28 Sep The Candidates’ Unserious Economic Policies

“

“If you wish to be a success in the world, promise everything, deliver nothing.” – Napoleon Bonaparte
“The two candidates are spouting economic nonsense.” – The Lonely Realist

Vote-buying is very much “in” during this election season. Whatever voters want in terms of tax breaks and entitlement goodies, Vice-President Harris and former President Trump have it on offer. Not surprisingly, American voters love virtually all of it. According to a Wall Street Journal survey, “of 10 economic policy ideas proposed by the candidates, six drew support from about half or more of Democrats, Republicans and independents, including three that were favored by three-quarters of voters across the political spectrum. Those three included the insulin-price cap for all Americans and the proposed end to taxes on Social Security benefits. A proposed end to taxes on tips for many workers also drew more than 75% support among both parties…. Three other ideas drew support from about half or more of Republicans, Democrats and independents. Those were Harris’s proposed annual cap on drug expenditures, as well as her proposals for a $6,000 tax credit for parents of newborns and her promise to investigate and penalize food and grocery companies that engage in price-gouging.”

The treats proposed by America’s Presidential candidates evidence little common sense – there is, after all, no such thing as a free lunch. The fact is that America’s electioneers are following Napoleon’s advice: They are willing to say whatever is electorally attractive. What is more telling is that their proposals reveal an absence of basic economic understanding (and a high level of self-delusion) among America’s voters. It’s fundamental to American capitalism (and to elementary financial bookkeeping) that there be sufficient income to fund expenditures. Unfortunately, Americans today are ignoring this reality.

Cutting taxes for targeted constituencies and increasing spending for other targeted constituencies is now accepted as a way of buying votes…, and therefore the method used to elect America’s President and members of Congress. 21^st Century America is splurging on benefit increases, tax reductions, subsidies, and costly incentives and engaging in endless money-printing to so far “pay” for those excesses. That’s why America has a national debt of >$35 trillion and an interest expense for servicing that debt that has swollen annual budget deficits to >$1.5 trillion. Although the combination of money-printing, excessive government spending, lower tax rates and reduced tax collections has funded 15+ years of growth and prosperity for which each Political Party has claimed delusional exclusive credit, neither Political Party has voiced any responsibility for the inevitable consequences – and, as we all know, pipers must be paid. As The Economist recently noted, “It is safe to say that neither Kamala Harris nor Donald Trump will win November’s presidential election by pledging fiscal prudence…. [Both candidates’] proposals for cleaning up the country’s [unrepayable] finances are fundamentally unserious.”

The Wall Street Journal has reported that “Mr. Trump is … promising all sorts of costly tax giveaways…. Take the state and local tax deduction…. Mr. Trump vowed to restore the deduction and save ‘thousands of dollars for residents of New York, Pennsylvania, New Jersey and other high-cost states….’ [Doing so would increase the deficit by an estimated $32 billion over 10 years.] Mr. Trump floated a general tax exemption for overtime pay. The Tax Foundation estimates this carve-out would cost between $680 billion and $3.1 trillion over a decade…. The exemption would be an especially big windfall for government workers, such as police and corrections officers who can make more than software engineers because of overtime…. The same is true of his proposal not to tax Social Security benefits, which would cost between $1.6 trillion and $1.8 trillion over 10 years…. Leaving no voting group behind, Mr. Trump has also pitched a tax exemption for tips. Soon your plumber, accountant and child’s tennis coach will want to be paid in tips.” The Economist’s analysis adds that “the main challenge in working out how expensive Mr. Trump’s plan will be is estimating exactly how his tariffs would work in practice” and to what extent they therefore would result in a net detriment to the American economy and its businesses – though voters apparently don’t care. They demand tangible vote-buying!

A different vote-buying strategy is being pursued by Vice-President Harris. Her economic proposals are amorphous thought-ideas directed at reducing income and generational inequality. Ms. Harris’s agenda includes increasing the child tax credit, expanding the earned income tax credit, providing downpayment support for first-time homebuyers, raising the corporate tax rate from 21% to 28% (together with similar corporate tax add-ons), raising the tax rate on households earning more than $400,000/year, imposing a “billionaire tax” (including on unrealized income), eliminating the tax on Social Security benefits (the same as Mr. Trump, “which would cost between $1.6 trillion and $1.8 trillion over 10 years”), and eliminating the taxation of tips (the same as Mr. Trump, which is “estimated to cost $150 billion over a decade”). The Economist’s analysis of Vice President Harris’s economic proposals concludes that a Harris Administration “would aim for tax increases on the wealthy plus extra spending directed at those on lower incomes…. ‘She either has a big additional source of deficit reduction she hasn’t told us about or [she will oversee] an increase in the deficit.’” As with former President Trump’s proposals, most certainly the latter.

An estimate released in August by the Penn Wharton Budget Model concluded that former President Trump’s economic agenda would increase Federal deficits by $5.8 trillion over the next decade and that Vice-President Harris’s would add $1.2 trillion to deficits during that period. The Economist’s analysis indicates that the difference would likely be narrower, that the range of likely deficits and debt could be far higher, that both administrations would run deficits well in excess of 5% of GDP/year, and that neither Presidential candidate has set out any proposal that would even begin to address America’s burgeoning deficits and debt. The Economist’s conclusion is that “prudence does not feature in either [candidate’s policies].”

What possibly could go wrong during a Trump or Harris Administration?

TLR Index

Prior TLR commentaries can be found here.

Finally (from a good friend)