What the election teaches us about the economy

I started this story with what I thought was a simple premise: What would the economy look like under the respective proposals of Vice President Kamala Harris or former President Donald Trump? I made a tidy spreadsheet, which would compare the two presidential candidates’ specific proposals for affordable housing, families, small businesses, etc. The plan was to enlist the help of experts to extrapolate what the long-term economic impacts would be.

My first stop was Nobel-prize winning economist Claudia Goldin of Harvard, who told me I was essentially sweeping the sand off the beach: Most of what I was looking for “would require considerable effort and a major-league econometric model.” She added, “Of course, Congress is the elephant in the room.”

She's correct: Hardly any economic proposals that become laws are enacted with the snap of a president’s fingers. It’s an effort that requires finagling from committees in the House and Senate. (Here’s a fun quiz from the IRS about the order of the process.) So however important a presidential race is, the down-ballot race is also critical for moving the needle.

After checking in with several economists and trying to peek beyond the talking points, I’ve realized that three main elements are critical when comparing platforms.  

Everything is connected 

“General equilibrium” refers to trying to manage opposing forces to achieve stability—imagine the sides of a teeter-totter trying to balance but never quite straightening out. We know there’s a correlation between a strong labor market and higher consumer prices, but we also need to think more holistically beyond that.

Tyler Schipper, associate professor of data analytics and economics at University of St. Thomas University in St. Paul, Minnesota, uses housing as an example of this. “One of the big places where we could improve on that is with respect to affordable housing,” he said. “There is a ton of research out there that says that if you can get housing right, people are better able to engage with the labor market, they are less likely to have mental health problems. They are less likely to have problems with addiction, and so you solve — or at least make progress — on lots of other issues that our country faces.”

Another example: The cost of borrowing money affects nearly everyone, and that’s determined by interest rates. Schipper explained that with lower interest rates (set by the Federal Reserve, not the president), mortgage rates decline. But as more people take advantage of lower rates, the housing market tightens and prices rise. “If mortgage rates fall, there are other things that happen before people just have more money in their pockets,” he said. “I wouldn’t expect there’s going to be a big surge in inflation … I think that's something the Federal Reserve is taking into account when they slowly take their foot off the brakes,” Schipper said.

Trump has signaled he would like more control over the Federal Reserve, which means he could affect inflation on a whim. “International economic research has found that independent central banks help keep inflation rates more stable. They sometimes need to make difficult short-term decisions that politicians are not incentivized to do, such as raise interest rates,” said Chris Clarke, an assistant professor of economics from Washington State University. “Vice President Harris plans to maintain central bank independence.”

Trump’s proposed mass deportation of 15-20 million immigrants would also have a ripple effect. “Every economic textbook will show reducing the population decreases both supply and demand together. Immigrants purchase goods and services, but they also produce them. Mass deportations will disrupt our supply chain, decreasing our economy and increasing costs, which lead to higher inflation,” Clarke said.

This principle of general equilibrium works under either a Harris or Trump presidency — or anyone else’s. And that’s why it’s critical to examine policies and their ripple effects. You can see line items for both candidates’ budgets at the Committee for a Responsible Federal Budget website.

Consumers bear the brunt of tariffs

Tariffs are 10 to 20% surcharges placed on imported goods that go to our government but are passed on to the buyer — and there is usually retaliation from the country of supply for American-made goods, discouraging foreign buyers. Trump’s tariffs on steel and aluminum sparked a trade war with China in 2018 and expanded to semiconductors, solar panels and electric vehicles from China, Schipper said.

Trump has positioned tariffs as punishment for other countries and to incentivize buying American goods, but tariffs act more as a harness on consumer purchasing power. Even American-made items often require components from China, so the cost of the tariff is being passed on. Whether you’re in the 10% of the wealthiest Americans or in the bottom 10%, if you’re buying a $1,000 refrigerator you’re still paying the same $150 tariff (in addition to sales tax) on it. A wealthy person can shoulder that burden more easily. 

The conservative-leaning nonprofit Tax Foundation, which analyzes and advises on tax policy, concluded “the Trump administration imposed nearly $80 billion worth of new taxes on Americans by levying tariffs on thousands of products valued at approximately $380 billion in 2018 and 2019, amounting to one of the largest tax increases in decades.” The Foundation (and other analyzing organizations) said these would result in higher household costs of nearly $4,000 per year. The Biden administration continued those tariffs and added $18 billion more.

Trump’s promise of further tariff hikes gets a thumbs-down from the Foundation. “We estimate that if imposed, his proposed tariff increases would hike taxes by another $524 billion annually and shrink GDP by at least 0.8%, the capital stock by 0.7% and employment by 684,000 full-time equivalent jobs. Our estimates do not capture the effects of retaliation, nor the additional harms that would stem from starting a global trade war.”

Harris says she would instead use a higher tax rate for corporations (28% from 21%) and individuals making more than $400,000 a year to shift the burden from lower and middle-income taxpayers and consumers. The Tax Foundation doesn’t like that either, saying the higher taxes will slow development, complicate the tax code and not improve housing affordability.  

Still, there’s consensus that Harris’ plans will result in a stronger, less chaotic economy overall with less impact on the budget deficit (which increases under both candidates’ plans), according to the Wall Street Journal, the CBRF, Goldman Sachs, 16 Nobel Prize-winning economists and others.

Tax credit impacts

Everyone loves a tax credit to shrink what they owe at tax time or puff up the return check, and both candidates favor them to some degree. But a tax credit can't buy sneakers for a kid who needs them, or make up a shortage in rent money or buy groceries when an EBT card runs dry.

“The Harris campaign learned something from the pandemic and how Trump distributed checks, which is to try and make the Child Tax Credit show up as a check or a deposit regularly,” Schipper said. “I would certainly argue, too, that the people that most need that tax credit would also be the places where we get our most kind of societal 'bang for our buck' in terms of reducing poverty and increasing the future outcomes of those kids.”

The Child Tax Credit is on the table for both candidates, but Trump’s version extends it only to wealthier families who owe taxes. Harris’ version is aimed at reducing poverty by providing reliable monthly income.

What is government for?

Finally, there’s something that gets lost when we talk about the economy, and that’s whose economy it actually is. Government is for people, paid for by the people — a service to us. When we vote, we’re deciding where we want our dollars to go, but also the culture, opportunities and protections that money buys.