The economic approaches of President Joe Biden and former President Donald Trump were already quite different, but the gap between Trump and Vice President Kamala Harris is even more pronounced.

Since becoming the Democratic nominee after Biden, Harris has proposed an ambitious agenda aimed at supporting low- and middle-income families. Her initiatives include making housing more affordable, lowering child care costs, combating price gouging, and reducing prescription drug prices.

“She is intensifying efforts to aid lower- and middle-class families and small businesses, funding these plans through tax increases for the wealthy and corporations,” commented Mark Zandi, chief economist at Moody’s Analytics.

The economic strategies of Trump and Harris are slated to be highlighted in their upcoming election debate on Tuesday, which will be aired by ABC News.

Experts suggest that a split Congress may obstruct many of Harris’ initiatives, although some proposals regarding housing and child care might gain traction.

Interestingly, some of Harris’ positions challenge the belief held by nearly half of likely voters that she is “too liberal.” A recent poll revealed that she has adapted her approach by withdrawing support for a ban on fracking and advocating for a lower capital gains tax rate than Biden for very wealthy individuals.

What are Kamala Harris’ and Donald Trump’s Economic Positions?

When examining major economic issues like trade, immigration, and taxation, Harris’ policies generally align with Biden’s, and analyses by Moody’s, Goldman Sachs, and the Penn-Wharton Budget Model indicate that the impacts on economic growth, job creation, and inflation would be comparable.

In contrast, Trump is reaffirming his previous economic agenda.

His plans include extending and broadening the tax cuts implemented in 2017 for nearly all Americans, taking a tougher stance on illegal immigration, deporting millions of undocumented immigrants, imposing additional tariffs on imports, and rolling back many of Biden’s efforts toward a sustainable energy future.

Harris would maintain some of the Trump tax cuts—excluding those for the wealthiest individuals and corporations—raise taxes on the richest Americans even further, implement targeted tariffs on imports from China, and strengthen immigration laws, albeit less aggressively than Trump’s approach.

What are the Economic Forecasts for 2025?

According to Zandi, “The economy under Trump would likely experience slower growth and increased inflation and interest rates.”

Goldman Sachs also noted that under a Trump presidency, the detrimental impact of tariffs and stricter immigration policies would overshadow the potential benefits from tax cuts, adversely affecting economic growth.

Goldman further concluded that Harris’ proposed spending and tax breaks for the middle class would “slightly offset reduced investment resulting from higher corporate tax rates.” However, under a divided government, any impact is expected to be minimal.

Moody’s indicated that Trump’s economic strategy might lead to a recession by mid-2025. They anticipate average economic growth at 1.3% annually during his four-year term, compared to 2.1% under Harris, aligning more closely with pre-pandemic averages.

Furthermore, Moody’s analyses estimate that inflation would rise to 3.5% in 2025 under Trump, compared to 2.4% under Harris. By the end of Trump’s term, the U.S. would likely see 3.1 million fewer jobs compared to projections under Harris, resulting in a 4.5% unemployment rate, half a percentage point higher.

Goldman Sachs forecasted a more modest effect from Trump’s policies, anticipating a half percentage point slower growth next year and inflation approximately four-tenths of a percentage point higher.

The estimates are built on assumptions that a Harris administration would likely work with a Democratic-majority House and a Republican Senate, which would reverse the current political situation. Conversely, models suggest Trump would be supported by a Republican House and Senate.

Polls consistently indicate that many Americans perceive Trump as a more reliable manager of the economy. An ABC News/Ipsos survey conducted in late August found that approximately 45% trust Trump on economic matters, compared to 37% for Harris. However, since Harris took over as the nominee, the difference in public perception between the two candidates regarding economic issues has been narrowing.

Here is an overview of how their economic proposals may influence the nation.

