Taxes, prices, and housing: Harris vs. Trump on economic policy

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“I want to begin tonight with the issue that voters repeatedly say is their number one issue, and that is the economy and the cost of living in this country,” explained David Muir, the moderator and editor-in-chief of ABC's World News Tonight, as he opened last week’s presidential debate. In response, Democratic candidate Kamala Harris declared that she was “the only person on this stage who has a plan” that could improve the lives of Americans.

Harris outlined her economic ideas back in August during a speech in North Carolina, one of the key battleground states in this November’s election. Harris intends to create an “opportunity economy,” expand the middle class, and combat inflation by capping prices on essential goods. For voicing such proposals, Republicans have accused her of being a communist. Nevertheless, Republican candidate Donald Trump has also emphasized the need to combat rising prices, asserting that he, too, has a plan: “I went to the Wharton School of Finance, and many of the top professors think my plan is a brilliant plan, it's a great plan.” Specifics, however, have not been forthcoming.

Price Competition

Inflation is indeed a major concern for Americans, who view it as the country's top problem. Up until now, Trump has been seen by voters as more trustworthy on economic matters, including inflation control. This may be due to the decline in Americans' purchasing power during Joe Biden's presidency — and Kamala Harris’s vice presidency. Price increases hit a 40-year high of 9.1% in mid-2022.

In the debates, however, Harris tried to steer away from discussing inflation, while Trump highlighted the issue, calling rising prices a “disaster” for all segments of society. “People can’t go out and buy cereal, bacon, or eggs, or anything else,” he claimed. “ The people of our country are absolutely dying with what they've [the Biden administration] done. They’ve destroyed the economy.”

Harris is also focusing primarily on food prices and plans to, within her first 100 days as president, introduce a price gouging ban for essential goods while empowering the Federal Trade Commission and prosecutors to penalize companies that inflate prices. She has also promised to support small businesses in the food sector and closely monitor mergers of large food producers.

Such talk is not entirely without merit. Large corporations may take advantage of inflationary expectations to raise prices even on products that shouldn't be affected by inflation, as confirmed by the research of economist Isabella Weber and the U.S. Federal Trade Commission. However, the idea of forcibly limiting price increases is controversial. Price controls have been tried multiple times, both globally and in the U.S., and they have consistently proven difficult to enforce. In most cases, they have led to shortages of goods. The Washington Post called Harris's proposals “populist gimmicks.”

Trump compared Harris's proposal to communist price controls. He, on the other hand, suggests eliminating excessive regulations that drive up business costs and force price increases. He also proposes creating a “Commission on Efficiency” to prevent unnecessary government spending. Additionally, Trump plans to boost oil and gas production, arguing that a significant portion of inflation is driven by rising fuel prices. But experts are skeptical that he will be able to significantly lower gas prices, as U.S. oil production is already at a historic high, leaving little room to further increases in supply. Moreover, oil refining companies are likely to resist any form of government price control.

It is also unclear how Trump plans to tackle rising prices given his proposal to introduce a 10% tariff on all imported goods and a 60% tariff on those coming from China. “We are imposing tariffs on other countries. After 75 years, other countries will finally pay us back for everything we’ve done for the world. And in some cases, the tariffs will be significant,” he said during the debate. And yet, it is more likely that Americans themselves will end up paying the price if such proposals are implemented. According to estimates from economists at the Peterson Institute for International Economics, Trump’s proposed tariffs would cost the average American an additional $1,700 per year. Harris has repeatedly compared Trump’s idea to a sales tax on the middle class, which, she argues, Trump plans to use as a means of “paying for tax cuts for billionaires.”

Unaffordable housing

“We know that we have a shortage of homes and housing, and the cost of housing is too expensive for far too many people,” Harris noted, highlighting another key issue. She believes it is necessary to build three million new homes over the next four years and plans to incentivize construction by offering new tax credits to companies that build “starter” homes. A special $40 billion fund to support businesses involved in constructing affordable rental housing is also part of the plan.

