3 percentage points), men (-3.5 percentage points), and Black workers (-5.9 percentage points) all experienced drops in their employment rates larger than the regional average. For older workers, the above-average decline likely reflects, at least in part, the firings and retirements of many federal employees, including many who had been near retirement age and opted into the so-called “Fork in the Road” deferred resignation program. For young workers, the administration’s funding and programmatic cuts directly reduced many traditional Beltway early-career opportunities (internships, fellowships), while weakness in the broader regional economy simultaneously forced area employers to pull back on entry-level positions.

Still, not all groups have been equally affected by Trump’s actions. As Table 1 shows, Black workers in the DMV region have suffered the largest employment declines, with the share employed falling by 5.9 percentage points in 2025. This is nearly triple the employment drop experienced by white workers (2.0 percentage points) in the region and, notably, more than seven times the employment drop of Black workers throughout the country overall (0.8 percentage points). Again, this is a direct consequence of the administration’s attacks on the federal workforce. Black workers have long tended to make up a larger share of the public sector than they do in the private sector—both in the DMV and across the country. This is because the public sector has historically been a pathway to the middle class for workers of color who face labor market discrimination in the private sector (Maye and Marvin 2025).

Trump’s massive cuts to federal employment have also rapidly undone what had been considerable progress in shrinking the regional Black-white employment gap. Figure A shows the employment rate of DMV workers, overall and by race/ethnicity, since the end of 2018. The rapid drop in the Black employment rate since the start of President Trump’s second term is striking, bringing the regional Black employment rate back down to its pandemic-era low. It is also notable that before that drop began, Black workers in the region were employed at essentially the same rate as their white counterparts—the only time in the last two decades when that occurred. These losses in employment will exacerbate existing racial and gender inequity across wages, poverty, and unemployment (Markoff and Zielinski 2026; Zielinski 2025; Busette and Elizondo 2022).

Recent increases in the DMV’s overall unemployment rate underscore the damage Trump is doing to the region. The non-seasonally adjusted unemployment rate jumped more than a full percentage point, from 3.1% in January 2025 to 4.4% in January 2026—more than four times the increase in the national figure. (Importantly, this increase understates the weakening of the area labor market, as the BLS estimates the DMV labor force shrank by 3% over the same period—meaning that many workers who would have been counted as unemployed simply left the area labor force.) For comparison, the national non-seasonally adjusted unemployment rate increased by less than half a percentage point, moving from 4.4% in January 2025 to 4.7% in January 2026 (BLS-LAUS 2026).

These numbers do not capture the full extent of the economic downturn in the DMV area, nor can they give us precise insight into where the pain has been most acutely felt. The administration’s violent deportation agenda, for example, will lead to a drop in immigrant and U.S.-born Hispanic workers’ employment, but resulting changes in Hispanic employment rates may be muted by the corresponding shrinking of the overall Hispanic population (Zipperer 2025). In other words, while the overall Hispanic population in the U.S. may fall dramatically in coming years, the ratio of remaining employed workers to remaining total population may stay somewhat consistent. This will mask the true scale of the economic and social harm being done to immigrant communities in the DMV and across the country.

It is also difficult to fully quantify how the deployment and continued presence of National Guard troops, violent immigration actions, and other authoritarian, fear-inducing tactics have impacted D.C.-area businesses, workers, and families, particularly in neighborhoods with predominately Black and Latino populations. Early data show regional declines in tourism, consumer spending, and foot traffic; harder to capture are the emotional and long-term economic consequences (Montgomery 2025; Hadden Loh and Haskins 2025; Sachs and Cocco 2025). Other recent analyses estimate similar economic harms in cities where targeted federal immigration enforcement actions have been aggressively deployed (Rosenthal and Sojourner 2026). A full accounting of the Trump administration’s harms on the Washington, D.C., region will take years to document.

Other localities should brace for similar consequences

Some of the Trump administration’s actions and their acute consequences are unique to the DMV, a function of the region’s high concentration of federal employees and government contractors, as well as the District of Columbia’s lack of statehood and full constitutional rights. However, the anti-government attacks the administration has unleashed on DMV-area households, workers, and businesses will have cascading consequences for communities throughout the country. The effects of the administration’s authoritarian attacks on the civil service, democratic institutions, and immigrants (Human Rights Watch 2026) that first registered across the DMV should be viewed as a preview of the consequences that will be felt in other regions. While no locality will be spared, regions particularly at risk include those with large shares of government workers (especially federal workers, but state and local government workers too), localities in which federal funding and social safety net programs make up a large portion of total area income, and those with large immigrant populations.

Trump’s attacks on the federal workforce will harm communities that rely on their employment

The day Trump returned to power in January 2025, he began attacking the federal workforce, first by moving to reclassify tens of thousands of federal employees to make it easier to fire and replace them with political loyalists (EPI 2026c), and then by stripping more than one million federal workers of their collective bargaining rights (EPI 2025a). The Trump White House subsequently worked feverishly to slash federal employment, attempting large and chaotic reductions in force, shuttering entire agencies, and coercing tens of thousands of staff to resign, among many other attacks (Poydock 2025). As of March 2026, the administration’s actions have reduced nationwide federal government employment by over 350,000 (11.7%) since January 2025 (Gould 2026).

Though federal workers make up a sizeable share of the DMV’s workforce, over 80% of federal workers live outside the region (Partnership for Public Service 2024). For instance, in Alaska, Hawaii, and New Mexico—states that are home to large swaths of federal and Native land, military bases, and federal research institutions—federal workers make up at least 4.5% of total employment (EPI 2025c). Within states, federal workers tend to be concentrated in specific localities. For instance, in Apache County, Arizona, which is largely made up of the Navajo Nation and the White Mountain Apache Reservations, lands that extend beyond county lines, the federal government employs 12% of the county’s workers, more than double the next most significant county for federal worker employment in the state (EPI 2025c). There are 22 U.S. counties, spread across the South, Midwest, and West Census regions, where federal workers comprise at least 10% of the county’s workforce (see Table 2).

In these counties and elsewhere, federal workers are the backbone of the regional economy, both through the essential services they provide and through their contributions to the local economy. Trump’s attacks simultaneously threaten federal workers’ livelihoods and the economic health of communities in which these workers’ spending on goods and services makes up a large share of economic activity in the region. In Apache County, Arizona, civilian government workers’ earnings comprise 11.7% of total economic activity in the county (see Table 3)—roughly the same as their share of overall county employment. However, in some counties, federal employees’ earnings are a disproportionate share of the regional economic base. For instance, in Leavenworth County, Kansas, where federal employees make up 10.0% of employment (Leavenworth has a large federal prison), federal civilian earnings comprise 22.1% of total income in the county.

The effects from lost federal jobs and income in these regions could be devastating. Some of these communities are places that have already faced historic disinvestment and in which there are few local employment opportunities that can match the quality of federal government jobs. These jobs are historically stable, good quality, union jobs that offer a pathway to the middle class, particularly for workers without a college education.6

Regions highly dependent on federal revenue will also suffer from a reduction in services and a loss of income

Beyond the harm to localities from reductions in the federal workforce, localities that are particularly reliant on federal government revenue and services will bear the consequences of Trump’s actions most acutely, though no locality will be spared from harm. For example, the Trump administration has announced or considered $23 billion in cuts to federal clean energy projects in nearly every state (CATF 2025) and $8 billion in cuts to colleges and universities that will impact every state’s economy (Bedekovics and Ragland 2025). Trump’s 2025 budget bill also made massive cuts to federal safety net programs that millions of low-income households rely on in order to finance tax cuts for the wealthiest households and corporations.

Funds from federal programs such as SNAP, Medicaid, and other social programs not only help struggling families make ends meet, they also comprise a significant share of a locality’s “economic base,” the amount of money circulating in that region, as shown by sociologist Robert Manduca in a recent working paper (2025). Indeed, an often-overlooked benefit of Medicaid coverage is its role as a source of income for low-income households (money they would have had to spend on medical care in the absence of Medicaid). For the bottom 20% of households in the U.S., Medicaid comprised 70% of their total money income, based on recent data from the Congressional Budget Office (Bivens, Wething, and Morrissey 2025). In fact, government transfers such as Social Security, Medicare, and Medicaid collectively made up 40% of the economic base of U.S. regions in 2022 (Manduca 2025). Substantial cuts to government social programs that support low-income households could reduce the economic base of these localities, at a scale equivalent, in many cases, to the loss of entire private industries in those areas.

Without deliberate intervention by state lawmakers to offset lost federal revenues, localities in every state face dire economic losses, but states particularly reliant on government transfers will suffer most. For instance, take Clay County, West Virginia, which is represented in Congress by Rep. Carol Miller (R-WV01), who voted in support of Trump’s budget bill (Miller 2025). Clay County’s poverty rate is more than double the national rate, and its per capita income is half the national amount (U.S. Census 2024a). Of the 10 U.S. counties that rely most on each of the largest federal social insurance programs (Medicare, Medicaid, SNAP, and Social Security) as a share of their economic base, Clay is the only county in the country to show up three times (see Table 4). Federal government transfers in the form of Medicare, SNAP, and Social Security payments comprise 57% of Clay County’s economic base, 20 times the share comprised by the earnings of every private industry in the county combined. Alaska, Arizona, Florida, Georgia, Kentucky, Tennessee, and West Virginia all have at least three counties that are ranked in the top 10 in the country for their reliance on a given social safety net program as a share of the county’s economic base (see Table 4).

Localities that have significant shares of federal workers and rely heavily on federal government transfers may face particularly significant consequences as a result of Trump’s attacks on the federal workforce and the Republican budget bill’s cuts to essential social safety net programs. For example, in Rio Arriba County, New Mexico, and Apache County, Arizona, federal government workers make up 16.1% and 12.0% of all workers in the county, respectively (EPI 2025b). At the same time, both counties are ranked in the top-10 counties most reliant on federal government transfers—Apache is #2 for Medicaid, and Rio Arriba is #10 for SNAP. In Apache County, federal government transfers account for three-quarters (76.9%) of the county’s economic base, and the earnings of federal government civilian workers account for 11.7%—the Navajo Nation Tribal Government is the county’s largest employer (NACOG 2023). Meanwhile, private earnings account for a mere 2.8% of the county’s economy. In Apache, Trump’s cuts to both the federal workforce and federal government programs mean that the federal government may be unable to fulfill its legal obligations to tribal communities (Brown 2025) that have faced decades of disinvestment and depressed economic outcomes resulting from historic land theft and forced assimilation. Apache County’s poverty rate of 31.2% (AZ Economics 2026) is nearly triple the national rate of 11.1% in 2023 (Shrider 2024).

Trump’s anti-immigrant crackdown and deportation agenda hurt localities with large immigrant populations

Trump has launched a campaign of terror against immigrant communities, communities of color, and those who stand with them. Last summer, Trump federalized local police and deployed thousands of federal troops to diverse cities with large immigrant populations (Kim 2025). Though Washington, D.C., may have experienced the most visible federal troop presence, a function of the district’s lack of statehood and the president’s unchecked authority to mobilize the National Guard there (Dallas 2025), Los Angeles was the first city Trump targeted after public opposition to aggressive immigration raids (Kim 2025). It was soon followed by Washington, D.C.; Memphis, Tennessee; Portland, Oregon; New Orleans, Louisiana; Minneapolis, Minnesota; and Portland, Maine.

