As Kamala Harris unveiled her economic policies last week, one thing stands out: Her approach combines populist and regulatory policies to tackle economic issues that have hurt middle- and low-income families.
The proposed measures in her “Opportunity Economy” program are aimed at tackling high grocery bills, the cost of raising a family and home affordability. They include targeting companies that make “excessive “ profits on food and groceries, lowering the cost of expensive medications, increasing the child tax credit for middle-class and low-income families and creating tax incentives to encourage new home construction and subsidize first-time home buyers.
One of the main criticisms is that Harris has resorted to populist arguments to blame corporations for inflation via price gouging.
The Washington Post Editorial Board wrote that “instead of delivering a substantial plan, she squandered the moment on populist gimmicks.” A Wall Street Journal editorial likened Harris’s attack on price gouging to wage-price controls that Richard Nixon enacted in 1970, which resulted in “shortages and market dislocations” and proved ineffective in curbing inflation.
Another criticism is that Harris did not address the cost of her proposals and how they would be financed.
The Committee for a Responsible Federal Budget estimates that Harris’s agenda could increase the federal budget deficit by $1.7 trillion over a decade. The proposal to restore the child tax credit that was part of the coronavirus relief package in 2021 is the most expensive item, with an estimated cost of $1.2 trillion from fiscal 2026 through 2035.
Paul Krugman said the restoration of the credit was the best part of Harris’s agenda, because it significantly reduced child poverty while it was in effect. Overall, he sees Harris as staking out a moderately center-left position that is not too different from President Biden’s original Build Back Better agenda.
My take is that while Harris’s policy proposals represent an extension of Biden’s policies, her messaging is very different. She is directly targeting middle-income and lower-income families who do not grasp how “Bidenomics” benefits them.
One reason is Biden’s predilection was to push for massive legislative programs that were overly complex and combined tangible investments in infrastructure and climate change with sweeping social programs. However, this makes it difficult to assess their impact and weigh the costs and benefits.
An example is the Inflation Reduction Act which was passed two years ago. The Economist observes there is little evidence that the act has boosted the economy because of delays in implementing projects.
In a previous commentary, I argued that Harris should take a page out of Bill Clinton’s economic playbook when he declared “The era of big government is over” in his 1996 State of the Union message. While a balanced budget may not be feasible in today’s fractured political system, the growth of federal debt is on an unsustainable trajectory, as Treasury Secretary Janet Yellen has acknowledged.
One theme Harris highlighted is the stark differences on the tax front between what she is seeking and what former President Donald Trump espouses.
She is proposing to raise the marginal corporate tax rate to 28 percent from 21 percent. This is in line with what President Biden was seeking, but less than the 35 percent rate she favored previously. She would also allow the personal tax cuts for families earning more than $400,000 to expire.
In comparison, Donald Trump has campaigned on lowering the corporate tax rate to 15 percent while extending personal tax cuts in the Tax Cut and Jobs Act. According to the Congressional Budget Office, these actions could result in revenue shortfalls of $4 trillion to $5 trillion over the next 10 years.
Trump has also called for cutting taxes on Social Security to aid seniors. However, this idea has received considerable pushback because it would undermine the viability of the system and ultimately force a cutback in benefits.
Trump contends that the revenue shortfalls would be offset by higher tariffs on goods imported from China and other countries of up to 60 percent and 10-20 percent, respectively.
However, Harris has countered that tariffs are a tax on imported goods, and they would raise costs for middle- and lower-income families. According to the Tax Policy Center, they would lower after-tax incomes of American households in 2025 by an average of $1,800, a 1.8 percent reduction.
Harris’s main takeaway is that Trump’s economic proposals not only favor the wealthy and corporations, but they are likely to increase the federal budget deficit and boost inflation.
So, how is all of this likely to translate at the ballot box? Voters favored Trump’s handling of the economy over Biden’s by a considerable margin before Biden stepped down as a candidate for president. With Harris as the nominee for the Democrats, that gap has narrowed considerably, but it has not vanished.
Still, Harris’s message that she understands the pain families are feeling from higher prices appears to resonate with voters. According to CNN, a recent poll from registered voters in battleground states shows that Harris has the edge over Trump when they were asked which candidate cares more about them.
In the end, the big question for the election is whether Harris’s policies and messaging will make for good politics, whatever the effect is on the economy.
Nicholas Sargen, Ph.D., is an economic consultant for Fort Washington Investment Advisors and is affiliated with the University of Virginia’s Darden School of Business. He has authored three books, including “Investing in the Trump Era: How Economic Policies Impact Financial Markets.”