Cozen Currents: Tallying the Political Cost of Iran

“President Donald Trump sees his foreign policy forays as key to defining his legacy, but voters, including many in his base, remain more concerned about prices here at home.” — Howard Schweitzer, CEO, Cozen O’Connor Public Strategies

The Cozen Lens

• With the midterm elections less than eight months away, affordability remains one of the top issues for voters, and the conflict in Iran threatens to compound the high prices they face.
• The Treasury Department is racing to implement the many tax deductions of the One Big Beautiful Bill Act in an effort to meaningfully impact Americans’ pocketbooks ahead of the midterms.
• Although Secretary of Homeland Security Kristi Noem’s departure is the first Cabinet shakeup of President Trump’s second term, the Trump administration’s immigration policy is unlikely to substantively change.

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Iran and the Affordability Issue

Affordability is Inescapable. Affordability burst onto the political scene as the issue poised to define this election cycle after Democrats’ success with the message in last year’s elections.

• Since last November, politicians in both parties have made consistent efforts to show voters that they understand this issue and are trying to implement policies to address their complaints.
• Despite these efforts, prices have remained stubbornly high in voters’ eyes, particularly in electricity, food, housing, and healthcare. While the causes for these elevated prices vary, voters perceive that some basic facets of life are prohibitively expensive and are causing unnecessary hardship.

Oil That Is, Black Gold, Texas Tea. Now, the conflict between the US and Iran is threatening to make many goods even less affordable largely due to Iran’s closure of the Strait of Hormuz, a vital shipping lane.

• The most visible threat to President Trump and Republicans from the Iran conflict, tied to the affordability issue, is the ongoing disruption to the oil markets and the increase this has created in prices at the pump in the US. So far, gas prices have not been as significant an issue for Trump as they were for former President Biden. However, with the national average price per gallon approaching $4, it threatens to become one.
• The White House and other nations have taken steps since the conflict began to mitigate the impact on the oil market, but so far, these have done little to meaningfully stop rising prices. The Trump administration reportedly believes it can overcome a short-term price increase, and some estimate that a spike lasting no more than four weeks would not cause lasting political damage.
• Further complicating the calculus for the White House is the conflict’s unpopularity with the electorate. While exact numbers vary, polling has repeatedly shown that there is no majority support, even among Republicans. This data suggests that voters will be less willing to tolerate the economic consequences of the attacks than Trump claims they will.

The Other Goods Transiting the Strait. While the oil and gas markets may be the most visible effect of the closure of the Strait of Hormuz, several other industries rely on goods shipped through the passage, suggesting that the economic impacts could become more widespread.

• One of the areas attracting increasing attention is the disruption of the fertilizer industry, with more than one-third of globally-traded fertilizer passing through the strait. Prices for these products have begun to rise, threatening to drive up food prices. The impact of these increases may not be fully felt for months, as near-term effects on farmers’ crop yields will affect food prices after the goods are harvested.
• Aluminum also faces growing pressure amid the closure of the Strait of Hormuz. In both its raw and processed forms, the metal is a necessary input for several manufacturing goods. In addition, the sector has come under pressure due to Trump’s increased tariffs on aluminum and derivative products with prices rising around 50 percent since last April.

One Big Beautiful Implementation

Relying on a Refund. GOP lawmakers and Trump administration advisors intentionally set many of the One Big Beautiful Bill Act’s (OBBBA) individual tax incentives to take effect ahead of the 2026 tax filing season, hoping that larger refunds would boost economic sentiment among the electorate before the midterms.

• Having learned from the slow implementation of the 2017 Tax Cuts and Jobs Act (TCJA) and consumers’ related, minimal reaction to the law’s deductions, the GOP majority in Washington intentionally structured many of the key OBBBA tax provisions to be in place well before voters head to the polls in November. Now that the bill is law, effectively implementing those provisions is essential to the GOP’s political strategy. As Treasury Secretary Scott Bessent repeatedly stated throughout the winter, the administration views the anticipated larger-than-average refunds (a direct result of the OBBBA) as its best answer to the electorate’s affordability concerns.
• The easiest, and most broadly impactful part, is already done. Last October, the Internal Revenue Service (IRS) announced its 2026 tax year inflation adjustments, effectively lowering the marginal rate for millions of Americans while simultaneously increasing the standard deduction, among other things. Because the agency made no changes to its 2025 withholding tables, many taxpayers withheld more than they needed when factoring in the OBBBA’s changes to the individual side of the tax code. The net result is an increase to the average refund of roughly $300 when comparing this point in the filing season to the same time last year.
• Beyond the inflation adjustments, some of the most impactful OBBBA changes, particularly for lower wage workers, include eliminating the vast majority of federal taxes on tipped wages and overtime wages, creating a deduction for auto loan interest, increasing the standard deduction for seniors, and boosting the general standard deduction for all taxpayers. Last September, the agency proposed guidance on the tipped wages deduction that would extend it to roughly 70 qualifying occupations. The agency later released guidance detailing how qualifying individuals can apply the tipped wage and overtime wage deductions to their existing tax forms. In December, the agency released its guidance on which vehicles are eligible for the auto loan interest deduction. Per an early March administration update on the OBBBA’s implementation, roughly 45 percent of tax returns filed so far claimed one of the new individual deductions, a majority of which are from the overtime exemption.