These attacks are characteristic of an authoritarian playbook that includes forcing the leaders of diverse, opposition-led communities to bend to the strongman government’s will (McManus, Benson, and Herman 2024). Minneapolis, home to a large immigrant population, was subjected to an unprecedented immigration crackdown that drew widespread protests (Boone 2026). During “Operation Metro Surge,” as it was called, federal immigration enforcement officials made 4,000 arrests and killed two U.S. citizens. Though the true toll of this violent operation may never be fully quantified, initial economic data show clear cause for concern. A recent analysis estimated that Trump’s immigration crackdown has led to a 2.9% decline in consumer spending in Minnesota over a single month—the equivalent of the state’s economy losing $626 million (Rosenthal and Sojourner 2026). Relative to overall consumer spending, the food and accommodation sector (which employs a large share of immigrant workers) saw the most significant decline in January 2026—3.8% or a $46 million reduction in economic activity. Researchers also estimated that nearly 3% of workers in the Minneapolis-Saint Paul region were unable to work during the occupation, resulting in a loss of over $100 million in wages (Sojourner and Rosenthal 2026).

Trump’s deportation agenda will continue to destabilize local communities and result in job losses for immigrant and U.S.-born residents alike (Zipperer 2025). Though immigrants live in counties across the U.S., coastal urban areas tend to have the largest shares of foreign-born residents. Counties with the largest foreign-born populations include Miami-Dade, Florida; Queens, New York; Aleutians, Alaska; and Hudson, New Jersey (see Table 5). Counties with relatively large shares of immigrants may see particularly acute harms from aggressive immigration enforcement.

Communities face overlapping economic threats from attacks on federal workers, the social safety net, and immigrants, but state and local lawmakers can resist them.

The Trump administration’s attacks on the federal workforce, the social safety net, and immigrant communities are designed to exacerbate economic precarity in many communities that are already struggling (Bivens 2026). The implementation of Trump’s authoritarian agenda in the DMV region may be the first, clearest, and in some cases most direct manifestation of its harms, but other localities across the country—particularly those with large federal workforces, those that are heavily dependent on federal revenue and those with sizeable immigrant populations—are far from immune, and many will suffer as much, if not more, from this agenda.

While state and local leaders cannot stop federal attacks, they do have the power to resist Trump’s agenda by improving state labor standards (EPI 2026b), advancing protections for immigrant workers (Díaz and Whitaker 2026), investing in the public-sector workforce (Bivens and Shierholz 2026), and using progressive tax policies (Austin and Davis 2025) to stabilize funding for critical social programs and other investments that workers, families, and communities need.

Notes

1. Throughout this report, unless explicitly noted, the source for all employment rate data is the authors’ analysis of Current Population Survey data (EPI 2026a). We compare an average of calendar year 2025 with calendar year 2024 in order to have adequate sample sizes for the noted demographic groups.

2. Employment level by industry and sector data come from the authors’ analysis of the Bureau of Labor Statistics’ Current Employment Statistics (CES) State and Metro Area (SAE) data.

3. These numbers are calculated using monthly totals rather than annual averages. A quarterly comparison of 2025Q4 to 2024Q4 finds roughly the same results—employment fell by 52,600 jobs (13.9%). The quarterly analysis omits October in both years to maintain an apples-to-apples comparison, accounting for missing data due to the government shutdown that began in October 2025 and the subsequent lapse in Bureau of Labor Statistics funding.

4. The non-federal workforce includes private sector workers as well as state and local government employees.

5. These numbers are calculated using monthly totals rather than annual averages. Quarterly comparisons of 2025 Q4 to 2024 Q4 produce similar results—private sector employment fell by 0.1% in the DMV and grew by 0.7% nationally. The quarterly analysis follows the methodology outlined in note 2.

6. On average, federal workers with advanced degrees typically earn less in wages and total compensation than their private-sector counterparts. Federal workers without an advanced degree typically earn more than their private-sector counterparts and have access to retirement benefits that have become less common in the private sector (CBO 2024).

References

Austin, Sarah, and Carl Davis. 2025. The Wealth Proceeds Tax: A Simple Way for States to Tax the Wealthy. Institute on Taxation and Economic Policy, October 2025.

AZ Economics. 2026 “Apache County, Arizona.” U.S. Economic Research. Accessed April 2026.

Barrett, William P. 2025. “America’s Top 100 Charities: A Year of Pain After Trump Cuts.” Forbes, December 12, 2025.

Bedekovics, Gréta, and Will Ragland. 2025. Mapping Federal Funding Cuts to U.S. Colleges and Universities. Center for American Progress, July 2025.

Bivens, Josh. 2026. The Trump Administration’s Macroeconomic Agenda Harms Affordability and Raises Inequality. Economic Policy Institute, February 2026.

Bivens, Josh, and Heidi Shierholz. 2026. “You Can’t Starve the Public Sector to Excellence.” Working Economics Blog (Economic Policy Institute), February 27, 2026.

Bivens, Josh, Hilary Wething, and Monique Morrissey. 2025. Cutting Medicaid to Pay for Low Taxes on the Rich Is a Terrible Trade for American Families. Economic Policy Institute, February 2025.

Boone, Rebecca. 2026. “A Timeline of Trump’s Immigration Crackdown in Minnesota.” PBS Newshour, February 13, 2026.

Brookings Institution. 2026. “Active Residential For-Sale Listings,” DMV Monitor. Last updated February 18, 2026.

Brown, Alex. 2025. “For Indian Country, Federal Cuts Decimate Core Tribal Programs.” Stateline, March 4, 2025.

Bureau of Labor Statistics, Current Employment Statistics State and Metro Area (BLS-CES-SAE). Various years. Public data series accessed through the CES State and Metro Area Databases and through series reports. Accessed April 2026.

Bureau of Labor Statistics, Local Area Unemployment Statistics (BLS-LAUS). Various years. Data from the LAUS are available through the LAUS database and through series reports. Accessed April 2026.

Busette, Camille, and Samantha Elizondo. 2022. “Economic Disparities in the Washington, D.C. Metro Region Provide Opportunities for Policy Action.” Commentary, Brookings Institution, April 27, 2022.

Clean Air Task Force (CATF). 2025. “The High Cost of Retreat: Impacts of Department of Energy Project Cuts.” Clean Air Task Force, November 21, 2025.

Congressional Budget Office (CBO). 2024. Comparing the Compensation of Federal and Private-Sector Employees in 2022. Congressional Budget Office, April 2024.

Dallas, Kelsey. 2025. “The President’s Power to Deploy Troops Domestically: An Explainer.” SCOTUSblog, October 28, 2025.

D.C. Fiscal Policy Institute. 2026. “Congressional Interference Will Cost D.C. Nearly $700 Million in Local Revenue and Jeopardize Efforts to Reduce Child Poverty.” D.C. Fiscal Policy Institute, February 4, 2026.

Díaz, Marisa, and Mimi Whitaker. 2026. How States and Localities Can Strengthen Workplace Protections for Immigrant Workers. National Employment Law Project, January 2026.

Economic Policy Institute (EPI). 2025a. “Executive Order on ‘Exclusions from Federal Labor-Management Relations Programs.’” Federal Policy Watch (Economic Policy Institute), December 17, 2025.

Economic Policy Institute (EPI). 2025b. How Many Federal Employees Live in Your State? Economic Policy Institute.

Economic Policy Institute (EPI). 2025c. “New Resource Calculates How Many Federal Workers Live in Every State, County, and Congressional District” Economic Policy Institute (press release). March 3, 2025.

Economic Policy Institute (EPI). 2026a. Current Population Survey Extracts, Version 2026.3.11, https://microdata.epi.org.

Economic Policy Institute (EPI). 2026b. Holding the Line: State Solutions to the U.S. Worker Rights Crisis. Economic Policy Institute.

Economic Policy Institute (EPI). 2026c. “OPM Finalizes Regulation Enabling Firing Federal Employees for Political Reasons.” Federal Policy Watch (Economic Policy Institute), March 4, 2026.

Friesenhahn, Erik. 2025. “Nonprofit Organizations: State and Regional Employment Trends.” Monthly Labor Review (U.S. Bureau of Labor Statistics), March 2025. https://doi.org/10.21916/mlr.2025.6.

Gould, Elise. 2026. “Attacks on the federal workforce continue (down 18k jobs in March).” Bluesky, @elisegould.bluesky.social, April 3, 2026, 9:01 a.m.

Hadden Loh, Tracy, and Glencora Haskins. 2025. Consumer Spending and Visitor Demand in the Washington, D.C. Region Are Dropping. Brookings Institution, December 2025.

Human Rights Watch. 2026. “Sliding Towards Authoritarianism?” January 2026.

Kim, Juliana. 2025. “Trump Says National Guard Will Soon Go to New Orleans. Here’s the Latest.” NPR, December 3, 2025.

Koma, Alex. 2025. “Here’s How D.C. Solved the Billion-Dollar Budget Problem Congress Created.” WAMU, October 22, 2025.

Kozlov, Max, Jeff Tollefson, and Dan Garisto. 2026. “U.S. Science After a Year of Trump.” Nature 649 (January): 812–815.

Lynch, Teresa M., and Robert Manduca. 2024. “Beyond Local and Traded: Evidence for a Third Industry Market Area Type and Implications for Regional Economic Development.” Economic Development Quarterly 38, no. 3: 183–194, July 2024. 

Manduca, Robert. 2025. Financial and Transfer Income as Components of the Regional Economic Base. Washington Center for Equitable Growth, June 2025.

Markoff, Shira, and Connor Zielinski. 2026. Chronic Racial Inequality Holds Back Workers and Equitable Economic Growth. D.C. Fiscal Policy Institute, March 2026.

Maye, Adewale A., and Stevie Marvin. 2025. “Trump Attacks on Federal Agencies Have Steep Implications for Black Workers.” Working Economics Blog (Economic Policy Institute), April 10, 2025.

McManus, Allison, Robert Benson, and Dan Herman. 2024 “The Dangers of Project 2025: Global Lessons in Authoritarianism.” Center for American Progress, October 2024.

Miller, Carol. 2025. “Miller Votes to Send the One, Big, Beautiful Bill to President Trump’s Desk” (press release). Office of Congresswoman Carol Miller, West Virginia’s First District, July 3, 2025.

Montgomery, Mimi. 2025. “Trump Crackdown Is Affecting D.C.’s Image and Tourism Numbers.” Axios, August 29, 2025.

Northern Arizona Council of Governments (NACOG). 2023. “Business, Jobs, and Industry Highlights for Apache County.” Northern Arizona Council of Governments, November 20, 2023.

Partnership for Public Service. 2024. Beyond the Capital: The Federal Workforce Outside the D.C. Area. March 2024.

Poydock, Margaret. 2025. “How Trump Has Dismantled the Federal Workforce in His First 100 Days.” Working Economics Blog (Economic Policy Institute), May 23, 2025.

Rosenthal, Aaron, and Aaron Sojourner. 2026. The Economic Impact of Operation Metro Surge in January 2026: A Synthetic Difference-in-Differences Analysis. North Star Policy Action, February 2026.

Sachs, Andrea, and Federica Cocco. 2025. “D.C. Tourism Was Already Struggling. Then the National Guard Arrived.” Washington Post, August 29, 2025.

Shrider, Emily A. 2024. Poverty in the United States: 2023. United States Census Bureau, Report Number P60-283, September 2024.

Singh, Kanishka. 2026. “Trump Signs Executive Order Asking Federal Contractors to Eliminate DEI.” Reuters, March 26, 2026.

Sojourner, Aaron, and Aaron Rosenthal. 2026. Impact of DHS Agent Surge on Minneapolis-Saint Paul Metro Area Labor Outcomes. North Star Policy Action, February 2026.