Tariff Policies

Trump’s Tariff Approach

During his first term, Trump imposed tariffs on about 10% of U.S. imports, primarily targeting steel, washing machines, solar panels, and various goods from China. Long term, these $80 billion in tariffs are projected to decrease the nation’s gross domestic product (GDP) by 0.21% and lead to the loss of 166,000 jobs, according to a report by the Tax Foundation.

During this cycle, he intends to escalate efforts significantly. His proposal includes a 10% tariff on all imports into the U.S. and a hefty 60% tax on goods imported from China, aiming to encourage manufacturers to shift their operations back to America.

Harris’s Proposal

Harris’s campaign has not responded promptly to inquiries about her economic stance. However, a spokesperson mentioned to the New York Times last month that she plans to implement “targeted and strategic tariffs” aimed at bolstering workers and enhancing the economy.

Similar to Biden, Harris has also employed specific tariffs to help American companies compete against Chinese competitors that benefit from government subsidies. This includes a total 100% tariff on Chinese-made electric vehicles and solar panels.

Potential Effects

Zandi indicates that Harris’s proposed tariffs might not significantly influence the overall economy.

Conversely, Trump’s proposed 10% tariff is projected to raise annual inflation by approximately three-quarters of a percentage point in the coming year and half a point in 2026, as companies are expected to pass these increased costs onto consumers, according to Moody’s analysis.

In her address at the Democratic convention, Harris claimed that Trump’s proposed tariffs would burden middle-class families with an extra $4,000 annually, while the Peterson Institute for International Economics estimated that the additional costs would be around $2,600.

Goldman forecasts that the new tariffs under Trump would likely be more cautious, concentrating on imports from China and vehicles from Mexico and the European Union. They estimate this could lead to an inflation increase of about half a percentage point.

However, instead of reducing the U.S. trade deficit, these tariffs are likely to bolster the U.S. dollar by decreasing imports and triggering higher inflation that could lead to increased interest rates, as per Moody’s analysis. This scenario would make U.S. exports costlier overseas, potentially widening the trade deficit and negatively impacting American manufacturers. It’s also expected that other countries would likely retaliate with their tariffs, further reducing U.S. exports.

On the bright side, a stronger dollar would help alleviate some of the higher costs imposed by tariffs on U.S. consumers, making imports less expensive, as noted by Goldman.

Overall, Moody’s projects that the economy could face a downturn, leading to 2.1 million fewer jobs by 2028.

Taxes

Trump’s Proposal

If Trump and a Republican-led Congress have their way, they would prolong his Tax Cut and Jobs Act from 2017, which benefits households across all income levels as well as corporations. The temporary tax reductions are set to lapse next year.

Trump has expressed intentions to reduce the corporate tax rate from 21% to 15% for businesses producing in the U.S., a significant cut from the previous 35%. Additionally, he has proposed eliminating taxes imposed on Social Security earnings and tips.

Continuing these tax reductions is estimated to add $5.2 trillion to the federal deficit over the next ten years, as stated by the Committee for a Responsible Federal Budget.

Harris’s Proposal

Harris plans to maintain lower personal income tax rates exclusively for individuals earning under $400,000 annually, which would help reduce the deficit and combat inflation, according to Zandi.

In line with Biden, she intends to increase the corporate tax rate from 21% to 28%. Additionally, she proposes a 25% minimum tax on the wealthiest households and plans to raise the capital gains tax rate from 20% to 28% for individuals earning more than $1 million annually, thus modifying Biden’s approach to elevate it to the highest income tax rate of 39.6%.

Harris has also supported Trump’s idea of eliminating taxes on tips.

Potential Effects

Lower corporate tax rates generally foster investment and spur economic growth. However, Moody’s highlights that the impact may be limited given the country is nearing full employment, marked by a vigorous economy where nearly everyone who is willing and able to work has a job. Additional tax cuts might exacerbate inflation.

This scenario would likely lead the Fed to maintain higher interest rates for an extended period, increasing borrowing costs for corporations and somewhat undermining the advantages of the tax reductions.

