Economic Policies: Harris Vs. Trump
dumb and dumber
As The Economist noted last week, the upcoming presidential election will be about personality more than policy, despite significant policy differences from the candidates. Far more ink is spilled about a campaign stop at a McDonald's, or whether a candidate worked at McDonald's 30 years ago, than any policy position. This is unfortunate, but the state of the times we live in. Luckily, Econ Soapbox is here to fill the void. What are Harris’s and Trump’s economic policies, and how are they viewed by mainstream economists? Sometimes, especially with Harris, it’s hard to say. She has been unusually coy about giving policy details. Will we get the Harris of 2019, who was part of the progressive left? Or the Harris of today, who has not repudiated a single policy plank of the more moderate Biden administration? At the risk of being duped, I will generally assume the latter.
Taxes
The Tax Cuts and Jobs Act of 2017 remains one of Donald Trump's signature economic policies. It lowered taxes for most Americans and significantly changed the revenue structure of the federal government. State and Local tax deductions were capped, corporate taxes were lowered, and the standard deduction was increased. It was the largest change to the tax code in decades. Many of its provisions, however, will expire during the next presidential term. Whoever is elected president will have to take a stand, because even doing nothing means doing something. Trump has said he would double down on those tax cuts and even expand them. The corporate tax rate would be cut further. Income from social security and tips would also no longer be taxed.
Harris would keep most of the 2017 tax cuts, but not all. Those with incomes above $400,000 would see their marginal tax rate return to 39.6 percent. She also favors additional tax cuts, mostly to those with lower incomes. Along with removing taxes on tips, she would increase child tax credits and give down payment assistance to those buying a house for the first time.
Neither of these plans is great. Both would significantly increase the deficit at a time when it should be shrinking. As I’ve written about previously, not taxing tips and giving money to first-time homebuyers is bad policy. It will cause market distortions and is just a blatant example of the government picking winners and pretending like that doesn’t make everyone else a loser.
Of the two plans, Harris’s is better just because it is less bad. Expanding the child tax credit appears to have a significant effect on child poverty. Expanding the EITC is also probably a good idea. Raising taxes on those who earn $400,000 or more is great, but it’s far too high of bar. People who make $400,000 a year are the elite: only 2 percent of Americans make that much money. To have a coherent budget and healthy deficit, anyone who is in the highest 20 percent, not the highest 2, should see an increase in taxes. Unfortunately, most Americans who make $200,000 a year have convinced themselves they are part of the middle class and would revolt against such an increase.
Trade
Another example of bad and worse. Again, Trump has sent the agenda for either candidate. While president, he levied tariffs on both our strategic rivals, such as China, and our friends, such as Canada. The result was that even companies that championed higher tariffs, such as Whirlpool, soon found out there were negative consequences for everyone. Tariffs are almost always a bad idea, which is why it’s disheartening to see both candidates embrace them.
Harris would likely continue the Trump tariffs that were continued by President Biden, while Trump would send them to the stratosphere. He has proposed increasing tariffs by up to 60 percent on Chinese goods. This would be a complete disaster. Economists have shown time and time again that trade is a good thing that can, and often does, benefit both parties. It’s astonishing to me that after decades of rapid growth in the United States accompanied by relative stagnation in most of the developed world, politicians from both sides of the aisle are turning their backs on one of the fundamental drivers of growth.
The Trump tariffs that have been continued by the Biden administration have been bad. Increasing them by historic margins would be decimating.
Energy
Over the last 20 years, America has advanced to become the world’s energy behemoth. Gone on the days when presidential candidates fret about energy independence. That battle has been won. The United States is now the world’s largest producer of oil and natural gas, and the gap is widening by the year. America is not only the world’s largest producer of oil and gas, it’s one of the world’s largest exporters. We produce a lot of energy, and no longer rely on fossil fuels from other parts of the world.
How much of this is the result of political decisions and how much is due to market dynamics is hard to say. The development of fracking has changed the course of energy history. Under the Trump administration, the days of “drill, baby, drill” were back. The Biden administration, while not as rah-rah when it came to fossil fuels, promoted them alongside green energy options. It’s expected that a second Trump term would result in a further rollback of environmental rules and expansion of fossil fuel production. Production under Harris would likely increase as well, but not by as much. Green energy, on the other hand, would likely be far higher under the Harris administration.
Whether this is a good or bad thing depends more on values than straight economics. How worried are you about climate change? What value do you place on wealth today versus the environment of 50 years?
Market Intervention
This might be the largest difference between the two candidates. Trump was the most protectionist president in living memory, a trend that was continued by the Biden administration. When it came to direct market intervention, that is, providing billions of subsidies to favored industries, Biden turned it up to 11. The Inflation Reduction Act (IRA), which has little to do with inflation, along with the CHIPS and Science Act, both passed in August of 2022, allocated hundreds of billions towards clean energy production and semiconductor manufacturing. Kamala Harris cast the deciding vote on the IRA. She would likely continue to pursue direct subsidization of chosen industries and has recently come out in support of a $15 minimum wage.
Trump, on the other hand, shied away from such massive market inventions. Instead, his administration focused on decreasing regulation. Those policies would also likely continue in a second term.
While the net effects of the IRA and CHIPS Act won’t be known for years, I’m deeply skeptical of such large market interventions. Some aspects of the CHIPS act can be justified on national security grounds, and other industries can certainly benefit from government largesse, but this is again the government picking winners and losers. This usually results in waste and inefficient corporations whose strength is knowing how to access the funds dominating nimbler firms that would provide larger gains to the economy. In general, the economy is far too regulated, so when it comes to market intervention I’d give the edge to Trump.
Conclusion
It’s a depressing time to be part of the dismal science. Neither candidate, or party, is following mainstream economic consensus. Both parties are turning their back on the very thing that has enabled the American economy to become the envy of the developed world: free trade and a fierce market economy. By placing punishing trade restrictions on our rivals and allies, ultimately all American consumers and all but a few chosen firms will suffer. By continuing to run massive deficits, future generations will have to make tough choices with no good outcomes. I have hope that future elections will be more about policy than personality, and cooler heads will prevail. It’s just not going to happen this cycle.