The Candidates’ Evolving Economic Plans

Nine days ago, the Dow Jones Industrial Average fell by 1,033 points due in part to fears about weaker U.S. employment numbers. It has since largely recovered. But while that nose dive may have felt abrupt, for months, polls have shown Americans are uncertain about the economy. Indeed, a May survey determined half of voters thought the country was headed into a recession. In the face of this worry, what are the two parties proposing when it comes to economic policy?

Let’s take a look.

The Candidates’ Policies On Tariffs And Taxes
Seven years ago, then-President Donald Trump signed into law a bill that reduced the corporate income tax rate, lowered individual tax rates, created a tax deduction for businesses that pay through the individual tax system, raised taxes on Americans who live in states with high local and state taxes, and more. Many of these policies, with the exception of the corporate rate cut, will expire after 2025.

So what would former President Trump pursue in a second term? According to the nonpartisan, nonprofit Tax Foundation, Trump would like to extend most, if not all, of the 2017 tax cuts. He also would like to further lower the corporate income tax, cutting it to 20 percent from the current 21 percent, and to impose new taxes on large university endowments. Republicans on Capitol Hill have started plotting a so-called “reconciliation” bill – legislation that only requires a simple majority in the Senate – in preparation for moving these items early next year if their party wins the White House and majorities in both chambers of Congress.

Across the aisle, Vice President Kamala Harris’ late entry into the presidential race means voters haven’t seen much detail on her economic proposals. The Tax Foundation noted recently that the Harris campaign has yet to get specific on corporate or personal income taxes and other major tax policies. In general, though, Democrats would like to raise taxes on corporations and high-earning individuals. And while it’s likely that Vice President Harris will break with President Biden on some key policies, we can use the Biden administration’s fiscal year 2025 budget as a guide to explore what we could expect a Harris administration to seek. The proposals could include:

• Increasing the corporate income tax rate from 21 percent to 28 percent and the corporate alternative minimum tax from 15 percent to 21 percent;
• Increasing top individual income tax rate to 39.6 percent on income above $400,000 for single filers and $450,000 for joint filers;
• Quadrupling the stock buyback tax from one percent to four percent;
• Increasing the global intangible low-taxed income (GILTI) tax rate from 10.5 percent to 21 percent and calculating the tax on a jurisdiction-by-jurisdiction basis;
• Taxing long-term capital gains and qualified dividends at ordinary income tax rates for taxable income above $1 million;
• Limiting retirement account contributions for high-income taxpayers with large individual retirement account (IRA) balances;
• Taxing carried interest as ordinary income for people earning more than $400,000;
• Extending the American Rescue Plan Act (ARPA) child tax credit and making it fully refundable;
• Permanently extending the ARPA earned income tax credit; and
• Creating a 25 percent “billionaire minimum tax” to tax unrealized capital gains of high-net-worth taxpayers.

Harris has promised she will not sign legislation into law that would raise taxes on any person who earns less than $400,000 a year, a pledge President Biden also made in 2020 and throughout his presidency.

On taxes, there is one idea both Harris and Trump have embraced jointly: eliminating taxes on tips. (Trump issued this proposal first.) As AXIOS explained this morning, if this idea becomes law, it could entice Americans to “try to figure out ways to classify more of their income as tips. Think bankers’ bonuses or sales commissions…”

On trade, Trump wants to implement a universal baseline tariff on all U.S. imports and a 60 percent tariff on all U.S. imports from China. A March 2024 poll found Americans may support this approach. Specifically, 24 percent want tariffs increased while only 20 percent want them reduced. Another 56 percent believe tariffs either should be kept the same or are not sure. Republicans were twice as likely as Democrats and Independents to support raising tariffs.

Harris has been less specific on trade. Indeed, VOA News noted that, in her years as vice president, “Harris has not focused on trade issues.” We do know that, in 2019, Harris said she is not a “protectionist Democrat,” but still voted against the United States-Mexico-Canada Agreement and opposed the Obama administration-driven Trans-Pacific Partnership when she was in the Senate.

“Vice President Harris has not had a lot to say about trade policy, either as vice president or as a senator,” William Reinsch, the Scholl chair in international business at the Center for Strategic and International Studies, told VOA. “That suggests it has not been a high priority for her.”