Tomasko, Laura, Hannah Martin, Katie Fallon, Mirae Kim, Lewis Faulk, and Elizabeth T. Boris. 2025. How Government Funding Disruptions Affected Nonprofits in Early 2025: Nationally Representative Findings from the Nonprofit Trends and Impacts Study. Urban Institute, October 2025.

U.S. Census Bureau. 2024a. “American Community Survey 5-Year Estimates: Retrieved from Census Reporter Profile Page for Clay County, WV.” Accessed April 14, 2026.

U.S. Census Bureau. 2024b. “U.S. Foreign-Born Population: 2018–2022 American Community Survey, 5 Year-Estimates (Table B05006).” Accessed April 14, 2026.

Zielinski, Connor. 2025. “Inequality Remained Extreme in 2024 as D.C. Backslid on Poverty.” DCFPI Blog (D.C. Fiscal Policy Institute), September 15, 2025.

Zipperer, Ben. 2025. Trump’s Deportation Agenda Will Destroy Millions of Jobs: Both Immigrants and U.S.-Born Workers Would Suffer Lob losses, Particularly in Construction and Child Care. Economic Policy Institute, July 2025.

Originally held Thursday, April 9, 2026.

Webinar links, notes and discussion

Timestamped themes, discussion, and resources mentioned in the webinar

Listen on The State of Working America Podcast

If you are an academic, student, non-profit researcher or advocate, or a journalist, you may view and use the content of this webinar and its related materials without requesting any further permission.

This is permitted under a non-commercial use Creative Commons license CC BY-NC-SA 4.0.

If you are a commercial enterprise looking to this information or data in any product that will be sold or as part of services and data you provide to paying customers, request commercial use by contacting EPI.

Find out about upcoming webinars first! Subscribe to EPI newsletters.

Throughout this second term we’ve also seen a steady increase in white supremacist rhetoric and images coming from government officials: Agency-run social media accounts make appeals to the homeland, remigration, and other white nationalist dog-whistle phrases, while the president himself continues to demonize nonwhite immigrants and cities with large minority populations, and to mischaracterize the Civil Rights Movement as harmful to white people.

These actions and rhetoric are not simply poor governance; they follow a historical script that white supremacists in the United States have used for centuries to undermine progress toward equity. Each time, that script sets the stage for policy changes that lead to a massive increase in economic inequality. Here’s the pattern:

1. Establish distrust in progressive goals by raising the specter of racial minorities corrupting and taking advantage of a government that has “overstepped its authority.”
2. Severely curtail government functions by dismantling existing programs directed toward progressive policy goals (e.g., equity, poverty prevention) and allowing others to expire, halting forward progress.
3. Institute methods of targeting and controlling nonwhite populations, increasing economic insecurity, stoking fear, and lowering their political and economic power relative to white peers.

Consider what took place in the half-century following the Civil War, as the United States tried and failed to rebuild itself into a multiracial democracy for the first time:

1. Establish distrust: Disaffected ex-Confederates led campaigns of misinformation alleging that newly elected Black government officials were corrupt and undeserving, that the government itself had overreached by sending federal troops to ensure that Southern states followed the law with respect to racial inclusion, and that allowing Black men the vote presented an existential threat to white men, women, and children. In the West, white supremacists spread similar misinformation about Chinese immigrant workers.
2. Halt forward progress: Federal troops were removed from Southern states, exposing Black families to horrific acts of economic, social, and spiritual violence from white vigilantes; institutions like the Freedmen’s Bureau and Freedman’s Bank were dismantled and allowed to collapse, curtailing progress toward integrating Black families into the U.S economy with dignity.
3. Target and control nonwhite populations: White supremacists in government passed legislation limiting the economic, social, and political rights available to nonwhite Americans, most notably Jim Crow laws and the Chinese Exclusion Act. These policies led to significant economic precarity for nonwhite workers, allowing exploitative systems like sharecropping to thrive and ensuring railroad workers and miners had little recourse to protest poor working conditions.

This reassertion of white supremacy saw the government take a big step back from progressive goals and ushered in one of the most unequal and unstable ages of U.S. economic history: The Gilded Age.

For a more recent example, consider the 40-year-long backlash to racial progress made in the mid-20th century through the efforts of the Civil Rights Movement (beginning with the first Reagan administration in 1980):

1. Establish distrust: Disaffected conservatives employed an intellectual strategy (neoliberalism) designed to cast government as the source of America’s economic woes, rather than a tool that could be used to alleviate them. Neoliberalism recast the social safety net that had been designed to keep poor and working-class families, children, and the elderly out of poverty as a hammock in which lazy, undeserving Black people (especially single Black mothers) could comfortably take advantage of taxpayer dollars.
2. Halt forward progress: Citing the myth of an undeserving, perpetually dependent “underclass,” Republican and Democratic administrations alike took action. They made major cuts to programs designed to alleviate economic hardship, halting progress toward closing racial gaps in poverty because Black families are more likely to be impoverished. The federal government added strict work and income requirements to social programs like food stamps (SNAP) and Aid to Families with Dependent Children (AFDC, eventually replaced by the much less adequate TANF) that decreased their efficacy. The government stripped institutions devoted to enforcing and advancing civil rights like the EEOC and the Commission on Civil Rights of funds and reduced their scope.
3. Target and control nonwhite populations: Beginning in the 1970s the United States embarked on an unprecedented expansion of policing and the carceral state; the development of this mass incarceration led to an explosion of arrests, convictions, and crucially, imprisonment. Nonwhite men were and still are overwhelmingly the targets of this system, with Black incarceration rates six times higher than those of white people. Incarceration serves as a tool of economic stratification that renders Black and brown workers noncompetitive with white workers and severely limits the capacity of Black and brown families to accumulate wealth, alongside a host of other imposed disadvantages.

The wealthiest owners of capital used white supremacy to shape policy decisions such that they could capture a greater share of economic power and resources, influencing government to withdraw resources previously used to support and protect workers and families of all shades. This also set the stage for weakening labor standards, chipping away at workers’ rights to organize, allowing globalization to displace blue-collar workers, and influencing the Fed’s tolerance of excessive unemployment.

Further, as more of our national spending shifted toward law enforcement rather than social welfare, racial targeting increased, poverty was criminalized, and so too did a greater share of income go to the top percentile earners. Significant progress toward racial economic equity—little that there was—has all but ceased since the 1980s.

Figure A shows the raw deal that both Black and white workers have been given since the 1980s. While the workforce became around 84% more productive between 1979 and 2024, workers’ wages grew much more slowly. Typical white workers’ wages only grew 37% over the same period, while Black workers’ wages grew even more slowly at 28.5%.

Figure A

Figure B shows how racial wage inequality increased along with rising corporate power. The lighter line here represents the extent to which workers’ productivity increased faster than their pay (the ratio of net productivity—or output per hour—to total compensation per hour); in other words, the extent to which employers were able to capture a greater share of economic output than workers. As the wage gap between typical Black and white workers increased (from 16.6% in 1979 to 21.6% in 2024, a growth rate of 30%), so too did the ratio between productivity and pay (from 1.6 in 1979 to 2.27 in 2024, a growth rate of 42%). In this view, white supremacy works as a wedge by which the working class is separated, weakening worker power and allowing the productivity-pay ratio to increase.

It took the labor market shock and reset of a global pandemic, and the rapid, expansionary policy response toward it, to finally break the decades-long trend of increasing Black-white wage inequality; the resulting tight labor market saw faster wage growth between 2019–2024 for low-wage workers (who are disproportionately Black and brown) than for any period since 1979, and a drop in the Black-white wage gap from its peak in 2018 at 26.4% to 21.6% in 2024. This relatively rapid reduction in Black-white income inequality provides important context for our current wave of white supremacist backlash.

Figure B

White supremacy has always been employed in the United States as a political economic strategy for maintaining social hierarchy. That hierarchy is consistent both with the assertion of white privilege and with corporate interests. The value in maintaining white supremacy for the interests of wealthy elites is that it complicates class solidarity across racial lines, while also pre-establishing a population of workers who exist along a spectrum of exploitation.

The most exploitable of these workers (e.g. Black, brown, women, and/or poor workers) have little to no recourse for protection nor serious prospects of changing their class position without explicit outside intervention, even across generations. Workers with more proximity to power (e.g. white, male, and/or high-income workers) have access to real social and material benefits that come from their relative position, and so are incentivized to maintain the status quo. Even still, these workers face exploitation and economic precarity as the truly wealthy continue to build capital, and their share of the nation’s income and wealth continues to rise.

The Trump administration’s motivations are clear when viewed through the lens of white supremacist political economy. This framing puts Project 2025 into its proper historical context as a recycled agenda designed to reassert the social and economic privileges of white Americans relative to their Black and brown neighbors, pacifying potential white opposition toward policies that will most enrich the few at their absolute expense. If this historical script is allowed to run its course—that is, if the administration is successful at establishing distrust in the efficacy of government, halting what forward progress we’ve made toward equity and progressive goals, and targeting and controlling nonwhite populations—the final act will be another massive increase in economic inequality and instability, a period in which most American families will suffer.

There is a path forward, however. Progress toward racial equity has always threatened consolidated class power, particularly in the United States. A working-class coalition across racial lines has historically been a dangerous prospect for those invested in maintaining inequality because it creates the possibility of a serious inversion of power, a realization that solidarity could genuinely result in a more equitable distribution of the costs and benefits of production. Building a genuine multiracial democracy in which people from all groups can expect to be treated with dignity and have access to the same economic security and opportunity is a real path toward breaking down inequality run rampant.

Here’s the bottom line. When we see:

• A concerted effort to discredit and defund the important work done by Black and brown women government employees to move us toward equity (Establish distrust)
• The tearing down of historic laws and institutions devoted to providing equal access to opportunity and security to all Americans (Halt forward progress)
• The terrorizing of nonwhite workers and their families in places of work and worship alike (Target and control nonwhite populations)

We must recognize these efforts as intentional ones that lead us all—white workers and their families included—down a path to greater economic inequality, instability, and injustice.

Key takeaways

The Trump administration’s unwise policy agenda has the potential to do great damage to U.S. families—and this is true even if it does not lead to recession or spiking inflation in the near term. While this agenda has heightened the risk of recession in coming years, the greatest future damage will come from slowing growth in the economy’s supply side and raising inequality. Trump’s economic policies will cause incomes and wages for typical families to grow more slowly, and this will lead to a less affordable life for many.  

How will Trump administration policies harm income growth for typical families? 

• The Trump administration inherited a fundamentally strong economy from the Biden administration. Yet the Trump administration’s policy agenda has raised the risk of a near-term recession by slowing growth in spending by households, businesses, and governments (aggregate demand).  

• • Federal workforce cuts, deportations and a slowdown in immigration, and chaos in trade policy and the administration’s approach to the Federal Reserve have all weighed on demand growth. 

• • The deportation agenda and cutbacks to the federal workforce will deeply damage the economy’s supply side as well. Further, deficit-financed tax cuts will also put headwinds in front of growth in the economy’s supply side in coming years. These growth reductions will be small in any given year but will accumulate quickly and lead to future incomes being significantly lower than they would have been under a different policy regime.  

• Finally, the 2025 Republican-led tax cuts favor the rich, while the spending cuts included in the same Republican megabill will sharply lower incomes for the bottom half of U.S. households (ranked by income) in coming years. This combination will lead to a very large spike in inequality.  

• • The Trump administration’s assaults on typical workers’ bargaining power and leverage, and its support for corporations with significant market power, will increase pre-tax inequality.  