Depreciation Appreciation. While the IRS has prioritized implementation of the OBBBA’s family and individual deductions, the agency is moving quickly to roll out a suite of business incentives the administration hopes will help improve the broader economic picture.

• At the heart of the OBBBA’s business-related tax incentives are a trio of domestic tax deductions GOP lawmakers sought for years prior to OBBBA’s enactment. Notably, these provisions have received some bipartisan support in recent years as well. Those include 100 percent first-year bonus depreciation, the immediate deduction for domestic research and experimental (R&E) expenditures, and the expanded deduction for business interest expenses, all of which are made permanent under OBBBA. The legislation also made all three retroactive to the beginning of 2025 (or inauguration day in the case of bonus depreciation), added an additional expanded carveout for small businesses within the R&E deduction, and created a new, temporary bonus depreciation deduction for factory structures (this provision also applies to structures for agricultural production and refining). Business can generally follow the TCJA’s existing rules for the application of the three deductions, but the IRS has also already released updated guidance around the new R&E provisions as well as the new first-year bonus depreciation deduction for factory structures.
• Looking abroad, the OBBBA included numerous changes to the US’s taxation of foreign income, including updates to the trio of tax measures that make up the US’s international corporate income tax regime. The changes, many of which are set to take effect in tax year 2026, are roughly neutral for multinationals according to the Tax Foundation, but slightly increased the headline rates of the three major taxes relative to their 2025 levels. According to reporting by Reuters, Treasury is “triaging” the implementation of the international tax changes, with those changes that won’t take effect until the 2026 tax year set to be finalized by the end of the year at the earliest.
• In a move that the administration hopes will have long term benefits for both families and businesses, earlier this month the IRS unveiled proposed implementing regulations for the bill’s Trump Accounts, a new tax-advantaged savings vehicle for children under the age of 18, as well as the $1,000 pilot contribution program for children born between 2025 and 2028. The White House reports that roughly 3.5 million Trump Accounts have already been opened, 800,000 of which are eligible for the pilot contribution. But while the focus of Trump accounts is on families, businesses are eyeing a big opportunity. The administration plans to select only one or a handful of “primary trustees” for the accounts, potentially giving brokerages, asset managers, or fintechs millions of new accounts.

How Immigration Policy Changes (and Doesn’t Change) Post-Noem

From Noem to Mullin. In his first Cabinet shakeup of his second term, President Trump is replacing Secretary of Homeland Security Kristi Noem with Senator Markwayne Mullin (R-OK).

• Noem’s departure offers the White House an opportunity to reset the public narrative around the Department of Homeland Security (DHS). In the wake of fatal shootings of US citizens by federal agents in Minnesota, President Trump’s net approval rating on immigration fell to its lowest level since he took office according to tracking from Silver Bulletin. Approval of Immigration and Customs Enforcement (ICE) hit its lowest level in years over the last several weeks. At the president’s direction, Border Czar Tom Homan and other officials have already ended enforcement surges in Minnesota and Maine, agreed to a limited pilot on body cameras, and accepted some restrictions on which locations ICE raids can occur, although not all.
• A close Trump ally and longtime immigration hawk, Mullin is unlikely to preside over substantive changes to the Trump administration’s immigration enforcement, one of the president’s signature policies. White House Deputy Chief of Staff Stephen Miller and Homan are likely to continue playing key roles in driving these enforcement policies. According to reporting by the Washington Post, Mullin is not expected to clean house at DHS in the immediate future and sources at DHS told the Washington Post that it’s “likely that the White House would continue to drive immigration policy.”
• Rather than reversing tack, DHS is in the midst of executing a historic overhaul of its detention system, replacing contracts with hundreds of private prisons and their operators with a more than $38 billion investment in permanent warehouse facilities. Once completed, the program will expand detention capacity to more than 90,000 beds, more than double the number Congress typically funds and roughly 30 percent more than the number DHS is currently utilizing.

The DHS Shutdown Continues. One month in, there is no end in sight for the DHS shutdown.

• The standoff between the Trump administration and Democrats over the president’s approach to immigration enforcement remains unresolved. Politico reported last week that Democrats have not made a counteroffer to the White House’s latest proposal from several weeks ago.
• While Mullin may have a better relationship with Capitol Hill than Noem, the personnel change is unlikely to reset the funding stalemate. Absences of Transportation Security Administration agents during the shutdown and long airport security lines make the public feel the shutdown’s impact more directly and will increase the pressure on lawmakers to end it. No path out of the standoff appears imminent, though.

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