Economics | The Big Take
Forecasting America’s Economic Future Under Harris vs. TrumpThe impact of the candidates’ policies on tax breaks, tariffs, immigration, housing and inflation for the US.
By Bloomberg News and Bloomberg Economics
30 September 2024 at 5:00 pm AEST
Every election is a fork in the road. On the stump across America, Donald Trump and Kamala Harris offer strikingly different visions of the economy they’d seek to build after winning the presidency in November.
On Planet Trump, US tariff barriers are higher — and corporate tax rates lower — than they’ve been in decades, while oil drillers roam the land and illegal immigrants are shipped out.
In Harrisworld, parents and homebuyers have access to new pots of public cash, grocers have to think twice before jacking up food prices, and companies get dinged if they funnel profits to shareholders via buybacks.
Campaign-trail pitches cast light on the direction of travel. Fully implemented, Trump’s tariff plan would essentially end US-China trade, according to analysis by Bloomberg Economics, while his proposed border crackdown and deportations could knock more than 3% off GDP by the 2028 election. Harris’ proposals are more modest, but show a new willingness for the government to wade into markets, from real estate to retail.
Of course, campaign pledges often fall by the wayside, get overtaken by events or are stymied by a hostile Congress. Forecast models also have their limitations. Trump, with a narrow poll lead in battleground states on
who’s more trusted to manage the economy, can point to robust growth in his first term before the pandemic intervened. Harris is touting the rapid post-Covid rebound presided over by the Biden administration.
One thing seems clear: Under both leaders US debt – already set to reach 99% of GDP this year – will continue to rise. Bloomberg Economics estimates that Trump’s tax cuts could take it to 116% in 2028, and even under Harris’ more conservative proposals it would stay on a path to 109%.
Economics aren’t the only factor that will determine the election outcome, but they’re an important factor. Following is an overview of what the two candidates are promising in key policy areas like tax, housing and immigration, and what it all means for the outlook.
Taxes and Spending: Mind the GapThe centerpiece of Trump’s 2024 agenda is an extension of the law passed in his first term that lowered business and individual tax rates, and is due to expire in 2025. Republicans say that’s priority no. 1 if they win both the White House and Congress. There’d likely be bipartisan support for extending some of the cuts — especially for middle-class households and small businesses — even if they don’t.
Trump also wants to lower the corporate rate even further, to 15% from 21%. As the campaign unfolds he’s
promised more and more tax breaks — from exempting tips and overtime pay, to reversing a cap on state-and-local deductions that he himself imposed — leaving aides struggling to keep count.
“This is the Oprah tax environment: ‘You get a tax break, you get a tax break, and you get a tax break”
Harris says she’ll raise the small business tax deduction for startup costs tenfold, to $50,000. She’ll also boost the child tax credit to as much as $3,600 per eligible child — from the current $2,000 — and add a new $6,000 credit for newborns.
Since Trump’s running mate JD Vance has backed a version of the child credit, it’s another area where the two parties could cut a deal, says Maya MacGuineas, president of the Committee for a Responsible Federal Budget, which advocates for fiscal restraint.
MacGuineas says she can’t recall watching an election campaign that’s featured so many competing giveaways. “This is the Oprah tax environment: ‘You get a tax break, you get a tax break, and you get a tax break,’” she says.
The GOP campaign says cuts in wasteful spending, ramped-up energy production and higher tariff revenue will help pay for the tax cuts. Harris has outlined some more concrete revenue-raising plans: Increase the corporate tax rate to 28%, and lift the tax on capital gains to 28% for people earning $1 million or more. Congress-watchers reckon the former is doable in the event of a Democratic sweep, while the latter would be a big ask even then. Harris has also floated a minimum income tax on billionaires and a 4% levy on stock buybacks, four times the current level.
What Bloomberg Economics Says:In 2024, the US is expected to run a fiscal deficit of around 6.5% and its debt-to-GDP ratio will approach 100%, up from 79% in 2019. Against that backdrop, it’s striking that Trump’s tax policies would significantly add to the debt burden, and Harris’s would do nothing to reduce it.
How Trump, Harris Tax Plans Would Affect National DebtProjected debt as share of GDP with full implementation of plans
Note: Projections do not include impact of proposed tariffs on revenue or growthSource: Congressional Budget Office, Bloomberg Economics
Our model shows that Trump’s proposals for extending income-tax cuts and lowering corporate tax lifts debt to 116% of GDP in 2028. Harris’s plans for child credits, homebuyer support and higher corporate taxes would raise debt to 109% in that period, matching the CBO baseline forecast.