Policy choices that fostered excess unemployment, slow growth of the economy’s supply side, and rising inequality have all contributed to making recent decades extremely difficult for typical families. The policies of the Trump administration double down on the worst policy decisions of this period and will make typical families reliably poorer in the future, even if an outright recession or spiking inflation does not happen.  

In the first months of the second Trump administration, the question that popped up frequently about its economic policy agenda was, “Will it cause a recession?” After a year and no clear signs of a recession (at least not yet), many looking to formulate an organized critique of the Trump agenda argue that it is making affordability for American families worse.

Both the concerns of heightened recession risks and deteriorating affordability are valid. Trump policies really are making a recession more likely and even if a recession does not occur, these policies will harm typical families’ ability to afford what they need. This affordability crunch will happen for two reasons: Trump policies will hamstring the economy’s ability to supply goods and services, and these policies aim to increase inequality by transferring income from the bottom and middle toward the top. Sometimes this affordability crunch will manifest as higher prices or faster inflation, but it is more likely to appear as slower wage growth and the rollback of public supports for households. But its root is always and everywhere poor economic choices, including prioritizing the interests of the rich and corporations over the concerns of typical American families.

This report provides an explanation and overview of how Trump policies will impact overall U.S. economic performance and the living standards and economic security of typical families.

• In the short run, Trump policies raise the risk of recession.
  • The U.S. economy might avoid a recession over the next year, but the Trump agenda has made a recession far more likely than it would have been without these policy choices.
    • The short-run danger from Trump policies stems from the chaotic implementation of tariff policies, the administration’s cuts to social spending in the 2025 Republican budget megabill, their rapid and random downsizing of the federal workforce, and the chilling effects their mass deportation aspirations have on spending.
• In the long run, the Trump policy agenda will significantly reduce the U.S. economy’s ability to supply goods and services without high and rising inflation.
  • The administration’s deportation agenda is slowing the size of the future U.S. labor force and has maybe even shrunk it.
  • Trump has backed mostly deficit-financed tax cuts for the rich, which will slow the size of the future U.S. capital stock.
  • His administration is attacking key federal agencies and has shown a lack of strategy in tariff policies, which are slowing the size of the future U.S. technology stock.
• In both the short and the long run, the Trump policy agenda is guaranteed to cause greater inequality.
  • In the short run, the huge tax cuts tilted mostly toward the rich and the spending cuts falling mostly on the bottom 40% will lead to an enormous rise in inequality.
  • A possible recession will damage the labor market and likely lead to rising inequality over any subsequent recovery as unemployment remains elevated.
  • Further, the Trump administration’s attacks on the leverage and bargaining power of typical workers and the administration’s toleration of monopolization and abusive financial practices will see income in the business sector reliably funneled away from typical workers and toward the already-rich owners and managers of large companies.
  • The Trump administration has hamstrung or downsized the key functions of the federal civilian workforce that work to level playing fields between the rich and corporations on one hand and typical workers and consumers on the other.
• Finally, many of the Trump administration’s policy choices will inflict significant damage on U.S. families that is not reflected in contemporaneous measures of GDP or income. Just because this damage is not reflected in real-time GDP or income data does not mean it is unimportant or cannot be measured well.
  • For example, regulations enforced by the federal government lead to greater air and water quality, and voluminous research indicates these save lives and many Americans highly value them. If the attack on the federal workforce and the Trump administration’s generally anti-regulatory stance lead to rollbacks in air and water quality, people will suffer, even as most of this suffering is not well captured in GDP.

In what follows, we provide the economic basis for these conclusions, focusing on Trump policy effects on aggregate demand, potential output (supply), and income distribution and how these drive real-world outcomes for typical families. Families will feel the bad outcomes from all three dimensions of macroeconomic performance as a deterioration in affordability.

Three key dimensions of macroeconomic performance: Demand, supply, and distribution

A quick overview of some important macroeconomic concepts can help organize thoughts about how the Trump policy agenda will tangibly affect U.S. families. The most important tasks policymakers must get right to offer typical families’ economic security are as follows: managing aggregate demand, fostering potential output (supply) growth, and ensuring equitable distribution of income.

Managing aggregate demand just means making sure unemployment and inflation stay low most of the time and are quickly returned to low levels when shocks push them higher for some stretch of time. The key to successful aggregate demand management is ensuring that spending by households, governments, and businesses is high enough to fully employ all resources in the economy—especially labor, but not so high as to generate ongoing inflation. This means ensuring that aggregate demand matches potential output.

Fostering growth in potential output (supply) involves making sure the economy’s productive capacity grows rapidly over the long run. Key elements include fostering growth in the labor force and productivity (a measure of how much output and income is generated in an average hour of work in the economy). Growth in productivity depends on the educational attainment and quality of the labor force, the size of the capital stock that workers can use to aid production, and the state of technology in the economy.

Ensuring an equitable distribution of growth means making sure the overall income growth generated in the economy is shared at least proportionally throughout the income distribution. Even better would be growth biased more toward households in the bottom half of the income distribution. This would help reverse some of the large increases in inequality that occurred over the past few generations of economic life in the U.S. Fostering an equitable distribution of growth matters for typical families for an obvious reason: If average living standards rise rapidly, but living standards for the large majority lag far behind as households at the very top see extreme above-average gains, it is hard to declare this an economic success for broad-based economic security. Without an equitable distribution of growth, too many people would be unable to afford daily life.

Trump policies will drag on aggregate demand and raise recession risks

Recessions happen and unemployment rises when spending by households, businesses, and governments (demand) lags behind potential output (supply). Because supply tends to change slowly and predictably, it is sharp cutbacks in demand that lead to recessions and rising unemployment.[1]

When demand falls short of supply, this means that there is more capacity in the economy to produce goods and services than demand to buy them. To illustrate, let’s take the example of a restaurant. It will not hire staff to cover every table and cook meals for a full house, unless there are paying customers at each table. If demand (or the number of customers) falls, then the restaurant will cut back staff and food purchases by roughly the same amount.

Figure A shows estimates of potential output and actual gross domestic product (GDP) over time. When actual GDP falls short of potential output, it can be inferred that GDP is demand-constrained (more could be produced if economic actors simply spent more). The shortfalls of actual GDP relative to potential may look small on the graph, but they correspond to significant economic distress. The growing gap between 2007 to 2009 was associated with the unemployment rate rising from 4.4% to just under 10%—meaning that roughly 9 million people lost their jobs during this time period. Others dropped out of the labor force, and wage growth even for those workers who kept their jobs was significantly damaged as well, as their main source of leverage to gain wage increases (the threat of—or ability to—leave their current job to find a higher-paying one) lost power in a labor market with huge pools of unemployed workers. Over the 2007–2017 period, excess unemployment translated into roughly 47 million years of avoidable unemployment for U.S. workers, and this period of soft labor markets kept wage growth firmly suppressed.[2]

Figure A

Throughout 2025, many have raised concerns that Trump administration policies could lead to a recession. It should be noted how surprising this development would be, considering the context. The economy handed over by the outgoing Biden administration in January 2025 was extremely strong, and there were no obvious macroeconomic threats moving forward that would have led one to forecast a recession in the next few years.[3]

For a recession to happen in the next year or two, there would need to be some short-run shock or drag on aggregate demand that forces it below the economy’s potential output. Despite the strength of the economy the Trump administration inherited, their subsequent policy agenda since his inauguration in 2025 contains plenty of reasons to worry about such drags.

For one, the Trump administration’s assault on the federal workforce directly destroys employment and incomes. Between January and December 2025, 290,000 federal workers have lost their jobs. While this is not enough by itself to drag an otherwise healthy national economy into recession (as it constitutes less than 0.2% of total employment), it certainly puts downward pressure on aggregate demand.

On top of this, the spending cuts in the 2025 Republican budget megabill (which the White House has referred to as the OBBB) will reduce aggregate demand in coming years. [4] For example, the Republican megabill will cut SNAP and Medicaid benefits by a combined $100 billion per year on average over the next decade. Households receiving Medicaid and SNAP benefits will cut back spending sharply when these benefits are reduced. Further, the megabill rolled back a set of Biden administration policies that sharply reduced student loan payments. In coming years, households will have to pay substantially higher student loan payments to the federal government.

Finally, another fiscal change that was not an explicit part of the megabill but was notable in its absence is the expiration of enhanced subsidies to buy health insurance in the marketplace exchanges established by the Affordable Care Act (ACA). The rollback of these enhanced subsidies—also passed during the Biden administration—will double out-of-pocket payments for the premiums of the 20 million Americans enrolled in these exchanges, increasing costs by more than $30 billion annually in coming years.[5]

The tax cuts in the Republican megabill are unlikely to do much to spur demand for two reasons. First, they are tilted toward high-income households whose spending is not constrained by their current incomes. Second, the tax cuts are small relative to a “current policy” baseline, meaning that they leave tax burdens unchanged, not appreciably lower, relative to 2025.[6]

The mass deportation agenda of the Trump administration will have its most predictably negative effects on the economy’s supply side, as millions of immigrant workers are forced out of the country.[7] But immigrants are not just workers; they are consumers as well. Further, immigrant workers are key complements to U.S.-born workers in many industries. Deporting these consumers and complementary workers and making it harder and more dangerous for those who remain to conduct the normal business of their lives will clearly have depressing effects on aggregate demand as well.

Most importantly, the radical uncertainty and chaotic implementation of Trump policies—particularly the trade policies—seem almost designed to freeze new business investment. Who would set up a new manufacturing facility if they had no idea what the competitive landscape of the sector was going to look like in coming years? Will tariffs protect domestic production? Will tariffs make imported inputs into the factory more expensive? Will protective tariffs vanish overnight when a foreign government meets the president’s demands of the day? Will future profits be reduced because the Trump administration arbitrarily demands ownership stakes in companies? Business investment is by far the most volatile component of aggregate demand, and it is the one that generally leads to recessions. It seems highly plausible that the Trump administration’s policies could cause business investment to seize up and slow growth.

Early in Trump’s second term, the administration’s “Liberation Day” tariffs led to most forecasters sharply raising the risk of a recession happening over the next year.[8] The sharp reversal of these historically high and broad tariffs to levels “only” half as high on average led to this risk receding a bit, yet still remaining sharply higher than it was in January 2025. So far, most of the “hard” economic data (that measure actual economic transactions like wages, employment, incomes, or gross domestic product) have yet to signal that a recession is coming.

Part of the relative robustness of macroeconomic measures likely owes to the fortuitous timing of a boom in AI-related spending, which largely began in mid-2023.[9] The valuation of stock markets has reached the second-highest levels in history—trailing only the stock market bubble of 2000–2001 (also driven by a boom in tech stocks). Much of these stock market gains have been driven by AI-related firms. A significant amount of consumption spending out of these wealth gains has likely contributed nontrivially to growth over the past year.

Further, capital expenditures related to the AI-boom have also been contributing to growth. Starting in 2023, year-over-year real growth (adjusted for inflation) in data centers, for example, has consistently exceeded 35%, peaking at just under 77% in late 2024 and remaining above 30% throughout most of 2025. While this AI-related spending has helped keep the U.S. economy well clear from recession through the third quarter of 2025, it is the kind of spending that would likely evaporate relatively quickly if business sentiment about the future use and profitability of AI investments dims.

If this happened, the depressing effect on wider business investment stemming from the uncertainty mentioned above might well dominate and lead to quick decelerations in growth. Evidence of this depressing effect seems already clear, as investment in components not related to the AI boom looks notably weak over the past year.

