WASHINGTON (AP) — Donald Trump is betting that Americans will crave trillions in tax cuts – and that growth will be so fantastic that it won’t be worth worrying about budget deficits.
In short, he hopes that most economic analyses of his ideas are completely wrong.
Vice President Kamala Harris believes that large corporations and the super-rich should pay more taxes – and wants to use the revenue from this to stimulate the construction of three million homes and provide tax relief for parents.
She hopes to implement the kind of policies that President Joe Biden has failed to sustain.
The two presidential candidates are using the week before their debate to hone their economic messaging about who could do more for the middle class. Harris will outline her policy plans in Portsmouth, New Hampshire, on Wednesday, while Trump will speak to the Economic Club of New York on Thursday.
The economy has always been a dominant issue in presidential elections. In an August poll by the Associated Press-NORC Center for Public Affairs, Trump fared slightly better on the economy: 45 percent said he would handle the issue better, while 38 percent said Harris would handle it better.
There is a lot at stake in this showdown, because the winner of the November election could rewrite large parts of the federal tax code next year if parts of Trump’s Tax cuts 2017 expire.
A look at the candidates’ proposals:
VARIOUS OFFERS FOR THE MIDDLE CLASS
Trump and Harris are trying to help the middle class in different ways.
The former Republican president sees Tax cuts for businesses and the wealthy as essential to encourage further investment, with those who previously advised him saying average growth would exceed 3%. Mind you, overall economic growth never reached 3% per year during Trump’s presidency. But between 2018 and 2019, median household income rose by $5,220 to an inflation-adjusted $78,250, according to the Census Bureau.
“I always tell people: Trump’s policies are aimed at raising middle-class wages, bringing manufacturing back to the country and re-industrializing industry,” says Joseph LaVorgna, an economist who worked in the Trump White House. “The intention is to raise wages.”
In contrast, Harris wants to enhance the middle-class promise of home ownership and mitigate the high costs of parenthood. She also wants Tax relief for entrepreneursWith this message, Harris wants to show that she can tackle the price problem as people are still recovering from inflation, which is set to rise to a four-decade high in 2022.
First-time buyers could receive a $25,000 down payment, coupled with broader measures encouraging the construction of three million additional homes in four years. Young parents could get a $6,000 tax credit and an expanded child tax credit.
“When working- and middle-class Americans have the opportunity to earn more, build a business, buy a home and move up the economic ladder, it strengthens our economy and helps us grow,” said Brian Nelson, a Harris adviser.
NO TAXES ON TIPS, SOCIAL SECURITY
Trump has proposed no taxes on tips given to employees or Social Security income. Harris supports the idea of not taxing tips from employees.
As Ernie Tedeschi of the Yale Budget Lab noted, exempting tips from taxation is unlikely to provide a major economic boost, even if it makes some people feel better. He pointed out that only 2.5 percent of workers receive tips and that many do not earn enough to have to pay income taxes to the state.
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Trump would also exempt Social Security benefits from taxation, which could cost $1.2 trillion over the next decade. The risk is that those taxes help fund Social Security. Without that revenue, the program would no longer be able to pay full benefits starting in 2033, two years earlier than currently projected, according to an analysis by Brendan Duke, senior director for economic policy at the Center for American Progress, a liberal think tank.
Tariffs
As much as Trump talks about tax cuts, he would also be willing to massively raise taxes through higher import tariffs in order to increase the number of jobs.
How high the tariff would be? Nobody knows for sure. Trump has proposed a general tariff of 10 percent, but hinted at an event in North Carolina in August that it could be as high as 20 percent. He wants a tariff of 60 to 100 percent for Chinese products.
The Republican stresses that his tariffs would not increase inflation, but the goal of the tax is to make imports more expensive so that more is produced domestically. Harris’ campaign team says the middle class would have a higher tax burden, as the 20 percent tariffs would cost a typical household $4,000 annually.
The Trump campaign did not answer questions about the effect of the tariffs. If the goal is to bring jobs back from abroad, the tariffs will probably be introduced gradually to allow manufacturing jobs to return to the United States. However, if the goal is to increase government revenue, they will be introduced immediately.
TRUMP IS NOT AFRAID OF DEBT
It is not clear whether Trump could finance his ambitious tax cuts.
He wants to extend the expiring provisions of his 2017 tax reform. He has floated the idea of cutting the corporate tax rate from 21% to 15% and also not taxing tips and Social Security income. The estimated price tag is nearly $6 trillion, but could be higher. And the Congressional Budget Office is already projecting a $22 trillion deficit over the next decade if the tax reform is not extended.
Growth does not appear to be covering the costs. The Committee for a Responsible Federal Budget has reviewed economic analyses and found that Trump’s extension of tax cuts would have little impact on overall growth over a ten-year period because of the additional debt.
“The overall agenda does not appear to be particularly growth-enhancing,” said Marc Goldwein, senior vice president and senior policy director of the Committee for a Responsible Federal Budget.
HARRIS IS MORE CAUTIONFUL WHEN IT COMES TO DEFICITATIONS
Harris’ campaign says all of her spending plans would be funded. Campaign officials have indicated that her revenue sources would largely match Biden’s 2025 budget proposal.
Still, the Penn Wharton Budget Model estimates that their actions would result in $2.3 trillion in additional spending. It projects that their plan to raise the corporate tax rate to 28% would generate $1.1 trillion in tax revenue. However, other proposals, such as taxing the unrealized income gains of people with assets of $100 million or more, were not considered by the group because there are not enough details to determine an exact number. Other revenue increases were also not considered.
The Penn-Wharton budget model suggests that Harris’ plans would hurt growth more through 2034 than Trump’s plans, although the analysis did not take into account his proposed tariffs.
The real difference in the plan is how the tax burden would change starting in 2026.
According to Trump’s plans, the top 0.1 percent of the population would earn an average of $376,910 more after taxes. The poorest 20 percent would only get $320 more.
Harris’s policy would reduce the average income of the top 0.1% by $167,225. However, the bottom 20% would receive $2,355 more in income and benefits.
“The big picture: Both Harris and Trump are causing the debt burden to grow even faster than current legislation allows,” says Kent Smetters, faculty director of the Penn Wharton Budget Model.
