Trump's immigration plan could add trillions of dollars to national debt, fueling inflation and market jitters

By Chris Matthews

Mass deportations could cost more than $1 trillion over 10 years, an analysis by the Penn Wharton Budget Model shows

Donald Trump's tax and spending plans for his would-be second term in office imply a willingness to see the federal budget deficit rise to truly unprecedented levels.

The former president plans to spend more than $5 trillion to slash corporate taxes yet again, while making the individual tax cuts Republicans implemented in 2017 permanent. But less attention has been paid to the potentially enormous fiscal costs of his plans for the mass deportation of unauthorized immigrants.

Related: Extending the Trump tax cuts could 'run the deficit into the stratosphere.' Here's how much that could cost.

Trump has promised to institute "the largest domestic deportation operation in American history," and said in a recent interview that he would target all of the nearly 15 million undocumented immigrants estimated to be in the country as of March.

This may be Trumpian bluster, but Steven Camarota, the director of research at the Center for Immigration Studies, an anti-immigration think tank, estimated in a March interview with MarketWatch that the U.S. government could deport upwards of one million immigrants per year if current law were enforced to the fullest extent.

The social impact of such a policy would be enormous, but investors should also be aware that mass deportation would put an enormous strain on the federal budget: The vast majority of unauthorized immigrants work and pay taxes, but receive very little in federal benefits.

In addition to undocumented immigrants paying income and payroll taxes, they contribute to a growing population of consumers supporting businesses, whose corporate taxes also fill federal coffers.

In an exclusive analysis for MarketWatch, analysts at the nonpartisan Penn Wharton Budget Model estimated the fiscal effects of mass deportation - finding that the removal of one million immigrants would cost the federal government between $40 billion and $50 billion over 10 years, and up to $100 billion if those immigrants were higher-paid workers.

Those costs would compound over time and as the Trump deportation apparatus was built out and became more effective.

"Those numbers climb to over $350 billion over the next two decades, with that number doubling if focused on the higher skilled," said Alex Arnon, PWBM's director of business tax and economic analysis.

If Trump were to deport one million immigrants per year, as Camarota estimates, those figures would increase fourfold over the course of Trump's term in office.

The Trump campaign did not immediately return a request for comment from MarketWatch. President Joe Biden's campaign also didn't immediately respond to questions about Trump's immigration proposals and their potential fiscal impact.

The costs of the former president's plan to deport the more than 14 million unauthorized immigrants in the U.S. today could easily reach more than $1 trillion over 10 years, before taking into account the labor costs necessary for such a project or the unforeseen consequences of reducing the labor supply by such drastic amounts over a short period of time.

"If you actually try to think through the full implications of what would happen if they removed a million people, year after year, it would go beyond anything we've ever seen," Arnon said.

The effects would be particularly hard on regional economies like California and Texas, where immigrants compose upwards of 10% of the labor force, he added. "It's even a bit difficult to quantify the budgetary effects, because whole sectors might essentially be crippled and whole towns might be devastated."

The former president has also promised to make the 2017 Tax Cuts and Jobs Act, which the Congressional Budget Office estimated last week would cost $5 trillion over 10 years, the permanent law of the land.

In addition, he has proposed slashing the corporate tax rate from 21% to 15%, which analysts estimate would cost the federal government another $900 billion.

Trump has promised not to cut funds from Social Security or Medicare, though his pledge to institute a 10% across-the-board tariff could raise about $2 trillion over a 10-year window, according to the Committee for a Responsible Budget.

Read more: Trump suggests tariffs could go higher than 10%. Why one economist is calling it 'bonkers.'

The tariff plan would reduce the budget deficit, but still leave the U.S. with nearly $5 trillion in new debt at a time of already historic deficits, if the Trump program were fully implemented.

Treasury bond BX:TMUBMUSD10Y investors may want to take notice of these dynamics. Economists say that higher federal deficits can fuel inflation, depress private investment, increase interest rates and lower the value of Treasury bonds.

J.P. Morgan chief economist Michael Feroli warned Monday that a flood of new issuance combined with an economic recession could lead to interest rates spiraling uncontrollably upwards, as they did when former U.K. Prime Minister Liz Truss attempted to cut taxes in a period of rising inflation and government deficits.

"There's a concern here, not just that the Treasury would have to issue more in a recession," he said, "but that there isn't the infrastructure that could intermediate that issuance in a way that would guarantee that we don't have some problems, perhaps, that echo what happened with Liz Truss's mini-budget two years ago."

-Chris Matthews

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05-18-24 0541ET

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