September 10, 2024
2024 Election Tax Policy Proposals
With less than two months left in the 2024 presidential campaign, Vice President Kamala Harris has sketched out sufficient details of her fiscal and economic agenda for us to provide a preliminary analysis of the budgetary, economic, and distributional effects. On tax policy, Harris carries forward much of President Biden’s FY 2025 budget, including higher taxes aimed at businesses and high earners. She would also further expand the child tax credit (CTC) and various other tax credits and incentives while exempting tips from income tax.
On a gross basis, we estimate that Vice President Harris’s proposals would increase taxes by about $4.1 trillion from 2025 to 2034. After taking various credits and tax cuts into account, Harris would raise about $1.7 trillion over 10 years on a conventional basis, and after factoring in reduced revenue from slower economic growth, the net revenue increase comes to $642 billion. We estimate the proposed tax changes would reduce long-run GDP by 2.0 percent, the capital stock by 3.0 percent, wages by 1.2 percent, and employment by about 786,000 full-time equivalent jobs.
We find the tax policies would raise top tax rates on corporate and individual income to among the highest in the developed world, slowing economic growth and reducing competitiveness. The tax credits and other carveouts would complicate the tax code, run more spending through the IRS, and, together with various price controls, fail to improve affordability challenges in housing and other sectors.
Many tax policies remain unspecified, including how Harris might deal with next year’s expiration of the Tax Cuts and Jobs Act (TCJA). Harris has not clearly indicated if or how her spending priorities align with the FY 2025 budget proposals. Depending on where she lands on these issues, the deficit impacts could be large.
In a possible scenario in which she extends the TCJA for all those earning under $400,000 and adopts all the spending proposals specified in the FY 2025 budget, we estimate the net effect of her policies would increase deficits by $1.5 trillion over the next decade, measured on a conventional basis. Including the economic impacts of the tax increases, the net effect could increase deficits by roughly $2.6 trillion over the next decade.
The wide range of possibilities reflects considerable uncertainty about her fiscal policy stance at this point, leaving a large void regarding how she might deal with the already unprecedented, dangerous, and unsustainable federal debt trajectory.
Former President Donald Trump has not released a fully detailed tax plan as part of his current bid for reelection, but he has floated several tax policy ideas. Among various (sometimes competing) ideas, he seeks to extend the expiring 2017 Tax Cuts and Jobs Act (TCJA) changes, further reduce the corporate income tax rate in some form, exempt tips and Social Security benefits from tax, impose a 10 percent or higher universal baseline tariff on all imports, and raise current tariffs on China to at least 60 percent. He has also discussed replacing the individual income tax with tariffs.
The impact of Trump’s proposals will vary significantly depending on which combination of policies are pursued. The economic effects could range from slightly positive to slightly negative, while the revenue effect ranges across deficit increases of different magnitudes. As with any economic model, ours does not capture all the possible effects of the proposed tax and tariff policies, such as changes in compliance costs, the geopolitical implications of further trade wars, the impact of different tax burdens on different sectors and types of investments, or how uncertainty affects economic decision-making.
Our estimates illustrate that Trump’s proposed tariffs threaten to offset the economic benefits of his proposed tax policy changes, while falling short of offsetting the tax revenue losses. Trump’s combination of policies could therefore shrink economic output and grow the national debt.