A american election this Tuesday (5) will have far-reaching economic consequences, from how Americans are taxed to how the US trades with the rest of the world.
Democrat Kamala Harris and Republican Donald Trump present drastically different political visions that will also shape the flow of immigrants into the job market and the makeup of the energy supply that drives industry. Their differences will influence the prices consumers pay for everyday goods and the borrowing costs that families and businesses face on their debt.
Much will depend not only on who wins the race for the White House, but also on which party will control Congress. This is especially true for tax proposals, which must be approved by lawmakers. Still, the president has independent authority to take sweeping actions, particularly on trade and immigration.
Here is a breakdown of the five most significant economic impacts of the election result.
Taxes
Trump has placed reducing income taxes at the center of his campaign. He promised to extend tax cuts approved during his first term — which will end at the end of next year — and also further reduce corporate taxes. During the campaign, he embraced additional ideas for tax cuts, including ending taxes on tips, overtime and Social Security benefits. He claims the lost revenue would be partially offset by new tariffs on imported goods.
Harris has only pledged to extend Trump’s 2017 tax cuts for those earning less than $400,000 and says she would roll back expiring tax cuts for the wealthiest Americans. She promised to raise the corporate income tax rate and impose a minimum tax on billionaires. It would expand tax credits for families with children and offer benefits to smaller businesses.
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The imminent expiration of the 2017 tax cuts likely forces action on tax legislation next year. Neither party wants to take responsibility for middle-class tax increases, so tax policy will dominate Congress in the next session.
The composition of Congress will be critical to the outcome. A complete victory in the election in which the same party gains control of the presidency, Senate and House would pave the way for a partisan plan. But a divided government would force a negotiated settlement.
Foreign trade
The biggest potential shock to business would come from Trump’s plan to drastically increase tariffs to try to force manufacturers to move production to the US. The Republican called for minimum tariffs of between 10% and 20% on all imported goods, rising to 60% or more on imports from China.
A Bloomberg Economics projects that the maximum version of the plan, with the overall tariff at 20%, would reduce US GDP by 0.8% and add 4.3% to inflation by 2028 if only China were affected. If the rest of the world also suffers retaliation, the hit to growth would be greater, reducing US GDP by 1.3%, but would add just 0.5% to inflation due to the weakened US economy.
Harris signaled broad continuity with the Biden administration’s trade policies and also warned that Trump’s proposals would amount to a “national sales tax” on consumers.
Both candidates said they would block a proposed takeover of US Steel Corp by Japan’s Nippon Steel, signaling a consensus on a hard-line attitude towards foreign investment in sensitive sectors. The president has considerable unilateral authority to act on trade policy.
Immigration
Trump has promised the largest deportation of unauthorized immigrants in history, a move that would immediately affect sectors such as construction, hospitality and retail that rely heavily on immigrants — both with legal and illegal status in the country. Economists say such a move would shake up the job market, disrupt businesses and cost billions of dollars to implement.
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Harris would take much more modest steps. She promised to reintroduce legislation cracking down on illegal border crossings, a policy that would require bipartisan support in the event of a divided Congress after the election. The president has broad powers over immigration.
Energy
Trump adopted the motto “drill, baby, drill.” He promises to reduce regulation of oil, natural gas and coal production and promises to make more federal land available for fossil fuel production, arguing that this will reduce costs. The former president also says he will “end” Biden administration policies that offer subsidies to boost green energy production.
Harris is betting on the transition to clean energy. The vice president has promised to reduce household energy costs, but her agenda is committed to tackling the climate crisis through clean energy and protecting public lands.
Deficits
If either candidate gets their way, U.S. budget deficits will rise, analysts say, but the jump would be nearly twice as large under Trump. Larger deficits typically mean higher interest rates and borrowing costs for both households and businesses.
Harris’ campaign plans would increase the deficit by as much as $3.95 trillion accumulated over a decade, while Trump’s would increase the deficit by as much as $7.75 trillion, according to estimates from the Committee for a Federal Budget Responsible, a nonpartisan tax watchdog group.
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So far, investors appear calm about the outlook for U.S. fiscal policy, regardless of who wins. The appetite for buying Treasuries remained even as the annual U.S. deficit for the fiscal year ending Sept. 30 rose to $1.83 trillion from $1.7 trillion the year before.
Still, some analysts warn that an unsustainable fiscal path risks causing market volatility. US debt is already set to reach 99% of GDP this year. THE Bloomberg Economics estimates that Trump’s tax cuts could take it to 116% in 2028, and even under Harris’ more conservative proposals it would rise to 109%.
A divided government, in which the opposition party controls at least one chamber of Congress, could contain deficits, as Congress must approve both spending and taxes.
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