Figure B

The danger of a slowdown in aggregate demand highlights how much discussions about affordability need to go beyond prices.[10] Much of the discourse about affordability recently was driven by the outbreak of very high inflation in the early 2020s, following the COVID-19 pandemic. But absent very rare and sharp increases in inflation like that (and which tend to be driven by external events like pandemics and wars, not policy missteps), the main damage to affordability over time does not stem from fast inflation, but from slow growth in wages and incomes. A recession would return inflation in the U.S. to very low levels. The recession of 2008–2009, for example, led to inflation averaging below 2% for the following decade. And yet this low inflation provided next to no relief for affordability because the high unemployment of that period—which was the source of disinflation—sapped workers’ leverage and bargaining power in labor markets and led to slow wage growth.[11]

A recession in the next year would solve the price side of affordability in that it would lead to a sharp slowdown in inflation, but it would force wage growth down even faster, and hence, would exacerbate, not help, the ongoing problem of affordability properly defined.

All in all, it seems safe to say that the Trump administration’s policies have significantly elevated the risk of a recession over the next year. Their trade policy retreat has been sharp enough that a recession might well be avoided. But this hinges largely on the administration’s being able to resist whipsawing trade policy chaotically again—and this seems far from certain. But we may well navigate the next year without a recession—largely stemming from the momentum of the strong economy the current administration inherited and the lucky timing of much AI-related spending remaining strong through 2025.

Trump polices will quickly erode the economy’s ability to supply goods and services without inflation—this damages affordability for typical families

However, the avoidance of a recession would not mean the economic policy decisions of this administration were wise. If the only question on the table regarding the impact of Trump policies was “Will there be a recession?” the future of the U.S. economy would be much less bleak. Instead, the more predictable and larger amount of damage that the Trump administration’s policies will inflict will not come through downward pressure on aggregate demand but through the rapid erosion of the economy’s potential output and the upward redistribution of income instead. These influences will be experienced by typical families as wages, incomes, and public supports failing to outpace prices by sufficient margins over time, thereby damaging affordability.

In the previous section, we noted the sharp economic damage done by the aggregate demand shortfall of the early 2010s. The most obvious and acute damage stemming from this shortfall was the elevated unemployment rate of that time, along with the attendant damage to wage growth.

However, the worst lingering damage from that long period of deficient aggregate demand likely came from its spillover effect in destroying potential output. When employers see that customers are scarce and workers are cheap and plentiful, their imperative to invest in worker training or newer capital or innovative technological processes to economize on labor costs and boost productivity is blunted. And when jobless workers see elevated unemployment rates and the low probability of being hired, job seekers can get discouraged, and labor force participation can falter.[12]

Over time these dynamics lead to a lower-quality workforce and smaller capital stock, which reduce productivity growth and potential output. Figure A showed actual GDP and successive estimates of potential output over time. Between 2007 and 2019, these potential output estimates continually fall as the demand shortfall bends down potential output, as productive investment is blunted. By 2019, potential output was $2.2 trillion below where its 2007 trend would have left it in that year. This translates into $6,500 less income for every adult and child in the United States in 2019 (or $26,000 less income for a family of four). In short, over a 5–10-year period, even small bends in the growth of potential output have huge real-world consequences.

Supply destruction leads directly to unaffordability

This discussion of potential output growth likely sounds abstract to noneconomists. But it has profound effects on typical families’ economic security, and the way this slowing down of potential output translates into observable real-world effects is by making affordability worse for these families. For example, in the paragraph above, we said that the slowdown of potential output growth after 2007 translated by 2019 to $6,500 less in inflation-adjusted income for every person in the United States (or $26,000 less income for a family of four). The way this happens is by wages and incomes failing to outpace growth prices by satisfactory amounts—even during times (like the 2010s) when inflation was extremely low.

And, of course, the gap in the race between wages and prices differs depending on the specific goods and services examined. In the 2010s, the output that was produced less and less, relative to historic norms, was housing.[13] This reduced output of housing translated directly into higher relative prices for rents.

While there is a lot about this collapse in housing production and rise in rental prices that is housing-specific, the root of all of this pressure on affordability stems from macroeconomic choices. If potential output growth slows for the overall economy, then the production of something will lag, and its price is likely to rise. If we had somehow kept housing construction constant in the face of a fall in overall potential output, the biggest affordability problem would have shown up someplace else, but one surely would have emerged.

How Trump policies will slow potential output and exacerbate affordability concerns

In the current moment with unemployment that is still relatively low by historical standards and so-far adequate aggregate demand, the imminent threat to the economy’s supply side today is not an extended recession, but simply the direct effect of many Trump policies. When (not if, but when) potential output growth falters in coming years, it will again represent a sharp break from the economy the Trump administration inherited, an economy that saw rapid productivity growth in the years following the pandemic.

Figure C

The potential supply destruction stemming from Trump administration policies comes along many margins.

Loosening immigration restrictions and unleashing mass deportations

The most obvious blow to the economy’s potential output would be Trump’s mass deportation policy. If the U.S. relied solely on growth in U.S.-born workers, labor force growth would shrink rapidly over the next decade (see Bivens 2025c). Successful mass deportations—besides causing great and unnecessary human misery—would actually push labor force growth in the U.S. economy into negative territory in coming years.

Further, immigrant and U.S.-born labor supply are often complementary (Zipperer 2025). One obvious example is that child care centers are disproportionately staffed with foreign-born workers. If mass deportations cause significant closures of these centers, U.S.-born parents will often be forced into stopping work in order to care for children.

Cutting back federal spending and the workforce

We noted the cutbacks to federal workforce and spending previously as short-run threats to aggregate demand. But the federal government is not just a source of short-run demand; it also provides absolutely crucial inputs needed for robust private-sector growth.[14] Recent decades have seen sharp cuts in the size of the federal workforce and the investments in the functions it provides. By January 2025, the size of the federal workforce and the spending to support it were at historically low levels relative to the broader economy. In short, it seems clear that this workforce and the state capacity of the federal government were already significantly degraded even before the Trump administration took power. Since then, the administration has unleashed an unrelenting attack on this state capacity.

Perhaps the clearest way reduced federal spending will translate into slower potential output growth in coming years comes from cutbacks to science and research. Fieldhouse and Mertens (2025), for example, have estimated that nearly a third of total factor productivity (TFP) growth stems from federally financed research and development spending.

Further, the Trump administration has significantly cut back federal spending on universities. A key driver of productivity growth over time is a more educated and skilled workforce. Today’s higher education cuts are guaranteed to slow the growth of labor quality in the U.S. workforce in coming decades.

Other federal agencies collect, analyze, clean, and provide access to free, publicly available, high-quality data on the nation’s economy and demographics. These services provide enormous monetary value to private-sector actors (see Hughes-Cromwick and Coronado 2019).

Other agencies provide crucial monitoring services that help the nation avoid financial, epidemiological, or weather disasters. These investments provide a huge rate of return relative to the (likely too small) federal spending done on them. Even monitoring and surveillance that directly aim to constrain and manage private-sector decision-making can often actually lead to better private-sector outcomes. Hirtle, Kovner, and Plosser (2019), for example, examine the outcome of banks when they receive more or less regulatory scrutiny from federal banking supervisors. The authors find that “…banks that receive more supervisory attention hold less risky loan portfolios, are less volatile, and are less sensitive to industry downturns, but do not have slower growth or profitability.”

By far the biggest long-run threat to the U.S. and global economies’ ability to produce goods and services without inflation is the effect of climate change. Climate change can be thought of as an ongoing erosion of the economy’s productive capacity. For example, key swathes of land will become less valuable as flooding and disaster exposure rise, buildings and factories will be threatened by extreme weather, and the productivity of work that must be performed outside will suffer due to either extreme weather or needed spending to mitigate the effects of it on workers. Investments that mitigate greenhouse gas emissions (GHG) and reduce the effects of climate change are incredibly valuable in the long run for maintaining the economy’s supply side. By far the biggest and most effective investments in this type of mitigation ever made by the United States were the subsidies for clean energy and its adoption in the Inflation Reduction Act (IRA) of 2022. The Republican budget megabill, however, rolled back the majority of these IRA subsidies and will hence lead to far fewer reductions in GHG emissions in coming years. Essentially these rollbacks will accelerate the destruction to the economy’s supply side that is ongoing due to climate change.

Many federal agencies are responsible for providing and enforcing transparent rules for markets that channel economic competition into productivity improvements, instead of zero-sum opportunism. For example, the Securities and Exchange Commission and the Consumer Financial Protection Bureau provide protection to investors by enforcing rules against fraud or misappropriation of their funds from companies they invest in. This promotes trust and allows more liquid capital markets that are able to provide finance for more prospective and ongoing businesses. The Federal Trade Commission and the Antitrust Division at the Department of Justice aim to keep firms’ monopoly power from distorting markets. The Occupational Health and Safety Administration and the Wage and Hour Division at the Department of Labor protect employees from abusive workplaces, allowing them to choose among prospective employers without having to factor in whether there will be unsafe or exploitative working conditions with these employers.

Another key federal agency priority that has had profoundly beneficial effects on the U.S. economy’s supply side in recent decades is enforcement of anti-discrimination laws. The Equal Employment Opportunity Commission, for example, was established in 1965. Hsieh et al. (2019) have noted that since then, there has been an enormous increase in the share of high-wage, high-skill occupational employment that is accounted for by women and Black men. In turn, the authors estimate that this more efficient allocation of workers to occupations based on talent and merit accounted for up to 40% of all growth in the U.S. economy since 1960. Much of this better allocation of talent has stemmed directly from enforcement of anti-discrimination laws. Going forward from today, there is ample scope for ongoing and/or improved enforcement of anti-discrimination laws to support future growth. If instead, the enforcement of these laws withers, and there is a reduction in the efficient allocation of talent to occupation, this could be an outright headwind to growth going forward.

Haphazardly implementing poorly designed and chaotic tariff policy

The chaotic implementation of the administration’s tariff policy is surely a short-run drag on aggregate demand. But, if the end result of the policy is to leave the United States with historically high and broad tariff rates (which is where the tariff policy has landed as of December 2025, even with the sharp reversal of many of the highest tariffs), without any obvious corresponding benefit from well-designed industrial policy considerations, then this will also slow potential output growth.[15]

Tariffs are essentially a way to block the lowest-cost method of delivering goods to U.S. households and businesses, if this lowest-cost method involves imports. Sometimes this kind of blockage is fully justified by other policy concerns besides what is the cheapest production at the moment. For example, if foreign governments subsidize their producers in a specific sector, and if the U.S. deems it imperative to have productive capacity in that sector, then tariffs can help keep domestic producers from being forced out of business by the decisions of foreign governments.

Further, if the sectors that domestic producers are being forced out of looked poised to drive productivity gains in coming decades, there might be a strategic benefit to using tariffs to protect domestic production. The case of electric vehicles (EVs) is one potential example. There is clearly going to be a large global shift toward EVs in the coming decades. EV manufacturing will scale rapidly, and often this kind of scale produces huge leaps in productivity. If today’s constellation of EV production facilities and foreign countries’ subsidies of their own EV makers threaten to shove U.S. producers entirely out of the race for EV market share, it seems like industrial policy efforts to support domestic production of EVs would make a lot of sense—and this was indeed a priority of the Biden administration.

Similarly, if some or all of the cost advantage of imports in a sector stems from objectionable practices of producers in other countries—say, blatant disregard of fundamental labor rights—tariffs can protect U.S. producers from being forced out of business by these objectionable practices.

But the historically broad and high tariffs of the Trump administration are not being calibrated in any kind of strategic or careful way. Instead, they are blocking the lowest-cost means of delivering goods to U.S. households and businesses randomly. This essentially is the equivalent of a negative technology shock. Businesses (both foreign and domestic in the U.S.) that supply goods have been forced out of the most efficient way to produce goods, and without any countervailing benefit from smartly designed industrial policy considerations.

