Donald Trump has proposed across-the-board tariffs on goods made abroad and sold in America, as well as substantial corporate tax cuts. Kamala Harris has proposed tax increases on corporations and the wealthy and a tougher federal response to what she deems “price gouging” by businesses.
What neither candidate has done so far when it comes to the nation’s economy is to address the actual challenges facing the federal government.
Presidential campaigns tend to be overly broad on economic policy, all the better to give the winner maximum flexibility to act on taxing and spending once they take office. But in the past candidates generally have spoken to the actual issues at hand. At this point in the 2024 election, voters aren’t even getting that much.
The elephant in the room is that a substantial portion of the last major rewrite of the tax code, which Trump signed into law in 2017, will expire at the end of 2025. Most of the expiring provisions pertain to tax reductions for individuals. In order to enact as low of a corporate tax rate as possible (the GOP settled on 21%) while keeping within deficit financing limits, Trump and fellow Republicans in 2017 bet that Congress in 2025 would find it politically unpalatable to allow federal taxes on individuals to increase and would extend those cuts.
That remains a good bet, but here’s the difference between then and now. The federal budget deficit when the Trump tax cuts were enacted was $665 billion. This fiscal year it’s approaching $2 trillion. The deficit as a percentage of gross domestic product in 2017 was 3.5%; this year it’s set to be 7%.
If the country were in a deep recession or still reeling from the effects of the COVID pandemic, such profligacy might be justifiable. It is plainly irresponsible now, and neither candidate even mentions the deficit, much less suggests how to reduce it.
Both campaigns are doing the voters a major disservice in failing to realistically address the issue of the nation’s fiscal woes and how they would handle the tax battle royale to come. The political adage, “It’s the economy, stupid,” happens to be true. Polls show Americans are most concerned about the state of their pocketbooks; much of that angst has been trained on the aftereffects of the post-COVID inflationary period that substantially raised the prices of necessities like food, insurance and utilities.
Both candidates have pledged to bring prices down. Trump has made those promises without saying how he’d do it. His promise to impose an across-the-board 10% tariff on imported goods is one of the more concrete of his economic policies, and most economists believe such protectionism would be highly inflationary. Trump’s response is that the jobs created by giving American companies such a big boost would create economic growth that would more than make up for the costs. Our philosophical default there to back the free market.
Harris has offered a new clampdown on corporate “price gouging,” which has garnered brickbats even from some left-leaning pundits well aware of the history of price controls and the negative macroeconomic fallout they create.
The truth is that consumers have done more to tame inflation than any government official ever could by changing buying habits. Companies selling name-brand everyday products now bemoan their lagging sales and are pivoting to appeal to cost-conscious consumers.
So what should the federal government do to promote economic growth and stability? As is the case for households, it needs to get its fiscal house in order and set spending priorities. It’s worth retracing how we got to a point where nearly a third — yes, you read that right — of what the feds will spend this year is being put on the national credit card.
The aforementioned Trump tax law was deficit-financed from the start. This page at the time thought that was a good risk to take in order to jolt what had been a slow-growth economy into something more dynamic. Republicans said sustainable 3% annual growth in gross domestic product was the goal. The economy never got there before the pandemic upended our economic life, and we’re not at that level today.
One result that is undeniable, though, is that corporations have invested a large chunk of the tax windfall they’re enjoying into repurchasing their own stock; for many, financial engineering appears a better use of excess cash than investing in growth initiatives that lead to higher employment. Stock buybacks are on course to set a record this year and to top $1 trillion in 2025, according to Goldman Sachs.
The Democrats have had a strong hand in inflating the deficit as well. Massive federal spending, first to soften the blow of COVID on businesses and households and then to finance the Biden administration’s debt-financed investments in infrastructure and green energy, significantly exacerbated the problem.
No matter who wins the White House and which party controls Congress, there will be a sprawling tax bill next year, due to the overwhelming bipartisan desire to ensure there isn’t a tax hike on the majority of Americans through mere inaction. Democratic Rep. Raja Krishnamoorthi, who represents a broad swath of the Chicago suburbs, told us in an interview during the Democratic National Convention that he believes even the liberal wing of his party understands those $2 trillion deficits can’t continue, even if few wanted to talk about that at the United Center.
When the time comes, the job of coming to terms on a package that apportions the tax burden fairly while simultaneously reducing the deficit will be made significantly easier if the winning campaign comes to the table with something resembling a thumbs-up from voters on how to accomplish that. There’s no way Trump or Harris will be able to do so if they don’t even acknowledge the issue will be one of the first items on the next president’s agenda and offer a broad-strokes idea of how to respond.
Likewise, the lack of any mention of the deficit by either candidate is, while perhaps politically strategic, a disservice to the country. We daresay only a sliver of the taxpaying public understands they’re financing close to a third of the federal budget with debt.
The U.S. enjoys a special status as having the world’s leading currency and being the pre-eminent safe haven for global investors. But red ink like we’re seeing now isn’t sustainable.
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