WASHINGTON — WASHINGTON (AP) — Donald Trump is betting that Americans will crave trillions of dollars in tax cuts, and that growth will be so fantastic that worrying about budget deficits won’t be worth it.
In short, he hopes that most economic analyses of his ideas are completely wrong.
Vice-Chairman Kamala Harris believes that big business and the super-rich should pay more taxes. He wants to use that revenue to stimulate the construction of 3 million homes and provide tax breaks to parents.
She hopes she can deliver on the kind of policies that President Joe Biden has been unable to achieve in a sustainable way.
The two presidential candidates are using the week before their debates to sharpen their economic messages about who can do more for the middle class. Harris will discuss her policy plans in Portsmouth, New Hampshire, on Wednesday, while Trump will address the Economic Club of New York on Thursday.
The economy has historically been a dominant issue in presidential elections. In an August poll by The Associated Press-NORC Center for Public Affairs, Trump did marginally better on the economy, with 45% saying he would do a better job and 38% saying Harris would.
The stakes are high in this showdown, as the winner of next November’s election could rewrite much of the federal tax code, with parts of Trump’s Tax cuts 2017 expired.
A look at the candidates’ proposals:
Trump and Harris are trying to help the middle class in different ways.
The former Republican president sees tax cuts for corporations and the wealthy as essential to encouraging more investment, with those who previously advised him saying that average growth would exceed 3%. Note that overall economic growth never reached 3% a year while Trump was president. But between 2018 and 2019, median household income rose $5,220 to an inflation-adjusted $78,250, according to the Census Bureau.
“What I always tell people is that the Trump policies were designed to raise wages for the middle class, to come back to the mainland and reindustrialize,” said Joseph LaVorgna, an economist who worked in the Trump White House. “The intent is to raise wages.”
In contrast, Harris wants to enhance the promise of middle-class homeownership and ease the high costs of parenthood. She also wants tax benefits for entrepreneursIt is a message that should show Harris can tackle the price problem as people continue to recover from inflation that hit a 40-year high in 2022.
First-time homebuyers would get $25,000 in down payment assistance, coupled with broader policies to spur construction of 3 million more homes over four years. New parents would get a $6,000 tax credit and an expanded child tax credit.
“When working-class and middle-class Americans have the opportunity to earn more, start businesses, buy homes and move up the economic ladder, it strengthens our economy and helps us grow,” said Brian Nelson, a Harris adviser.
Trump has proposed no tax on tips paid to employees or Social Security income. Harris has embraced the idea of not taxing worker tips.
As Ernie Tedeschi of the Yale Budget Lab has noted, excluding tips from taxes is unlikely to produce much of an economic boost, even if some individuals feel better off. He noted that only 2.5% of workers receive tips, and many don’t make enough money to pay federal income taxes.
Trump would also exclude Social Security payments from taxes, which could cost $1.2 trillion over 10 years. The risk is that those taxes help fund Social Security. Without that revenue, the program would be unable to pay full benefits starting in 2033, or two years earlier than currently projected, according to an analysis by Brendan Duke, senior director of economic policy at the Center for American Progress, a liberal think tank.
Trump may talk about tax cuts, but he also wants to raise taxes significantly by imposing higher import tariffs, thereby creating more jobs.
How much would the tariff be? No one really knows. Trump has proposed a broad 10% tariff, but at an August event in North Carolina he suggested it could be as high as 20%. On Chinese products, he’d like to see a tax of somewhere between 60% and 100%.
The Republican insists his tariffs won’t increase inflation, but the whole point of the tax is to make imports more expensive, encouraging more domestic production. Harris’ campaign says the middle class would face a higher tax burden, with the 20% rate costing the average household $4,000 a year.
The Trump campaign did not answer questions about how the tariffs would work. If the goal is to bring jobs back from abroad, the tariffs would presumably be phased in gradually, allowing manufacturing jobs to return to the U.S. But if the goal is to raise revenue, they would be implemented immediately.
It is not clear whether Trump can afford his ambitious tax cuts.
He wants to extend the expiring provisions of his 2017 tax overhaul. He has floated the idea of cutting the corporate tax rate from 21% to 15%, along with no taxes on tips and Social Security income. The estimated price tag is closer to $6 trillion, but it could be higher. And the Congressional Budget Office already projects $22 trillion in deficits over the next decade without an extension of the tax overhaul.
Growth doesn’t seem to cover the price tag. The Committee for a Responsible Federal Budget reviewed economic analysis and found that Trump’s extension of his tax cuts would have about no impact on overall growth over 10 years because of the extra debt.
“The overall agenda doesn’t really seem focused on growth,” said Marc Goldwein, senior vice president and senior policy director of the Committee for a Responsible Federal Budget.
Harris’ campaign has said all of her spending plans would be funded. Campaign officials have suggested her revenue sources would largely mirror Biden’s 2025 budget proposal.
Still, the Penn Wharton Budget Model estimates that her policy would add $2.3 trillion in spending. It predicts that her plan to raise the corporate tax rate to 28% would raise $1.1 trillion in tax revenue. But the group didn’t include other proposals, such as taxing the unrealized income gains of people with $100 million or more in wealth, because there isn’t enough detail to produce an accurate number. Other revenue increases also weren’t included.
Penn Wharton’s budget model shows that Harris’ plans would hurt growth more through 2034 than Trump’s, though his proposed tariffs are not included in the analysis.
The real difference with the plan is how the tax burden will change from 2026.
Under Trump’s plan, someone in the top 0.1% of earners would see an average of $376,910 more in after-tax income. The bottom 20% would see just $320 more.
Harris’ policy would reduce the average income of the richest 0.1% by $167,225, while the poorest 20% would get $2,355 more in income and benefits.
“The bigger picture: Both Harris and Trump are causing debt to rise even faster than the rapid pace under current law,” said Kent Smetters, the faculty director of the Penn Wharton Budget Model.