Finally, the chaotic implementation does not only affect aggregate demand. If ever-shifting tariff levels change the patterns of production that lead to the lowest-cost ways of producing goods in random ways, this makes it impossible to set up efficient supply chains, hence stunting potential output growth.

Financing tax cuts for the rich and corporations with higher debt

In 2000, the ratio of U.S. public debt to gross domestic product (GDP) stood at less than 35%. In 2024, the debt ratio nearly tripled, rising to almost 96%.[16] A large part of this increase was due to the two historically large economic crises experienced in those years: the financial crisis and Great Recession of 2008–2009, and the COVID-19 recession.

More worryingly, even in 2024—a year in which the unemployment rate averaged 4%, the Fed’s short-term interest rates stood at over 5%, and inflation was above the Federal Reserve’s target—the federal budget deficit was 6.2% of GDP. This is too large a deficit for an economy that is at roughly full employment and not in need of fiscal support.[17]

The 2024 deficit can essentially be entirely explained by the successive rounds of tax cuts engineered by Republican administrations since 2000. In 2009, the Congressional Budget Office (CBO) projected what federal revenue as a share of GDP would be if the tax cuts signed into law by George W. Bush in 2001 and 2003 were allowed to lapse (see CBO 2009). They projected that revenue would be 20.2% of GDP by 2019. However, in 2019—after the vast majority of the Bush-era tax cuts were maintained and President Trump signed the 2017 Tax Cuts and Jobs Act (TCJA)—federal revenue came in at just 16.1% of GDP.  If revenue had remained at 2000 levels going forward, even with the extra debt incurred by economic crises, budget deficits by 2024 would’ve been effectively zero.

In the decade after the onset of the Great Recession in 2008 and during the early stages of the 2020–2021 pandemic, large deficits were not harming the economy. In fact, they were usefully propping up aggregate demand even as private sources of demand were plummeting. This chronic shortfall of aggregate demand (sometimes labelled “secular stagnation”) kept spending weak and interest rates and inflation historically low (short-term interest rates stood at essentially zero in all these years).[18] And so long as interest rates were low, no damage was being done by higher deficits.

But in the post-pandemic recovery, aggregate demand (aided by a robust fiscal response to the crisis) has been stronger, and interest rates and inflation have moved decisively off their historic lows. In this environment—when the economy is no longer demand-constrained—further increases in federal debt now compete with private-sector borrowers to find available savings. This, in turn, pushes up interest rates and threatens to crowd out private sector investments in new factories, plants, and equipment. This slowdown in the growth of the nation’s capital stock, in turn, leaves U.S. workers with less capital to aid them in doing their jobs and hence slows the pace of productivity growth.

This potted history of fiscal policy debates in recent decades tells us that after a decade and a half of warnings about the crowding-out effect of higher deficits on investment not ever coming to pass, there is now strong evidence to suggest this might be an important influence on growth going forward. Figure D shows the “real debt service ratio,” a measure of how sharply the government’s borrowing costs are rising. After a long stretch of being under 1%, this measure has recently surpassed its historic high.

Figure D

This historic high was surpassed even before the passage of the 2025 Republican budget megabill—a bill that will add nearly $4 trillion to the federal debt over the next 10 years. Borrowing costs are guaranteed to spike further going forward from now in any time period when the economy sits near full employment.

If the worried-about recession comes to pass in the next year or so, the collapse in private spending will reduce competition for available savings and interest rates will fall and the supply destruction effect of higher interest rates will be muted. But so long as the underlying fiscal structure of the U.S. sees large budget deficits even when the economy is at full employment, this means that interest rates will be high during these full employment periods and investment will be suppressed, leading to slower future productivity growth.

A key aggravating factor of the supply-destroying effects of higher deficits in coming years is what they were used for: simply to give much higher disposable incomes to rich households in the United States.          

One could imagine a counterfactual in which instead of using debt to finance higher disposable incomes for the rich, the federal government used this debt to make significant investments to mitigate emissions of greenhouse gases. This would leave the country with a higher stock of “green” capital (capital used to mitigate greenhouse gas emissions) and a smaller stock of conventional capital. This would be an affirmatively good thing. It would effectively be leaving future generations with slightly lower productivity in producing conventional goods and services, but a more livable and viable climate. Consistent economic growth essentially guarantees that future generations will be significantly richer than the current one in their ability to buy conventional goods and services. Trading off a bit of this advantage for a livable planet would be welcomed by this future generation—and it’s a trade-off they won’t be able to make. Only their ancestors can make it for them.

Alternatively, one could imagine a world in which the federal government took on additional deficits of the size generated by the 2025 Republican megabill to radically increase investments in children: providing federal financing of universal, high-quality pre-kindergarten; boosting aid to K–12 public school systems; and providing a universal Child Allowance to end child poverty. This would not only raise human welfare much more than tax cuts to rich people would; it would also see some of the deficit costs defrayed in coming decades as today’s children grew up healthier and better educated and worked more and earned higher wages in the decades to come. Some of these offsets could be considerable.[19]

There are no such happy offsets that stem from running larger deficits simply to give tax cuts that are radically tilted toward households that don’t need them—the ones at the very top of the income distribution. These deficits are supply destruction for the sake of intentionally increasing inequality.

Threatening a political takeover of Federal Reserve policy decisions

The Trump administration has been far more forceful than previous ones in pressuring the Federal Reserve to fall in line with the administration’s economic goals. They have demanded that the Federal Reserve set interest rate policy to meet the administration’s short-term economic goals and have constantly demanded lower interest rates, even as conditions do not warrant cuts in interest rates (inflation remains above the Fed’s long-run target, and unemployment remains generally low).

If decision-makers throughout the economy—households, businesses, and state and local governments—begin to think that the Federal Reserve’s interest rate decisions will be managed entirely by the executive branch, they might well raise their expectations of inflation in the future. This, in turn, would likely require any future Federal Reserve that committed to reducing inflation (and inflation expectations) to raise interest rates higher than they would otherwise have to be. These higher long-run interest rates would, in turn, reduce investment and slow productivity growth (much like too-large deficits run during times of full employment).

How much will supply destruction slow growth in coming years?

It is very hard to provide any convincingly precise estimates as to how much supply destruction will result from this portfolio of Trump administration policies. What determines the ebb and flow of productivity growth in advanced economies is one of the most debated topics in economics, and one in which no consensus exists. Yet we can give some very rough bounds for how important each element of this potential supply destruction might be over the next decade. The sum of these negative effects would be highly significant for future living standards growth—or affordability.

We start with the Congressional Budget Office’s (2025b) forecasts of potential output growth for the next decade. Currently they forecast that annual growth will average 2.0% between 2025 and 2034.

About 30% of the 2.0% that CBO forecasts (or 0.6% of this growth) stems from their estimate of how much the labor force will grow in those years. However, if one accounts for the Trump administration’s meeting their mass deportation goal of removing 1 million immigrants each year from the United States, this would imply that the labor force will barely grow at all in those years, translating into a 0.4% slowdown of growth in potential output.[20]

More than half of the projected growth in potential output comes from CBO’s forecast of growth in total factor productivity—a measure of how much extra output can be obtained holding inputs constant. TFP growth is often interpreted as a measure of pure technological advance—using new processes and production techniques to get more output out of a given stock of inputs. However, as we noted before, Fieldhouse and Mertens (2025) have estimated that fully one-third of TFP growth in recent decades can be accounted for by direct federal spending on research and development. The Fieldhouse and Mertens (2025) results would imply that a 20% cut in federal research and development spending would reduce projected productivity growth in the U.S. over the next decade by 0.2% annually.[21] This, in turn, would reduce potential output enough by roughly $2,500 for every adult and child in the United States by 2035.[22]

Importantly, their estimates do not include the effect of federal support for institutions of higher education, and this support has been large and critical for these centers of scientific research—likely as important as the direct federal research and development spending. This could easily double the effects from direct federal research and development spending, especially if one accounts for the long-run loss in the labor supply of trained scientists and researchers capable of undertaking research and development that will occur as higher education funding erodes.

CBO (2025b) has estimated that the 2025 Republican megabill will add roughly 7.1 percentage points to the ratio of public debt to GDP by 2034. Using earlier estimates from CBO (2025e) to translate the effect of a higher debt ratio on economic growth, this level of debt increase (assuming no recession intervenes) would slow growth by 0.1%–0.2% by 2034 through its effect on interest rates and investment. Given that Figure D previously showed that higher interest rates really have emerged in recent years, this effect seems possible.[23]

Estimates of the growth effects of the Trump administration’s trade policy are more uncertain. The Yale Budget Lab indicates a long-run effect on the level of GDP of 0.4%. However, it is hard not to make a comparison between the strategy-free actions of the Trump administration and a similar lack of planning that went into the United Kingdom’s exit from the European free trade area (Brexit). Estimates of the effect of Brexit are substantially larger than 0.4%—on the order of 2%–3% of GDP over 10 years (Bloom et al. 2025). If we think that Brexit is a suitable potential model for the fallout from the Trump trade policy—similarly chaotic and unplanned—this would imply a reduction in productivity growth of around 0.25% over the next year.

The long-run growth effect of eroding the federal government’s state capacity through budget cuts and downsizing is harder to estimate. One suggestive paper on this is Klein Martins (2025), who looks at episodes of sharp permanent spending cutbacks in advanced countries over the past 30 years. He estimates highly persistent negative effects on GDP growth of these cutbacks, over timespans well longer (15 years) than could be explained simply by the effect of these spending reductions adding to demand shortfalls. Klein Martins finds that each 1% of GDP in public spending reductions leads to GDP that is 2% smaller 15 years later. Say that half of these effects were driven by the erosion to state capacity stemming from these cuts. The cuts to the federal workforce in 2025 will result in a reduction of federal government spending of roughly 0.1% of U.S. GDP, which would imply (using half of Klein Martins’ estimates) a reduction in GDP of about 0.1%.

Tedeschi (2024) estimates how much higher interest rates driven by political events (like the capture of Fed policymaking by the executive branch) could reduce growth in coming years.[24] He finds that if the political events just moved the “country risk premium” of the United States to look more like the United Kingdom, this could reduce growth by 0.1% annually. If instead, this country risk premium deteriorated enough to look more like other rich, stable economies like Spain, the damage could be closer to 0.3% annually.

Adding up supply destruction from Trump policies

The Trump deportation goals could reduce labor supply growth by 0.4% over the next decade. The cuts to direct public research and development spending and this spending supported by institutions of higher education could each slow productivity growth by 0.2% over this period. Financing the Trump administration’s tax cuts for the rich with debt could reduce capital investment and hence productivity by 0.2%. If Brexit is the best model for the administration’s strategy-free trade policy, this could also reduce productivity growth by 0.2%. If the Trump-led attacks on the Fed led to steep concerns in international financial markets that raise the U.S. country risk premium and other interest rates significantly, this could slow growth by up to 0.3% in coming years. The administration’s attacks on the state capacity of the federal government could reduce growth by 0.1%. Their capture of Federal Reserve policy—leading to rising interest rates—could slow growth by between 0.1%–-0.3%. Adding these up, this means growth could slow by just under 2% on average over the next decade, with productivity growth slowing by well over 1%.