In addition, Harris promises to streamline bureaucratic procedures and speed up the process for issuing building permits. As vice president, she has already played a role in approving the repurposing of some federal lands to make space for new affordable housing.

Another focus for Harris is combating “predatory investing,” in which large investors or companies buy up residential properties in bulk to rent them out. Currently, these investors enjoy the same tax benefits as any other homebuyer. Harris promises to introduce legislation that will limit these deductions and strip them from those who own 50 or more homes. This move is expected to increase the number of homes available for sale and make them more affordable.

Harris also proposes a $25,000 down payment assistance for first-time homebuyers. However, The New York Times warns that such a policy could lead to an excessive increase in demand and drive housing prices even higher.

Trump also acknowledges the issue of housing affordability but does not propose taking any specific steps in the construction sector. The Republican candidate promises to deport undocumented immigrants, which could temporarily reduce demand for housing. However, it might also lead to a shortage of construction workers, ultimately limiting the supply of new housing. Another of Trump's ideas is to lower interest rates — although this is not a facet of the economy that the president directly controls, and in any event a rate drop is expected to happen naturally once inflation slows.

Taxes in disarray

A third key economic issue for the candidates is tax policy. During his first term as president, Donald Trump signed a tax cut, most of which will remain in effect until at least 2025. Trump not only wants to extend the current breaks, but also go further. “Everybody knows what I'm going to do: cut taxes very substantially and create a great economy, like I did before,” Trump said at the debate. He proposes eliminating taxes on tips and benefits, as well as lowering the corporate tax rate from 21% to 15%. This, in turn, would give companies more money to grow, spend, and hire, which would boost the economy.

Harris has called Trump's plans to reduce taxes for billionaires a gift to oligarchs and corporations. “Donald Trump has no plan for you. And when you look at his economic plan, it's all about tax breaks for the richest people,” Harris said.

That said, Harris and Trump do agree in some places. Both call for eliminating the tax on tips, a boon that would fall to around 4 million mainly young Americans. In addition, Harris says she would keep the Trump-era tax cuts for people earning up to $400,000 a year while raising rates for corporations and the wealthy. While her plan to tax the rich and corporations may be more popular among the public, it comes with its own challenges. If implemented, the U.S. would have the highest corporate tax rate in the world. Economists from the Cato Institute worry that this could slow economic growth, and they warn that corporate tax increases often negatively impact the wages of ordinary workers.

Both candidates' plans would increase the U.S. budget deficit, which some economists already consider dangerously large. However, under Trump’s plan, the annual deficit would be 2–4 times higher than under Harris’s plan. Harris has promised to reduce the budget deficit, though she hasn’t clarified how she plans to achieve this. Either she has a significant additional source of deficit reduction that she hasn’t revealed yet, or she has underestimated the costs of her social welfare programs, particularly the proposed forgiveness of medical debt, subsidies for prescription drug expenses, and tax credits of up to $6,000 a year for families with children.

The second front

A major issue with Harris’s plan lies in the fact that many of its provisions cannot be implemented without congressional approval, and Republicans have already indicated that if they control either the House of Representatives or the Senate under a Harris presidency, they will be less than cooperative in helping her implement her vision for America. “If Harris has to contend with the MAGA extremists in the House or the Senate, it will be a very different presidency for her. We need to win the trifecta,” said Democratic Senator Sheldon Whitehouse.

Winning control of all three branches of government will be a challenge. Currently, Democrats hold a slim majority in the Senate (thanks to the fact that four independent Senators either caucus or align with them). However, they are likely to lose a seat in West Virginia, and they face tough competition in Montana and Ohio. A Republican victory in either of these states would shift the majority to the Republicans, while in the House, Democrats need to gain five additional seats to take control. While most eyes will be on the race for the White House this November, a handful of legislative contests could make all the difference between significant reforms and near-total stalemate once the new president is sworn in early next year.