Since Donald Trump took office at the White House in January last year, the American economy has continued to lead among advanced countries. In 2025, while the UK, France, and Japan recorded an annual GDP growth of about 1%, and Germany remained almost stagnant, American output grew by 2.1%. Over the past 15 months, American stock markets have hit one historic record after another. All this happened even though the president initiated seemingly anti-growth policies, such as mass deportations of migrant workers and chaotic trade wars.
This has caused quite a few headaches for observers who had predicted economic disaster. Perhaps, some now whisper, these policies are not as destructive as mainstream economists had hypothesized. Others wonder what might have happened. Despite its strength, the American economy could, according to this interpretation, do even better. But how much better? In other words: how much is the “MAGA tax” imposed on the world’s economic engine?
THE AI BOOM AND THE PUSH FOR US GROWTH
One way to estimate a figure is to imagine what the American economy would be like without this burden. Trump inherited an economy that was growing strongly. Since then, it has had three boosts, which the Economist has roughly quantified.
The first is the boom in capital expenditures for artificial intelligence. Investment spending by just four cloud computing giants related to AI – Alphabet, Amazon, Meta, and Microsoft – exceeded $350 billion in 2025 and, according to their latest financial results, is set to rise to about $700 billion in 2026.
This frenzy has unleashed a wave of spending on data centers, chips, cooling systems, and software. In 2025, real investment in information processing equipment, software, and data centers grew by over 15%. In gross terms, this surge contributed nearly one percentage point to the annualized GDP growth, representing almost half of the economy’s expansion.
However, this figure overestimates the real contribution of AI spending to American GDP. About two-thirds of data center spending goes to equipment, largely imported from Asian manufacturers, for example in South Korea and Taiwan. When American companies purchase these components, most of the economic activity occurs abroad. To estimate how much of the spending actually counts towards American GDP, we subtract the increase in real equipment imports from the AI-related investment surge. According to our calculations, about $50 billion of the AI investment boom in 2025 reflects additional domestic production, contributing roughly 0.2 percentage points to annualized GDP growth.
WALL STREET AND TAX CUTS SUPPORT THE ECONOMY
The AI frenzy has also fueled the American stock market, the source of the second growth boost. Between Trump’s election victory and the end of 2025, the S&P 500 index of large American companies jumped about 15% in real terms, an unusual pace by historical standards. This added about $5 trillion to household wealth beyond what would have accumulated in a standard year. Americans tend to spend a small share of such unexpected gains. However, using a prudent empirical rule that each dollar of stock wealth increases spending by about 2 cents in the first year, this likely boosted consumption by about $100 billion in 2025. Given the central role of consumers in the American economy, the wealth effect may have added 0.3 percentage points to growth.
The third boost to the American economy came from those Trump policies that effectively promote growth. His administration paved the way for corporate mergers, ordered federal agencies to cut bureaucracy, and eased constraints on private credit. The tax law passed in 2025 injected fiscal stimulus worth trillions of dollars through tax cuts. It also likely improved the economy’s long-term growth rate by making permanent existing cuts to corporate taxes and other levies, restoring companies’ ability to fully amortize research and development expenses, and allowing them to depreciate assets more quickly; all measures that encourage investment. On average, the independent forecasts we examined – including those from the Congressional Budget Office, Tax Foundation, Tax Policy Center, and Yale Budget Lab – estimate that the legislation would have added 0.2 percentage points to GDP growth in its first year and 0.4 percentage points to growth in 2026.
Putting together the AI investment boom and Trump’s pro-growth policies, the American economy should grow at much more sustained rates. Before the presidential election – and before economists could adequately assess Trump’s ideas – the consensus forecast predicted growth of about 2% in 2025. Adding the boost from AI investments, the stock market surge, and tax cuts could have brought the US to growth of about 2.7%. That is over half a percentage point more than the growth recorded.
TARIFFS, IMMIGRATION, AND UNCERTAINTY: THE COST OF THE “MAGA TAX”
Another way to calculate the MAGA tax is to try to directly capture the economic drag. Economists have done this for some of Trump’s policies. According to the Peterson Institute, for example, his tariffs reduced real GDP growth by about 0.2 percentage points in 2025, depressing household purchasing power and squeezing corporate profit margins. The Brookings Institution estimates that the mass deportations and border closures ordered by the president made net migration negative in 2025 for the first time in at least half a century. This reduced the labor supply and, since migrant workers spend money in America, consumer demand. The result may have been a 0.2 percentage point slowdown in growth.
Such figures are indicative but do not capture the full cost of the uncertainty stemming from Trump’s erratic policies. Tariffs are announced, delayed, revised, and reintroduced. Immigration agents are deployed, recalled, and redeployed elsewhere. Wars are waged. An economic policy uncertainty index developed by Scott Baker of Northwestern University and his coauthors rose by over 100 points from the period before Trump’s election to the end of 2025. Swings of this magnitude are generally followed by a slowdown in business investment growth between five and ten percentage points, as firms postpone capital expenditures and supply chain adjustments.
SLOWDOWN OF INVESTMENTS OUTSIDE THE AI SECTOR
Indeed, excluding the exorbitant spending on computer equipment and software – the categories most closely linked to AI – the picture looks bleak. Over the past four quarters, fixed non-residential investment, excluding AI-related categories, contracted at an annualized rate of about 3%, compared to an average growth of over 5% in the previous decade. Investments in industrial and transportation equipment fell by more than 2% in the last year. Manufacturing construction declined by 20%. Overall, non-AI investments are about $130 billion below the trend of the last decade. This capital spending recession is reducing GDP growth by about 0.4 percentage points.
Could AI itself explain this weakness? The contraction in non-AI investments is too large and too broad to be the result of companies simply reallocating capital toward data centers at the expense of other sectors. The decline affects the oil and gas sector, car manufacturing, and factory construction. Trade policy uncertainty has probably played an important role. In a survey a year ago, the Federal Reserve Bank of Atlanta found that 45% of executives planned to cut capital spending due to political uncertainty.
Another potential explanation, that strong demand or heavy government borrowing pushes interest rates up, crowding out other private investments, seems unconvincing. Credit remains abundant. Spreads between investment-grade corporate bonds and government securities have rarely been this tight since the 1990s. It is therefore very likely that the president’s policy line has much to do with this climate of distrust.
A RESILIENT ECONOMY DESPITE TRUMP
Overall, the squeeze from tariffs on real incomes, the reduction in labor supply, and companies’ reluctance to invest weigh down growth by 0.8 percentage points. This aligns with the previous estimate obtained by imagining an American economy without the burden of Trump’s policies. Looking ahead, there are few signs of relief. Tariffs remain unstable, maintaining high uncertainty for businesses and households. The war in Iran and the closure of the Strait of Hormuz have triggered an energy shock that will further compress real incomes and corporate margins, further slowing investments.
A natural reaction to such figures is despair over the damage that bad policies can cause. Another is to marvel at the extraordinary power of the American economic engine. Despite all of Trump’s actions, GDP could grow at an annual rate of 4% in the current quarter, if one believes the latest forecast from the Federal Reserve Bank of Atlanta branch. Without the drag of the MAGA tax, in other words, America could be traveling at an annualized growth of nearly 5%. It has achieved similar performances in only nine quarters this century, and only five if the post-Covid recovery is excluded. If only the president allowed it, it could do so again.
(Taken from the foreign press review by Epr Comunicazione)