Somewhat ironically, the optimistic projections of how much advances in AI could boost U.S. productivity growth over the next decade tend to cluster around 1% annually.[25] The damage being done by the Trump administration to the economy’s supply side over the next decade is hence potentially as large as the most optimistic projections for how much a new burst of technology could boost it. If this came to pass, it would constitute just the latest episode of poor policy decisions squandering the potential benefits of economic growth and technological advance. The typical U.S. household today is not poorer in absolute terms compared with decades ago. But they are shockingly poorer relative to the potential growth they could have enjoyed with smarter policy that prioritized their economic security over showering the rich with even more perks.

Trump policies will raise inequality—the worst blow to families’ affordability

As we noted before, affordability is determined simply by the race between families’ economic resources (wages, incomes, and publicly provided subsidies and benefits) and prices. When affordability is strained, it is overwhelmingly because something—a recession or slowing of potential output growth, for example—has dragged on growth in families’ economic resources. Moreover, even when the aggregate economy seems strong—free of recession or inflation and with adequate growth in potential output—affordability for the vast majority of families can be squeezed if growth in these families’ resources lags far behind average growth. This mismatch between growth in typical families’ resources and average growth is driven by strongly above-average growth at the top of the income scale—the precise problem that has afflicted the U.S. economy in recent decades and the true root of nearly all U.S. families’ concerns about affordability.

Figure E

The Trump policy agenda will push income away from low- and moderate-income families and toward the top along many different margins. Even if (as expected) inflation rates return to normal during the second Trump term, this will be unlikely to boost the inflation-adjusted resources available to most families because the policies of the administration will actively claw resources—or the market power to claim these resources—away from typical families.

In the short run, the Trump budget megabill will cause an enormous jump in inequality

The signature legislative achievement of the second Trump administration is the 2025 Republican megabill, a budget reconciliation package that continues the individual provisions (and some business provisions) of the 2017 Tax Cuts and Jobs Act. The megabill also enacts steep cuts to health care and nutrition programs (Medicaid and the Supplemental Nutrition Assistance Program, abbreviated as SNAP). On top of this, the megabill also failed to either roll back or otherwise modify the corporate income tax cuts of the 2017 TCJA, but also fails to extend the supplements to subsidies for purchasing health insurance in the marketplace exchanges established by the Affordable Care Act that were passed as part of the Biden-era American Rescue Plan.

To give a sense of scale of the bill’s impact, we compare the one-year change that will result directly from the 2025 megabill policy with the entire upward redistribution of income that happened between 1979–2019, a period widely recognized as one during which U.S. inequality exploded. The share of total income claimed by the top 10% of households over that period rose by roughly 10 percentage points over a period of 40 years (or about 0.25 percentage points per year). But the Republican megabill alone will in one year raise the share of income claimed by these top 10% of households by 1 full percentage point. The 40 years between 1979 and 2019 saw the top 10% gain an average of 0.25 percentage points in the share of income they claim. This means the Republican megabill will see the rate of inequality growth quadruple in its first year, and it will essentially accomplish 10% of the entire post-1979 rise in inequality in a single year.

In the longer run, Trump policies empower the rich and disempower everybody else

Besides these large fiscal changes, other policy priorities of the second Trump administration include stripping workers of the effective right to organize unions and bargain collectively, deregulating some of the most abusive parts of the financial sector, and shrinking the federal workforce. All of these will lead to rising inequality.[26]

Trump policies continue the conservative assault on labor and workers’ rights

The Trump administration has continued to move forward with parts of its first-term priorities like the assault on labor and the bargaining power of typical workers. Two obvious high-profile indications of this were the stripping of collective bargaining rights of more than a million federal workers (including terminating the collective bargaining agreement of the Transportation Security Administration and firing National Labor Relations Board (NLRB) Member Gwynne Wilcox for “unduly disfavoring the interests of employers.” Further, the Trump administration nominated a partner at the very law firm that is currently challenging the constitutionality of the NLRB to be the NLRB’s general counsel. [27]

The assaults on labor and the bargaining leverage of typical workers continue a long-term conservative effort that has been highly successful in suppressing wage growth for low- and middle-wage workers and which has been a primary contributor to the long-run rise of inequality in the U.S. economy. [28]

Normalizing the most abusive parts of the financial system

The rise of the financial sector’s power has played a large role in the upward redistribution of income in the U.S. economy in recent decades. Finance is possibly the economic sector that has most benefitted from the federal government’s intentional industrial policy support. Between deposit insurance, the day-to-day liquidity provisions of the Federal Reserve (like the discount window that provides overnight reserves at the Fed), and the regular occurrences of extraordinary support provided in financial crises, the financial sector is obviously far larger in capitalist economies than it would be without this public support.

Significant public support of the financial sector is warranted—finance provides needed services to the rest of the economy, and without public backing, market failures would prevent these necessary services from being continually available. But this public support also justifies a robust regulatory and supervisory framework surrounding the financial sector.

The history of finance in the United States is one of accepting public support (especially during bad times for finance) while constantly trying to escape regulation and supervision that constrain profits during good times. The period from the late 1970s to 2007 saw regulation and supervision atrophy. This resulted in exploding profits and incomes in the financial sector with very little obvious benefit to the rest of the economy and the spectacular crash of 2008 that demanded even more public support for the sector. In short, the industrial policy support that the financial sector has received is a case study for how complementary policies (regulation and supervision in this case) are needed to ensure public support for a specific sector is not siphoned off into the incomes of economic players with substantial market power.[29]

In the financial regulation space, the Trump administration has continued conservative efforts to keep public supports for finance strong while expanding the scope of what the sector can do to seek profits.[30] The administration has directed the Consumer Financial Protection Bureau to shrink its scope and cede regulatory oversight to state agencies and has supported congressional efforts to slash funding for the bureau. The administration has also stopped U.S. movements toward harmonizing regulations with the Basel III recommendations—essentially meaning that large banks are no longer required to hold as large a set of capital buffers to protect against financial market stress. These capital buffers are there to prevent the public sector from having to bail out large parts of the financial sector during these periods.

The administration has also endeavored to bring cryptocurrency into the realm of traditional financial institutions, but under a loose regulatory regime. This approach would essentially allow some parts of the crypto ecosystem to put the public sector on the hook for bailouts needed due to instability in the sector, but would also allow many of the worst abuses of the crypto ecosystem—its use in illegal transactions and its speculative excesses—to continue unregulated. The approach to crypto represents the worst of all possible worlds. It gives the public sector heavier responsibilities to ensure that crypto crashes are managed but robs them of the tools needed to supervise the sector.

Attacks on the federal workforce

Between January and December 2025, federal payroll employment fell by roughly 290,000 due to the cuts started by the so-called Department of Government Efficiency. We noted previously that these cuts would sharply hurt growth in potential output in coming years. They will also lead to a less equal economy.[31]

Besides providing key inputs to public-sector production that markets generally fail to provide, the activities of federal workers often involve providing a countervailing force against unchecked corporate power. The Federal Trade Commission and the Antitrust Division at the Department of Justice ensure that markets remain competitive and block firms from exercising monopoly power. The Centers for Medicaid and Medicare Services must set reimbursement rates for the health care delivered by private-sector providers but paid for by the federal government. Private-sector health providers have seen a wave of consolidation in recent years and often can exercise pricing power against patients and other payers—the price-setting decisions of the federal government are a key bulwark against this pricing power. The Occupational Safety and Health Administration and the Food and Drug Administration have workplace inspectors to ensure that firms do not try to maximize profits by underinvesting in basic protections for worker or consumer safety.

Further, in a country where the federal tax system remains at least moderately progressive (with richer households facing higher tax rates than low- and moderate-income households), effective administration of the nation’s tax laws is equality enhancing. The vast majority of unpaid taxes are owed by the very rich. As such, attacks on the capacity of the Internal Revenue Service to administer this tax law are intentionally designed to lighten the tax burden of the privileged without passing new legislation.

Measures of GDP and income understate harms of Trump policies

Most of the discussion above concerns economic forces that affect measured GDP and incomes. But the economic security and happiness of U.S. families cannot be captured entirely based on these measures. For example, many Americans report feeling overworked and wish they had more leisure time. Increases in leisure time do not show up as greater GDP or incomes, yet clearly are valuable to families.

A number of policy choices made by the Trump administration will have profoundly damaging effects on families’ welfare that are not captured by GDP or data on incomes. For example, much of the damage done by climate change will not be well captured in these statistics. At the starkest level, climate change is forecast to lead to worse health outcomes and more premature deaths. The famous Stern review of climate change (2021) noted that accounting for these non-GDP influences likely at least doubles the true economic cost of climate change.

Similarly, the cutbacks to health insurance coverage signed into law by the Trump administration will cause poorer health and excess deaths in the coming decade if they stand. These deaths will not directly affect GDP, but obviously they need to be accounted for when assessing the impact of these policy changes.

Some of the outcomes of public policy raise GDP but actually reduce welfare. As climate change makes people spend more money on air conditioning, for example, this shows up as an increase in GDP yet makes peoples’ lives worse. Similarly, an increase in health spending driven by maladies related to climate change will raise GDP yet reduce welfare.

Further, some government spending provides outputs that GDP does not measure well at all. The value of less air and water pollution, for example, is immense but not captured in contemporaneous GDP. Much of its value will implicitly show up in future GDP numbers, as less pollution will lead to a healthier and more productive workforce in the future, but in real time, the benefits are not precisely measured. A similar finding concerns investments in children generally. Some of the benefits might occur in the moment (say, child care subsidies that allow parents to work more and earn higher incomes), but most accrue over time as children grow up healthier and become more productive and higher-earning adults.

Just because the benefits of much public spending do not mechanically show up in contemporaneous GDP measures do not mean they cannot be measured. When they are measured, there is ample evidence that families value this spending and the output it produces immensely. Often the estimated value of such spending is on the order of $1.50 for each $1.00 spent, with most of the benefit coming from welfare gains not captured in GDP. Welfare gains this large from public spending are strong suggestive evidence that public spending is already extremely under-provided, and further cuts will make it far worse.

Conclusion

It is essentially a guarantee that the policy path charted by the second Trump administration will leave the U.S. economy poorer and less equal. But much of this damage will be subtle and hard to see in month-to-month or even year-to-year changes in economic statistics. The Trump administration’s inability to implement a policy agenda without rank chaos might lead to a short-run recession that will temporarily expose much of the damage being done. But even if the recession does not come and even when it passes, there will be a steady hollowing out of the U.S. economy’s simple ability to produce the goods and services families need, and the inadequate growth that does get generated will flow disproportionately to the richest households.

In short, the macroeconomic consequences of the second Trump administration are profound. They will leave the vast majority of American families poorer over the next decade, and if Trump’s successors continue in this vein, they will leave the current generation’s children far poorer.

Notes

[1] The obvious historical counterexample to the rule that supply tends to grow slowly and predictably occurred during and immediately after the COVID-19 pandemic and Russian invasion of Ukraine, when these shocks broke global supply chains and led to sharp supply disruptions that restored themselves only with lots of volatility. This was, however, an unprecedented behavior of supply in advanced economies over the past century and is highly unlikely to repeat in the future.

[2] For this calculation, assume a counterfactual in which the unemployment rate stood at 4.0% over the 2007–2017 period and multiply by the size of the labor force in each year. Then, subtract this level of unemployment from the actual rate and sum over the years. For evidence of the damage this excess unemployment did to wage growth, particularly for lower-wage workers, see Gould et al. 2025.

[3] For details on the strength of the economy the Trump administration inherited, see Bivens 2025a.

[4] Numbers in this paragraph about cuts in the 2025 Republican budget megabill are taken from CBO 2025b, c.

[5] See Lo et al. 2025.

