Trump v Harris
America has a huge deficit. Which candidate would make it worse?
Enough policies have been proposed to make a call
It is safe to say that neither Kamala Harris nor Donald Trump will win November’s presidential election by pledging fiscal prudence.
The deficit and debt are afterthoughts for most Americans these days.
And proposals from both candidates for cleaning up the country’s finances are fundamentally unserious.
Mr Trump has talked about using cryptocurrency or drilling for oil in order to pay off the national debt—ideas that amount to utter nonsense.
Although Ms Harris has vowed to reduce the deficit, she has declined to offer any substantive plan for doing so.
Still, there comes a time in an election campaign when the candidates have aired enough policy ideas that budget wonks can start to work out who would preside over a bigger deficit.
One such estimate, released on August 26th by the Penn Wharton Budget Model (PWBM), a non-partisan research group, seems to leave little doubt that Ms Harris would be far more fiscally responsible than Mr Trump.
According to its calculations, Mr Trump’s economic agenda would increase federal deficits by $5.8trn over the next decade, nearly five times as much as Ms Harris’s platform, which would add $1.2trn to the deficit during the same period.
The conclusion that Mr Trump would lead to bigger deficits may well be correct.
But expressing it as a five-fold difference between the cost of their plans is almost certainly an exaggeration.
First, there are economic effects: Mr Trump’s policies would, in the PWBM model, be better for growth.
Factoring this in, his policies would add $4trn to the deficit, compared with $2trn for Ms Harris.
Both would exacerbate America’s fiscal problems.
Mr Trump’s plans would lift America’s deficit to roughly 8% of GDP per year, from the current baseline projection of about 6%; Ms Harris’s would push it towards 7%.
Beyond that, two big problems confront budget experts this election season.
The candidates’ platforms, especially Ms Harris’s, are vaguer than normal.
“Measuring the cost of the agendas is both art and science.
The candidates leave a lot of details open to interpretation,” says Donald Schneider of Piper Sandler, an investment bank.
Moreover, some of Mr Trump’s ideas are so potentially disruptive that they mess with basic budget models.
Ms Harris’s ambiguity forces economists to guess which policies she will pursue.
PWBM took a conservative approach, sticking to ideas that Ms Harris’s campaign has formally unveiled.
On the expenditure side, it looked at her cost-of-living agenda, which includes a bigger child-tax credit.
On the revenue side, it weighed only the effects of her plan to lift the corporate-income tax rate from 21% to 28%.
Excluded from the main estimates was Ms Harris’s woolier promise—made by her campaign team in response to reporters, rather than in policy documents or speeches—to raise income taxes only on those Americans earning more than $400,000 a year.
However, that commits her to extending most of Mr Trump’s 2017 tax cuts, due to expire next year, which may add a further $2.5trn to the deficit over the next decade.
“We can only look at what she has actually said as part of her official plan,” explains Kent Smetters, director of PWBM.
“In these side conversations she is telling everyone ‘yes’, and we can’t do anything about that.”
The analysts also left out other things, such as Ms Harris’s apparent support for a tax on unrealised capital gains.
What remains is a solid but ultimately limited picture of what she may end up doing.
Similar uncertainty applies to Mr Trump’s proposals.
At times during his campaign he has said that he would like to cut the corporate-income tax rate to 15%; at others he has indicated that 20% may in fact be a better target.
The former would push up the deficit by nearly $500bn over the next decade, while the latter would add a little less than $100bn to it, according to the Tax Foundation, a think-tank.
Yet the main challenge in working out how expensive Mr Trump’s plans will be is estimating exactly how his tariffs would work in practice.
He has talked about imposing a 10% universal tariff on all imports as well as hitting goods from China with a 60% tariff.
Although the Tax Policy Centre, another think-tank, estimates that these levies could generate about $2.8trn of government revenue over the next decade, an estimate that builds in a decline in revenues as tariffs weigh on imports, it does not factor in other significant second-order consequences—most notably, how other countries respond.
Retaliatory tariffs would hurt the American economy by standing in the way of exports and so would ultimately erode tax revenues.
As a result, the fiscal gusher that Mr Trump is counting on from tariffs is likely to be quite a bit smaller than he hopes.
What to make of all of this?
One conclusion is that Ms Harris’s talk of reducing the deficit is misleading.
“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,” says Jason Furman, chair of the Council of Economic Advisers under Barack Obama.
Another conclusion is that Mr Trump’s policies are somewhat clearer but would also almost certainly be more expensive, according to our best attempt at totting up the costs, which combines numerous estimates (see chart).
“He isn’t even bothering to hide it with budget gimmicks,” says Mr Furman.
A final conclusion concerns how different budget policy would look depending on what happens in November.
Mr Trump’s main priority would be reducing taxes and introducing tariffs.
Ms Harris, by contrast, would aim for tax increases on the wealthy plus extra spending directed at those on lower incomes.
Both of these approaches would make America’s already worrying deficit bigger still.
Americans nevertheless have two distinct fiscal visions to choose from, even if prudence does not feature in either of them.
0 comments:
Publicar un comentario