Nov 05

The Economy: Jobs, Taxes, Inflation, the Stock Market

Drafted October 7, 2024

The following is a review of the economic agendas of the Democratic and Republican nominees for U.S. President. It was prepared to assess each set of plans to determine which agenda offers the most advantages for PDC 30 and its members – in terms of enhancing the prospect of continuous employment and maintaining the value of unionized work, including the health of union training and benefit funds. It is followed by sources consulted in developing the review.

Both campaigns have frequently updated their economic agendas as the election approaches. We have done our best to accurately describe the main elements of each campaign’s plans up to the date above and some of the beliefs that inform them. Because both candidates for U.S. President have a record of some significance to the position – Harris as the incumbent Vice President and Trump having served as President from 2017-2020 – aspects of these records are considered as well for what they tell us about the likelihood of proposed and promised policy under an administration led by either.

An abbreviated version of this review was published in The Edge, General Election 2024 Edition (page 4).

Harris/Walz

The Harris-Walz (HW) economic agenda is presented in an 82-page document, a plan Kamala Harris says will “build on the foundations” of the Biden-Harris economic achievements and add new proposals focused on housing, taxes, small business expenses, childcare, and goods.ⁱ

While inflation remains a real challenge for working families, the recent cut in interest rates by the Federal Reserve is widely considered to be confirmation that Biden-Harris policies and the Fed’s actions have succeeded in calming inflation while avoiding a recession,ⁱⁱ while other fundamental elements of the economy improved and remained strong during the Biden-Harris term – continued job creation, increased wages, strong economic growth, near-record low unemployment, and a surge in small business formation.ⁱⁱⁱ

Record inflation was experienced throughout the world in the aftermath of COVID. Economists generally recognize how circumstances brought on by the pandemic were largely responsible for the inflation that began as Biden-Harris entered the White House. Consumer demand surged as relief packages of the Trump administration were followed shortly after Biden took office with an additional stimulus.^iv At the same time, the nation experienced factory shutdowns, computer chip shortages, and clogged ports due to the pandemic; that is, high demand came at the same time as less supply. Russia’s invasion of Ukraine in May 2022 made the problem worse for food and fuel prices. Given that Trump’s relief packages were already in the economic system generating increased demand, and that Trump would likely have supported more stimulus had he been re-elected, many debate which administration is most to blame for the inflation that peaked in June 2022.

What seems clear today is that Biden-Harris were able to keep the economy moving despite the continuation of inflation, which has been good news for working people and their unions, as job growth continued, incomes rose, and inflation eventually fell while a recession was avoided. Moreover, the relative stability and growth has meant significant investment gains, helping union health and pension funds, as well as to workers’ IRAs and 401(k)s.

These achievements can be tied to a set of Biden-Harris legislative victories. The American Rescue Plan Act of 2021 fueled the economic recovery coming out of COVID with a $1.9 trillion stimulus. As we know, this wasn’t the only strategy – Biden-Harris followed their stimulus packages with additional legislation that made investments in national priorities that create jobs – the Infrastructure Investment & Jobs Act in late 2021 (see page 5 of the 2024 General Election issue of The Edge), the CHIPS and Science Act of 2022, and the Inflation Reduction Act of 2022. These actions were accompanied by measures taken to fix global supply chains and use America’s strategic oil reserves to limit inflation.

Harris cast the deciding vote (as president of the U.S. Senate) for the Inflation Reduction Act, which included several measures to address rising costs, climate challenges, and escalating prescription drug costs – while paying for itself through a minimum tax rate for large corporations.

The HW economic agenda seeks to strengthen the middle class and take on big businesses that they believe are to blame for rising costs.

A key element of their plan is to extend the 2017 tax cuts for households making under $400,000 and adopt a range of tax credits that favor the middle class, such as restoring the COVID-era Child Tax Credit to $3,600 per child (currently scheduled to drop to $1,000 in 2025), caping childcare costs at 7% of household income (parents are paying as much as 19.3% currently), and a $6,000 one-time credit for families with newborns.^v

Under the HW plan, Americans making more than $100 million will pay a 25% minimum tax on a combination of their regular income and the appreciation in assets (otherwise known as the “billionaires’ tax”). And, they plan to raise the corporate tax rate to 28% (it is currently 21%).^vi

To address grocery costs, HW plan to pursue a federal ban on price gouging on groceries.

HW believe increasing the supply of new homes is critical to reducing housing costs. They will establish a $40 billion fund to help build more affordable homes and pledge to build 3 million more housing units in four years (on top of 1 million already built annually). Combined with a $10,000 mortgage-relief tax credit for first-time homebuyers, $25,000 in downpayment assistance for first generation homebuyers, tax incentives for developers who build starter homes for first-time buyers, expanded tax incentives for building affordable rental housing, and commitments to “good union jobs,” this plan could mean more work opportunity for PDC 30 members.