[6] This current policy baseline is a wrong and dishonest one to use when grading a law’s fiscal impact in coming years, but it’s the right one to use when figuring out whether growth will accelerate or decelerate in coming years due to policy changes.

[7] See Zipperer 2025 for estimates of the employment impact of the Trump administration’s mass deportation goals.

[8] For a wide range of views on the “Liberation Day” tariffs, resulting pullback and recession risks, see Nathan, Grimberg, and Rhodes 2025.

[9] Numbers in this paragraph can largely be found in Bivens (forthcoming).

[10] See Shierholz 2025 for this broader argument.

[11] Stark evidence that it is the race between wages and prices (and not just prices) that determines affordability can be found in Gould et al. 2025. They show that inflation-adjusted wage growth for low- and middle-wage workers was extremely strong from 2019 to 2024 but was actually negative over the five years following the previous business peak (from 2007 to 2012), even as this 2007–2012 period saw much lower rates of inflation. The strength of the labor market dwarfed changes in inflation in these periods, for good and bad.

[12] See Bivens 2017 for evidence that healthy labor markets support faster productivity growth.

[13] For example, according to the National Income and Product Accounts (NIPA) Table 1.1.10, between 1979 and 2007 residential investment was about 4.7% of overall GDP, whereas between 2007 and 2019 it was just 3.3%.

[14] See Bivens 2025b for an overview of the short- and long-run effects of steep cutbacks in the federal workforce.

[15] See the Yale Budget Lab’s State of U.S. Tariffs feature for a real-time assessment of trade policy under the second Trump administration.

[16] Numbers in this section are taken from CBO 2025b.

[17] Bivens 2019 estimates that a budget deficit of 2.5% or lower is likely consistent with a roughly stable debt ratio when the economy is near full employment.

[18] See Banerjee and Bivens 2022 for an overview of secular stagnation and how it intersects with fiscal policy debates.

[19] See Lynch and Vaygul 2015 for an accounting of the costs and benefits of investments in early childhood education.

[20] Bivens 2025c looks at a scenario in which net immigration between 2025–2034 was halved relative to CBO projections made in January 2025. The goal of deporting 1 million immigrants would yield reductions in immigrant labor supply very close to that “halving net immigration scenario” in that report.

[21] Marr and Cureton 2025 note that the administration’s proposed budget calls for cuts larger than 20% in federal research and development spending.

[22] For this calculation, we compare a scenario in which the $204 billion spent on government research and development in 2024 is cut by 20% going forward and compare it with a scenario in which (as has been largely the norm) this spending was instead held constant as a share of GDP. By 2035 this implies a funding shortfall of nearly $80 billion. We multiply this funding shortfall by the high end of estimated returns to this kind of spending from Fieldhouse and Mertens to ascertain the total cumulative reduction in GDP by 2035, which is 2% of projected GDP in that year. We then divide this by 10 to get the average effect on productivity growth over that time.

[23] In CBO 2025e, they present the effect of GDP on two different scenarios regarding growth in the debt ratio over time. Using this, one could back out the implicit effect on GDP of a given increment of increase in the debt ratio. If this incremental effect holds for the increase in the debt ratio caused by the 2025 Republican budget megabill, one can hence get an estimate of its growth effects.

[24] While Tedeschi 2024 is not just writing about the takeover of the Fed, he absolutely mentions this as one thing that could threaten the very low current “country risk premium” enjoyed by the U.S. The country risk premium is essentially how much lower a return that international investors are willing to take on investments in the U.S. due to the perceived safety and stability of U.S. investments from political manipulation.

[25] See Bivens (forthcoming) for a quick discussion of these estimates.

[26] For a comprehensive assessment of policies undertaken by the Trump administration and their likely effect on typical working families, see Economic Policy Institute 2025–2026.

[27] For a comprehensive overview of actions taken by the Trump administration (including those mentioned in this paragraph) that harm workers’ leverage in labor markets, see McNicholas, Poydock, and Bivens 2026.

[28] See Farber et al. 2021 for the link between unionization and inequality throughout U.S. history.

[29] See Epstein 2018 for a good overview on how powerful economic actors in finance are able to claim a larger share of society’s incomes and resources than their economic contribution justifies.

[30] Much of this section relies on Gensler et al. 2025.

[31] Much of this discussion relies on Bivens 2025b.

References

Banerjee, Asha, and Josh Bivens. 2022. Will Secular Stagnation Return? The Stakes for Current Economic Debates and Fiscal Policy. Economic Policy Institute Report. August 4, 2022.

Bivens, Josh. 2017. A ‘High-Pressure’ Economy Can Help Boost Productivity and Provide Even More ‘Room to Run’ for the Recovery. Economic Policy Institute, March 2017.

Bivens, Josh. 2019. Thinking Seriously About What ‘Fiscal Responsibility’ Should Mean: Full Employment and Reduced Inequality Are the Most Important Targets of Fiscal Policy. Economic Policy Institute, September 2019.

Bivens, Josh. 2025a. “President-Elect Trump Is Inheriting a Historically Strong Economy.” Working Economics Blog (Economic Policy Institute), January 17, 2025.

Bivens, Josh. 2025b. “The Economic Effects of Rapid Federal Downsizing” in Gensler, Gary, Simon Johnson, Ugo Panizza, and Beatrice Weder di Mauro (eds), The Economic Consequences of the Second Trump Administration: A Preliminary Assessment. Centre for Economic Policy Research Press, December 2025.

Bivens, Josh. 2025c. The U.S.-Born Labor Force Will Shrink over the Next Decade: Achieving Historically ‘Normal’ GDP Growth Rates Will Be Impossible, Unless Immigration Flows Are Sustained. Economic Policy Institute, October 2025.

Bivens, Josh. Forthcoming. “How Are AI Investments Affecting the U.S. Economy?” Working Economics Blog (Economic Policy Institute).

Bloom, Nicholas, Philip Bunn, Paul Mizen, Pawel Smietanka, and Gregory Thwaites. 2025. “The Economic Impact of Brexit.” National Bureau of Economic Research (NBER) Working Paper no. 34459, November 2025.

Bureau of Economic Analysis (BEA). 2025. “National Income and Product Accounts (NIPA)” (web page). Accessed December 2025.

Bureau of Labor Statistics (BLS). 2025. “Major Sector Productivity and Costs Database” (web page). Accessed December 2025.

Congressional Budget Office. 2009. The Budget and Economic Outlook: 2009 to 2019. January 7, 2009.

Congressional Budget Office. 2024. The Distribution of Household Income in 2021. September 11, 2024.

Congressional Budget Office. 2025a. “Estimated Budgetary Effects of Public Law 119-21 to Provide for Reconciliation Pursuant to Title II of H. Con. Res. 14, Relative to CBO’s January 2025 Baseline” [Excel files]. Published July 21, 2025.

Congressional Budget Office. 2025b. Key Budget and Economic Data.

Congressional Budget Office. 2025c. The Budget and Economic Outlook: 2025 to 2035. January 17, 2025.

Congressional Budget Office. 2025d. The Estimated Effects of Enacting Selected Health Coverage Policies on the Federal Budget and on the Number of People with Health Insurance. September 18, 2025.

Congressional Budget Office. 2025e. The Long-Term Budget Outlook Under Alternative Scenarios for the Economy and the Budget. May 2025.

Economic Policy Institute (EPI). 2025–2026. Federal Policy Watch (Blog post series).

Epstein, Gerald. 2018. “On the Social Efficiency of Finance.” Development and Change 49, no. 2: 330–352. March 2018.

Farber, Henry S., Daniel Herbst, Ilyana Kuziemko, and Suresh Naidu. “Unions and Inequality over the Twentieth Century: New Evidence from Survey Data.” Quarterly Journal of Economics  136, no. 3: 1325–1385. August 2021.

Fieldhouse, Andrew J., and Karel Mertens. 2025. “The Returns to Government R&D: Evidence from U.S. Appropriations Shocks.” Society for Economic Dynamics Annual Meeting Working Paper, June 26, 2025.

Gensler, Gary, Simon Johnson, Ugo Panizza, and Beatrice Weder di Mauro, eds. 2025. The Economic Consequences of the Second Trump Administration: A Preliminary Assessment. Centre for Economic Policy Research, December 2025.

Gould, Elise, Katherine deCourcy, Joe Fast, and Ben Zipperer. 2025. Strong Wage Growth for Low-Wage Workers Bucks the Historic Trend. Economic Policy Institute, March 2025.

Hirtle, Beverly, Anna Kovner, and Matthew Plosser. 2019. “The Impact of Supervision on Bank Performance.” Federal Reserve Bank of New York Working Paper no. 768. May 2019.

Hsieh, Chang-Tai, Erik Hurst, Charles I. Jones, and Peter J. Klenow. 2019. “The Allocation of Talent and U.S. Economic Growth.” Econometrica 87, no. 5: 1439–1474. September 2019.

Hughes-Cromwick, Ellen, and Julia Coronado. 2019. “The Value of U.S. Government Data to U.S. Business Decisions.” Journal of Economic Perspectives 33, no. 1: 131–146.

Klein Martins, Guilherme. 2025. “Long-Run Effects of Austerity: An Analysis of Size Dependence and Persistence in Fiscal Multipliers.” Oxford Bulletin of Economics and Statistics 87, no. 2: 330–356.

Lo, Justin, Larry Levitt, Jared Ortaliza, and Cynthia Cox. 2025. ACA Marketplace Premium Payments Would More Than Double on Average Next Year If Enhanced Premium Tax Credits Expire. KFF, September 30, 2025.

Lynch, Robert, and Kavya Vaghul. 2015. The Benefits and Costs of Investing in Early Childhood Education. Washington Center for Equitable Growth, December 2015.

Marr, Chuck, and Josephine Cureton. 2025. Administration’s Proposed Cuts to Non-Defense R&D Pose Long-Term Risk to Rising Living Standards. Center on Budget and Policy Priorities, October 2025.

McNicholas, Celine, Margaret Poydock, and Josh Bivens. 2026. 47 Ways Trump Has Made Life Less Affordable in the Last Year. Economic Policy Institute, January 2026.

Nathan, Allison, Jenny Grimberg, and Ashley Rhodes. 2025. Top of Mind: Tariff-Induced Recession Risk. Issue 138. Goldman Sachs Research, April 2025.

Shierholz, Heidi. 2025. “Everyone Is Talking About Affordability—and Making the Same Mistake: Focusing on Just Prices Misses the Bigger Picture.” MS NOW, November 29, 2025.

Stern, Nicholas. 2021. “15 Years on from the Stern Review: The Economics of Climate Change, Innovation, and Growth” (slide presentation). London School of Economics and Political Science and Grantham Research Institute on Climate Change and the Environment, October 26, 2021.

Tedeschi, Ernie. 2024. Political Risks to the U.S. Safe Harbor Premium. The Budget Lab at Yale, May 2024.

The Budget Lab at Yale 2025. The State of U.S. Tariffs: November 17, 2025. November 17, 2025.

Yellen, Janet. 2016. Macroeconomic Research After the Crisis. A speech at ‘‘The Elusive ‘Great’ Recovery: Causes and Implications for Future Business Cycle Dynamics.’’ 60th Annual Economic Conference sponsored by the Federal Reserve Bank of Boston, Boston, Massachusetts, October 14, 2016. No. 915. Board of Governors of the Federal Reserve System.

Zipperer, Ben. 2025. Trump’s Deportation Agenda Will Destroy Millions of Jobs: Both Immigrants and U.S.-Born Workers Would Suffer Job Losses, Particularly in Construction and Child Care. Economic Policy Institute, July 2025.