Trump's $5,000 dividend would reignite inflation and swell the U.S. deficit, economists say

President Trump's vow to send $5,000 to every U.S. adult if the Republican Party keeps control of Congress in the midterm elections would drive up the federal deficit, reignite inflation and alarm investors, according to economists.

After Mr. Trump raised the idea of such a dividend on Wednesday night at the Republican National Committee's midterm convention, Vice President JD Vance told Fox News that the U.S. would fund the payment using tariff revenue collected by the Trump administration, and that it would be aimed at the middle class.

Those tariffs are generating about $125 billion in annual revenue — one-tenth of the $1.25 trillion that would be required to pay $5,000 to each of the nation's roughly 245 million U.S. adults, Erica York, senior economist with the Tax Foundation's Center for Federal Tax Policy, told CBS News. 

Because tariff revenue would fall short, the U.S. would likely need to issue government debt to pay for the dividends, raising the federal deficit to $3 trillion, up from its current level of about $1.8 trillion, York estimated. 

Why the dividend would drive inflation

The one-time payments would also likely stoke inflation by fueling a surge in consumer spending, as did the multiple federal stimulus checks during the pandemic.

 Economists say those payments contributed to consumer prices reaching a 40-year high in June 2022. 

A $5,000 giveaway would also rattle financial markets, York said. With the nation's debt recently surpassing $40 trillion for the first time, Treasury bond buyers would likely demand higher yields to offset increased fiscal risks, she added.

"If financial markets are already concerned about U.S. budget deficits, which are historically large and are projected to grow, and the message that you're giving is, 'We don't really care. We're almost going to double our deficits' — that's madness," York said of Mr. Trump's proposal.

Offering such a payment to Americans would be "fiscally dangerous," Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a nonpartisan think tank that favors reducing the U.S. deficit, said in a statement on Thursday. 

"It's hard to understand how anyone could look at our current fiscal and economic situation and think we need to borrow another $1.2 trillion to send everyone cash," she said. 

The White House said that Mr. Trump has "consistently proven his doubters wrong."

"The doomers and naysayers have consistently doubted President Trump: when he pledged to create the historic Trump Accounts, lowered prescription prices with Most Favored Nations, secured the border with no crossings, cleaned up our streets, ended taxes on tips, grew real wages, renegotiated broken trade deals and reshored key manufacturing back to the United States," White House spokesperson Davis Ingle said in a statement to CBS News.

Piling on debt

Many fiscal hawks have urged lawmakers to start addressing the mounting federal debt, which has doubled in less than a decade due to multiple tax cuts and COVID-related spending, among other factors.

Adding $1.25 trillion in debt to the nation's ledger is "completely detached from fiscal reality," York said. 

Rising U.S. debt has pushed up the nation's interest costs, with the U.S. government now spending more on servicing its debt than on national defense or Medicare. Investors are demanding higher Treasury yields due to the worsening federal fiscal outlook. That, in turn, is pushing up borrowing costs for consumers, including mortgages, auto loans and personal loans.

"The bond market is already nervous about inflation and America's $40 trillion debt," Heather Long, chief economist at the Navy Federal Credit Union, said in an email. "This would likely cause borrowing costs to jump even further."

Long added that because of those issues, Wall Street is "largely ignoring" the Trump administration's dividend plan, writing it off as unlikely to gain traction with Congress, which would need to approve it.

During his Wednesday speech, Mr. Trump also proposed other ways to lower the cost of living for Americans, which polls show is a key campaign issue ahead of the November elections. That includes possibly eliminating credit card swipe fees, which he said could save the typical family about $1,200 a year. 

But the $5,000 payment has garnered the most attention, likely because many consumers say they're struggling with the cost of living, with gas prices remaining above $4 a gallon and inflation still elevated.

Consumer Price Index data for August, set to be released on Friday, is expected to show inflation rose at an annual pace of 3.3%, well above the Federal Reserve's annual target of 2%. 

While a $5,000 payment might initially help struggling consumers, such a program would soon backfire by driving inflation even higher, York told CBS News. The COVID stimulus checks caused inflation to rise by 2.6% during the pandemic, according to 2023 research from the Federal Reserve Bank of St. Louis.

"We would be stimulating the economy in a really massive way with $5,000 payments, when the economy is not really calling for that," she said. "You're really kind of worsening the problem that you're supposedly trying to address with this proposal."