HW plan significant investments to generate employment opportunity. To spur small business start-ups – like new painting and drywall companies – their plan offers a new tax deduction of up to $50,000 for such start-ups (up from the current $5,000). Their “America Forward” agenda will devote $100 billion in tax credits to help develop manufacturing jobs in America. Importantly, these tax credits will reward companies that work with unions, investments in registered apprenticeships, and using Project Labor Agreements.^vii

Like their opponents, HW support eliminating taxes on tips. Unlike their opponents, HW would combine this with a push to raise the minimum wage and set income limits and with strict requirements to prevent hedge fund managers and lawyers from structuring their compensation to take advantage of the policy.^viii

An October 7, 2024 estimate by the non-partisan Committee for a Responsible Federal Budget (CRFB) calculated that HW’s plan will increase the debt by $3.5 trillion by 2035 (this is the “central estimate” and most widely reported figure [the low estimate is $0; the high estimate is $8.10 trillion]).^ix

The HW economic agenda is ambitious and complex; however, they address challenges affecting middle class Americans, complement the inflation reduction efforts already underway and working, and the housing construction and investments in manufacturing are likely to advantage union workers. More than 400 economists and former government officials have endorsed HW, particularly their vision for the American economy.^x Moreover, Harris’s role in legislative and regulatory achievements (see above), her experience as a legislator (member of the Senate), and her record of taking on large corporations as California’s Attorney General show that she can deliver on these plans.

Trump-Vance

The Trump-Vance (TV) economic agenda contains elements of his years-long criticism of the U.S. economic policy and several new promises that appear hastily announced and tailored simply to appeal to specific voter groups.

Proposals consistent with Donald Trump’s longtime priorities and convictions include plans to increase tariffs on goods not made in the United States, to extend Trump’s 2017 tax cuts (these expire at the end of 2025), to further reduce corporate tax rates beyond the 2017 rate, to use his authority to influence interest rate decisions; and to deport millions of undocumented immigrants on the theory they their removal will reduce housing costs and open jobs for U.S. citizens.

Tax cuts have long been key to Republican economic agendas, based on a theory that money wealthy individuals and corporations do not pay in taxes will be invested in new businesses and expansion of existing companies – and thus new jobs and more tax revenue overall. This is known as “trickle-down economics.” Critics of this approach, including American labor unions, argue that tax cuts, instead, lead to reduced federal revenue overall and either soaring deficits adding to the public debt and pressure to cut spending on essential programs like Social Security and Medicare.^xi

New tariffs are, by most accounts, the policy goal Trump champions most passionately. Tariffs are taxes imposed on foreign produced goods. They theoretically make foreign goods more expensive than domestically produced goods. They have been used selectively to balance trade relationships, boost American competitiveness (typically within new industries), and – occasionally – to punish adversaries. Biden-Harris, for example, left many tariffs in place that Trump originally imposed.

TV’s proposed tariffs are significant and sweeping, suggesting that they have an unusually optimistic view of America’s ability to thrive competitively and maintain its international standing when it seeks to produce most of what its citizens need and want within its borders, meet the workforce demands associated with that production, and pay more for what it cannot produce cheaply at home.

It is important to understand that TV’s plan is to increase tariffs on ALL foreign produced goods, even those produced by longtime American allies, even those products no one is planning to make in the U.S. However, TV’s claim that high tariffs will result in more American-based manufacturing is popular among some voters who believe the thriving manufacturing that once occurred in their communities will return.

TV’s plan, to date, would place tariffs of 10%-20% on all imports and 60% on imports from China in particular. The benefit, the campaign claims, will be more products being made in America (and thus more jobs related to those products).

TV plan to retain/extend the personal income tax cuts of the 2017 tax plan, but promise to cut the corporate rate further, from its current 21% to 15% (in some instances, Trump has said the 15% rate would only be for companies that make their products in America).^xii

Operating alongside these more developed proposals are several promises: the elimination of taxes on tips, overtime pay, and Social Security; the appointment of Elon Musk as “Efficiency Czar;” the opening of portions of federal land for large-scale “ultra low-tax and ultra low-regulation” housing construction; and the imposition of a temporary cap on credit card interest rates at 10%.

Critics of the TV economic agenda raise significant concerns.

First, the TV economic plans are not as clear as what HW has outlined. The New York Times recently called it “an improvisational, loosely defined agenda,” and noted how it consists largely of promises made in rally speeches and in social media posts (Trump’s proposal to eliminate taxes on Social Security, for example, appeared on a post on social media - “Seniors should not pay tax on Social Security!”^xiii).

Second, the proposals and the promises would lead to significant budget deficits, putting in harm’s way important federal programs for working families, and necessitating borrowing that would dramatically increase the public debt.

(Simply put, when significant sources of Federal revenue are eliminated or dramatically reduced, the government does not take in enough money to cover its expenses. They either must cut expenses to make up the annual budget deficit or borrow money to cover the expenses, which adds to the public debt).

