The "MAGA tax" is the term used by The Economist for the growth drag created by Donald Trump's second-term mix of high tariffs, near-zero net migration and pervasive policy uncertainty. By its reckoning, the tax shaved around three-quarters of a percentage point off American GDP growth in 2025. American GDP grew by 2.1% in 2025, compared with around 1% in Britain, France and Japan; Germany all but stood still.
Three offsetting boosts
The Economist identified three boosts that should have lifted growth above the eventual 2.1%:
- The AI capital-spending boom. Capex by Alphabet, Amazon, Meta and Microsoft topped $350bn in 2025 and should hit roughly $700bn in 2026. Real investment in information-processing equipment, software and data centres grew by more than 15% in 2025. About two-thirds of data-centre spending is on equipment, much of it imported. Net of imports, around $50bn of the AI-investment boom in 2025 added domestic production—about 0.2 percentage points to annualised GDP growth.
- A stockmarket rally. The S&P 500 rose 15% in real terms between Trump's election and end-2025, adding $5trn to household wealth; assuming each dollar of equity wealth raises spending by two cents, this added about 0.3 percentage points to growth.
- Pro-growth domestic policy. The 2025 tax bill made pre-existing cuts permanent, restored full expensing of R&D and faster depreciation. Independent forecasters (CBO, Tax Foundation, Tax Policy Centre, Yale Budget Lab) estimated the legislation would add 0.2 percentage points to GDP growth in its first year and 0.4 in 2026.
Combining the three pushes counterfactual growth to about 2.7%, more than half a percentage point faster than the 2.1% actually achieved.
Direct drag estimates
- Tariffs reduced real GDP growth by about 0.2 percentage points in 2025 (Peterson Institute).
- Deportations and border shutdowns turned net migration negative for the first time in at least half a century (Brookings), shaving another 0.2 points.
- An index of economic-policy uncertainty (Scott Baker of Northwestern and colleagues) rose by over 100 points; non-AI non-residential fixed investment contracted at an annualised 3% over four quarters, against 5% growth in the preceding decade. Investment in industrial and transport equipment is down more than 2% over the past year; manufacturing construction is down 20%. Non-AI investment is running about $130bn below trend, cutting GDP growth by 0.4 points.
Together, tariffs, lower labour supply and capex caution add up to a 0.8-percentage-point drag, in line with the counterfactual estimate. The Atlanta Fed's GDPNow forecast for the second quarter of 2026 implied annualised growth of 4%; without the drag, growth could be closer to 5%, a rate America has achieved in only nine quarters this century (five if you exclude the post-covid recovery). The latest IMF forecasts show American growth besting peers all the way to 2030.