On Economic Policy, A Lot Of Unknowns
Tax and tariff policy clearly have been a focal point for the Trump campaign. When it comes to other economic policies, Stephen Moore, an economist and informal adviser to the Trump campaign told The Associated Press, “You want to know what he’s going to do in his second term, look at what he did in his first term.”

On the regulatory front, that statement probably means a lighter touch than a Harris administration would take. However, near the end of Trump’s first term, the right-leaning CATO Institute argued “the general historic trend toward increasing federal regulation has continued relatively unabated during the Trump years, and many major deregulation moves have been matched by new and unwieldy regulatory initiatives. CATO also noted the Trump administration “defended an expansive definition of regulatory power in the courts, reflecting its desire to use that power to bypass Congress and pursue their economic nationalist, populist agenda via agency diktat.”

The former president does consider immigration policy to be a key pillar of his economic agenda and the 2024 Republican party platform promises a second Trump administration would enact the “largest deportation program in American history.” While the former president has positioned this proposal in part as a boon to the U.S. job market, as The Associated Press has noted, a Peterson Institute of International Economics study determined deporting 1.3 million workers would cause the size of the U.S. economy to shrink by 2.1 percent, “essentially creating a recession.”

According to The Wall Street Journal, Harris still has not provided a lot of detail about her economic platform. In fact, it reported the campaign is furiously working on “a policy framework focused on making housing more affordable, lowering costs for families, taking on corporate excess and boosting small businesses.” What can voters expect? “When [Harris] does put out a more detailed agenda, which could come in the form of several plans released in the coming weeks, she is unlikely to break with Biden on substance, according to her advisers,” the newspaper said. The vice president is expected to announce some specific policy proposals in these areas at campaign events later this week.

One area where the Harris campaign has offered some detail is antitrust policy.

Speaking to CNBC’s “Squawk Box” on behalf of the Harris administration last week, Gov. Wes Moore, Democrat of Maryland, said, “Making sure that we are both supporting our small businesses and making it easier for small business to be able to grow, and also making it easier for our large industries to be able to compete within our states and within this country is something that I think is going to be important.”

Other Democrats agreed. “This ‘big is bad’ hostility [from Biden] will fall by the wayside” in a potential Harris administration, White & Case partner George Paul told CNBC. “I don’t think Harris will go that far. I think she’s going to take a step back.”

Still, when it comes to issues like so-called “junk fees,” it is a safe bet that a Harris administration would continue work currently underway at the Consumer Financial Protection Bureau, Federal Trade Commission, Federal Communications Commission, and U.S. Department of Transportation. Indeed, at a rally in July, Harris said, “I will take on price gouging and bring down costs … We will ban more of those hidden fees and surprise late charges that banks and other companies use to pad their profits.”

Who Do Americans Trust More When It Comes To The Economy?
According to news reports this morning, Harris will be in Durham, N.C. this Friday where she will outline how, if elected, her administration would reduce costs for middle-class families and address corporate price gouging. Her speech will come two days after one Trump will give in Asheville, N.C. this afternoon attacking the Biden administration for the “economic hardship” it has caused Americans.

Harris and Trump go into these remarks virtually tied in terms of who voters trust more to handle the economy. As Politico reported yesterday, a new poll from The Financial Times had Harris up 42 percent to 41 percent on this question. That lead is narrow, but it comes after months of polling showing President Biden trailing Trump when it came to handling economic policy. An Associated Press survey released this morning, however, has Trump ahead of Harris when it comes to who they trust more to improve their financial well-being.

What is also clear is that voters are feeling anxiety about the economy, and they want change. The Financial Times survey also found:

• A majority of voters said they are “surviving,” not “thriving” in today’s economy;
• Nearly three-quarters have a negative view of the overall condition of the economy;
• Half say they are worse off financially than when President Biden took office; and
• 60 percent of voters said that, if elected, Harris should either take a completely different approach than Biden on the economy or should, at least, make major changes to his platform.

All of which explains why we expect the economy, trade, and taxes will take center stage at next week’s Democratic National Convention.