Trump’s tax cuts would run the economy hot, pushing 2028 GDP up 0.3% relative to the pre-election baseline, and adding 0.4% to prices. Harris’s more cautious approach would leave pre-election forecasts little changed. Shifting focus from campaign promises to what’s actually deliverable with a divided Congress, differences between the trajectories narrow.
How Trump, Harris Tax Plans Would Affect Growth and PricesEstimated impact by 2028 (relative to baseline)
Source: Bloomberg Economics
Trade: All Hawks NowTrump ushered in a new era of US trade policy with his first-term tariffs. He’s
promising to double down on this key element of “America First” if he wins again.
The former president has touted baseline 20% tariffs on all imports, and as much as 60% if they come from China. He’s threatened giant new tariffs on cars from Mexico; farm machinery made by John Deere & Co. (if it ships jobs abroad); and any country that abandons the US dollar.
Trump has also promised to revoke China’s Most Favored Nation status, and prevent Chinese investors from buying real estate or companies in the US. Both candidates have committed to the cause of keeping United States Steel Corp. in American ownership, by blocking a proposed Japanese takeover.
Harris hasn’t signaled any major departure from the trade policies of the Biden administration, which retained most of Trump’s first-term tariffs and added some new ones. She’s warned that Trump’s new plan for across-the-board duties would raise costs for consumers, and labeled it a “national sales tax.” Harris has also promised tax credits for US businesses to help them compete with China.
What Bloomberg Economics Says:Using a World Trade Organization model, we find that a maximal version of Trump’s tariff plan would wipe 0.8% from GDP and push prices up 4.3% by 2028 if China alone retaliates. If other countries hit back too, those numbers go to -1.3% for GDP and 0.5% for prices, as a blow to exports takes the heat out of both growth and inflation.
Trump’s Maximal Tariffs Would Wipe Out Most Trade With ChinaShare of US goods imports coming from China
Source: US Census Bureau, Bloomberg Economics
The uncertainty band around those forecasts is wide. It’s not clear whether 60% is a serious plan or a negotiating gambit, how much of the tariff hike would be eaten by retailers instead of consumers, or how much dollar appreciation would offset the inflationary impact.
In his first term, Trump imposed 25% tariffs on hundreds of billions of dollars of Chinese goods. Economists rang the alarm bell. In the end, the impact on the US economic data was hard to discern. His 2024 promises are a bigger deal, and we’d expect a bigger impact, but that history flags the need for caution.
Trade War Escalation Would Cut US Growth, Raise PricesEstimated 2028 impact of Trump's tariff plans (relative to baseline)
Source: Bloomberg Economics
Immigration: Stemming the TideImmigration has been among the top voter concerns after a record surge in illegal border crossings under Biden. The number exceeded 300,000 in December, though it’s fallen sharply after asylum restrictions were rolled out in June.
Trump says he’ll deport millions of undocumented migrants, and complete the border wall he embarked on last term. The GOP platform includes a pledge to end “a tidal wave of illegal Aliens, deadly drugs, and Migrant Crime.”
After being given a mandate as vice president to tackle immigration, Harris has come under scrutiny for her role in the border surge. Since becoming the Democratic candidate, she hasn’t offered much detail on immigration policy, though she’s pledged to re-introduce legislation clamping down on border crossings.
Even in a divided government, “it’s much more likely than it was a year or two ago that you would see a deal that is border-security focused,” says Brendan Steinhauser, a Republican strategist who spent two decades working on Capitol Hill. “Democrats have shifted on that.”
What Bloomberg Economics Says:Bloomberg Economics has modeled three scenarios: sealed border; deportation of recently arrived unauthorized migrants; and — as a thought experiment — deportation of all unauthorized migrants. For each scenario, we calculate the impact on population and then use a model of the US economy to estimate the impact on growth and inflation.
Scenarios for US Unauthorized Immigrant PopulationSource: Bloomberg Economics
Fewer workers means less GDP. In the scenario where only recent arrivals are deported, we find that the economy would be more than 3% smaller by 2028, relative to a baseline of no policy change -- and since GDP would fall faster than the population, average incomes would shrink. The growth impact would be unevenly spread: California, Texas and Florida — which have the highest share of unauthorized migrants in their workforce — would take the biggest hit.
As for inflation, in industries highly dependent on migrant labor — like hospitality and construction — wages and prices could rise. In aggregate though, with deportations hitting demand as well as supply, the effect is deflationary.
What Immigration Scenarios Mean for Growth and InflationEstimated impact (relative to baseline)
Source: Bloomberg Economics
