What to Make of the Presidential Candidates’ Economic Plans

From the Outside

Most people consider economics when casting their presidential vote, but few can recite the campaigns’ leading proposals. Fewer still realize how economists view those policies. Most voters’ opinions are formed either by the unconditional praise lavished by that candidate’s party, or the unconditional scorn heaped by the opposition.

Let’s close that gap. Today’s column lists the major recommendations made by Vice President Kamala Harris and former President Donald Trump. I have my opinions about how Democrats and Republicans stand on other issues, but on economics, I am entirely neutral. I evaluate the proposals strictly on their merits (or not), regardless of who has made them—while being guided strongly by the consensus of trained economists.

The assessments occur in three sections: the policies’ potential effects on job creation, inflation, and national debt.

Harris Economic Proposals

1. Tax credits/government initiatives for housing
2. Tax increases on corporations
3. Tax increases on wealthy individuals
4. A federal ban on “price gouging” for groceries
5. Negotiating to lower Medicare’s drug costs
6. Expanding tax credits for children
7. Eliminating taxes on tips

Trump Economic Proposals

1. Import tariffs
2. Corporate tax cuts
3. Deregulation (especially of energy exploration)
4. Reducing Federal Reserve Board’s independence
5. Eliminating taxes on tips and Social Security retirement benefits

Economic Topic Number One: Job Creation

Job creation is the dog that did not bark in the night. In previous presidential elections, the subject dominated economic debates. In 2012, for example, Sen. Mitt Romney vowed to add 12 million jobs while in office, while Barack Obama promised to put Americans back to work.

This year, not so much. Job creation has barely been mentioned, as this year’s debate has invoked inflation, inflation, inflation. As that shift illustrates, economic proposals are rarely proactive. Rather, they address the issues that the public currently has on its mind. Presidential campaigns attempt to convince voters which candidate would have won the last war.

Ironically, though, this campaign does address job creation. Both Harris and Trump promise tax cuts, which in theory would encourage hiring by putting more money into the hands of consumers and/or corporations. In practice, though, their effects would be ambiguous, because the US economy is currently at (or near) full employment.

Tax cuts pretty much cover Harris’ job-creation proposals. In contrast, Trump says that his suggestion to impose a tariff of at least 10% on all imports (except for China’s, which would be 60%!) would help to “turn” the US into a “manufacturing superpower.”

Economists have little to say about the Harris platform because there is little to analyze. In contrast, they loathe the Trump tariff proposal. (Even the George W. Bush Institute trashes them.) The most positive analysis that I found from a neutral party was this National Bureau of Economic Research paper, which concluded that Trump’s 2018-19 tariffs had negative overall effects, but they did not harm employment. They didn’t help it, either.

On the bright side for Trump, most economists believe that deregulation usually boosts employment, although the details of what is being deregulated, and how that action is achieved, do matter.

Economic Topic Number Two: Inflation

Inflation is the issue du jour. Proposals for combating it land in two camps: (1) immediate actions, which involve, among other aspects, monetary decisions; and (2) long-term considerations, primarily fiscal policies. This discussion will address the former, leaving the latter for the final section.

Regrettably, the candidates’ promises about inflation are almost entirely illusory. It is true that Harris’ pledge to negotiate lower prices for Medicare drugs is tangible, as the Biden administration recently achieved such a feat. However, the potential effects are narrow, as they consist of one aspect of healthcare costs for one segment of the population.

In contrast, while Harris’ vow to end price gouging on groceries has attracted great attention, it seems unlikely to accomplish much. While she has been circumspect about the details, the design of her program appears to be narrow. Consequently, it would neither deliver the benefits that she promises nor the widespread damage alleged by her foes.

The proposals from Trump are bigger than those of the vice president, but it’s hard to see how they would ease inflation—at least in the short term. Imposing new tariffs would likely increase inflation over the short term rather than lower it because the prices of the newly taxed goods would immediately rise. (In the long term, the effects of tariffs on consumer prices are unclear.)

Also inflationary, it seems, would be Trump’s desire to influence Fed policy, given his past preference for low interest rates, even during economic expansions. (In 2019, he called Fed officials “boneheads” for not lowering the short-term interest rate to 0.)

Economic Topic Number Three: National Debt

Here’s another dog that did not bark in the night. Gone are the days when Republican presidential candidates promised fiscal responsibility and balanced budgets, thereby forcing Democratic candidates to make similar pledges. For example, Senator Obama stated in 2008, “We cannot afford to mortgage our children’s future on another mountain of debt.”

So changed are the times that Harris and Trump rarely mention either the national debt or the possibility of spending cuts.

Harris does propose to increase federal receipts by raising various tax rates, including (1) the corporate rate, (2) the highest rate on individual incomes, and (3) the Medicare surtax. She also advocates (4) taxing unrealized capital gains. However, her justification for these proposals is primarily distributional rather than financial. Such actions, her staffers state, would make the wealthy pay their “fair share.”

Similarly, Trump markets his tariff plan not as a tool for reducing the national debt, but instead as a substitute tax that would spare Americans’ pocketbooks by docking those of foreigners. Importers would help to pay the country’s bills, which would enable the Trump administration to cut individual income taxes—and perhaps eliminate them entirely. (No chance for the latter.)

The reason that national debt is no longer discussed is obvious: It’s what the people want. For example, the least popular of Harris’ many tax-reduction proposals is supported by 59% of respondents and disapproved by 24%. Forget about receiving that approval level for any actions that might reduce the national debt, such as spending cuts or tax hikes.

Summary

Both candidates promise to follow what has been every president’s de facto economic policy in recent memory: stimulate the economy through deficit spending, during both expansions and contractions. Neither has offered a credible plan either to lower inflation or to reduce the national debt.

A credible source for the latter is provided by the Penn Wharton Budget Model, which has calculated 10-year forecasts for the cost of each candidate’s suggested economic policies. After considering “economic feedback effects”—hypothetical, to be sure, but more realistic than pretending that people don’t change their behavior in response to new legislation—its researchers estimate that Harris’ proposals would increase the national debt by $2.0 trillion, while Trump’s would do so by $4.1 trillion.

What, me worry?