Aggressive tariffs are widely viewed as bad for the U.S. economy. The main concern is that increased costs to foreign manufacturers would be passed onto consumers, leading to a surge in inflation.^xiv One study estimates the average middle-income household will pay $1,700 more a year;^xv a more recent study estimated between $2,500 to $3,900.^xvi

Considering together the proposed TV tariffs, deportations, and effort to influence interest rate decisions, researchers recently estimated a dire impact. Assuming just a fraction of deportations – 1.3 million undocumented workers – and that no countries retaliate against the tariffs – inflation would increase to 6% by 2026. By 2028, employment (total hours worked) would fall 2.7%, consumer prices would be 20% higher, economic growth (GDP) would be 2.8% lower.^xvii Concerning Trump’s goal to bypass the Federal Reserve and set interest rates according to his whims, the same study found that, by 2040, prices would be about 41% higher than if the Fed remained independent.

Extending all the Trump 2017 tax cuts for the next 10 years, with no changes, is estimated to add $4.6 trillion to the deficit.^xviii

Promises to eliminate taxes on certain types of income are very popular; however, each would require massive overalls of the U.S. tax system and would result in significant losses of federal revenue – funds needed for priorities like Social Security and Medicare. Even the conservative-leaning Tax Foundation called the Social Security plan “unsound and fiscally irresponsible,” citing its weakening of Social Security and Medicare.^xix

Concerning the taxation of tips and Social Security income, several budget forecasters have estimated the changes would add significantly to U.S. deficits (between $3.6 trillion to $6.6 trillion over 10 years).^xx

Concerning the taxation of overtime pay, the plan is estimated to reduce revenue by $1.7 trillion from 2026 through 2035, and the revenue loss would be $6 trillion were all salaried workers to switch to hourly to take advantage of the tax benefits (assuming time and a half).^xxi

An October 7, 2024 estimate by the non-partisan Committee for a Responsible Federal Budget (CRFB) calculated that TV’s plan will increase the debt by $7.5 trillion by 2035 (this is the “central estimate” and most widely reported figure [the low estimate is $1.45 trillion; the high estimate is $15.15 trillion]).^xxii

We note that revenue loss and its resulting impact on annual budgets and ultimately the public debt is a recurring basis for criticizing the policies of Donald Trump. Indeed, this issue was central to the case Republican primary opponents made against Trump’s nomination, with Nikki Haley and Ron DeSantis estimating that the ten-year cost of the legislation and executive actions during his first term added $7.8-8 trillion to the national debt (the nonpartisan, non-profit Committee for a Responsible Federal Budget estimate is $8.4 trillion).^xxiii

Aside from the economic shocks the TV economic agenda are expected to cause and the likely impacts of dramatic reductions in federal revenue, we also considered the progress that would be lost for working people and their unions if the current push under Biden-Harris (to be extended and expanded under HW) to produce more products domestically is halted in favor of TV’s approach. HW’s economic plan seeks a similar agenda of building up American manufacturing, and that agenda is working without producing additional inflation or threatening labor shortages through mass deportation; it’s targeting industries where America can compete internationally; it’s resulting in manufacturing construction; and it contains strong commitments to good union jobs.

Sources

ⁱ https://www.pbs.org/newshour/politics/watch-live-harris-gives-speech-on-her-economic-vision-in-pittsburgh and https://www.cnn.com/2024/08/16/politics/harris-middle-class-tax-cuts-economic-policy/index.html and https://kamalaharris.com/wp-content/uploads/2024/09/Policy_Book_Economic-Opportunity.pdf

ⁱⁱ https://www.nytimes.com/2024/09/19/us/politics/fed-rate-cuts-biden.html

ⁱⁱⁱ https://www.msn.com/en-us/money/markets/is-us-economy-better-or-worse-now-than-under-trump/ar-AA1pSGze?ocid=BingNewsVerp and https://www.msn.com/en-us/money/markets/is-us-economy-better-or-worse-now-than-under-trump/ar-AA1pSGze?ocid=BingNewsVerp

^iv https://www.nytimes.com/interactive/2024/06/26/business/economy/inflation-rate-over-time.html?smid=nytcore-ios-share&referringSource=articleShare&sgrp=c-cb

^v https://www.reuters.com/world/us/harris-puts-housing-center-economic-pitch-us-voters-2024-08-26/

^vi https://www.nytimes.com/2024/09/24/us/politics/harris-economy.html and https://www.reuters.com/markets/us/how-harris-trumps-tax-spending-plans-affect-us-debt-2024-09-10/

^vii https://mailchi.mp/kamalaharris.com/a-new-way-forward-to-build-american-industrial-strength-powered-by-american-workers

^viii https://www.cnn.com/2024/08/12/politics/taxes-on-tips-eliminate-proposal-harris/index.html

^ix https://www.crfb.org/papers/fiscal-impact-harris-and-trump-campaign-plans

^x https://www.cnn.com/2024/09/24/business/kamala-harris-economy-endorsement/index.html

^xi https://www.bloomberg.com/news/articles/2024-10-04/supply-side-theory-is-making-a-comeback-with-trump