Nevertheless, the tax reductions for both individuals and businesses are expected to enhance spending, potentially generating around 450,000 more jobs compared to Harris’s plans, as per Moody’s analysis.

However, while the extension of the 2017 tax cuts seem probable, Goldman does not anticipate that any of Trump’s new proposals—like the exemption for Social Security income—would be passed even with a Republican Congress. Similarly, Moody’s suggests that Harris’s proposed tax increases on wealthy individuals are unlikely to get approval from a split Congress.

Immigration

Trump’s Proposal

Trump is committed to deporting millions of immigrants who do not possess permanent legal status. He plans to reinstate policies requiring asylum seekers to remain in Mexico while waiting for their cases to be resolved or to be quickly sent back to Mexico.

The Biden-Harris administration has faced criticism from Republicans due to an increase in illegal immigration, resulting in a crisis at the southern border.

Harris’s Proposal

Harris has praised the existing border policies and emphasized an executive order signed by Biden in June that enhanced enforcement measures, asserting that these strategies are effective. She has also adopted a tougher stance on pursuing criminals who unlawfully enter the U.S.

“I served as attorney general in a border state,” she expressed at a rally in Glendale, Arizona, in August, according to Roll Call. “I took action against transnational gangs, drug cartels, and human traffickers. I prosecuted them consistently and won, making me knowledgeable on this issue.”

At the same time, she seeks to create a pathway for migrants to earn citizenship.

For the future, Harris is looking for congressional funding to hire more border patrol agents, immigration judges, and asylum officers to manage the increased volume of undocumented immigrants and asylum seekers.

Potential Effects

According to Goldman, Trump’s approaches could decrease net immigration to the U.S. from approximately 3.3 million last year to about 750,000 annually, provided there’s a Republican-majority Congress. In contrast, Harris’s strategy could potentially double that figure. Prior to the COVID-19 pandemic, the average net immigration was around 1 million a year.

Both legal and unauthorized immigrants have played a crucial role in addressing significant labor shortages, which helps slow down wage growth and mitigate inflation.

Trump’s proposed measures against immigration would reverse the progress made, particularly affecting industries like agriculture, construction, restaurants, hotels, and retail.

According to Moody’s,

a smaller labor force would hinder economic growth and potentially lead to rising inflation as wages increase, since businesses would be forced to produce products and services with fewer employees.

This may prompt the Federal Reserve, which plans to begin reducing interest rates in mid-September following a decrease in inflation, to reconsider and possibly raise rates again or delay the rate cuts.

Inflation Reduction Act

Trump’s Proposal

Moody’s and Goldman Sachs suggest that Trump would aim to diminish the grants and subsidies for green energy established by the Inflation Reduction Act.

Consequences

While this approach might save $369 billion, it would be financed through more stringent tax compliance measures implemented by the Internal Revenue Service.

This strategy is expected to reduce economic growth by half a percentage point and eliminate around 450,000 jobs by 2026, according to Moody’s. Goldman notes that there is limited support among Republicans for completely repealing clean energy initiatives.

Social Service Measures

Harris’ Approach

Harris has introduced a range of initiatives aimed at assisting low- and middle-income individuals. These include:

• Taking action against food and grocery retailers for unfair pricing during emergencies and landlords who work together to inflate rent prices.

• Continuing Biden’s efforts to boost the child tax credit to $3,600 for each child under six years old and $3,000 for older children, along with a proposed $6,000 credit for newborns in their birth year.

• Offering $25,000 in down payment assistance for first-time home buyers, exceeding Biden’s suggested $10,000.

• Establishing a $40 billion fund to support developers in creating more affordable rental properties for low-income individuals, which is double the amount Biden proposed.

• Expanding the $35 cap on insulin costs and the $2,000 annual limit on out-of-pocket expenses for seniors to include all Americans.

• Increasing the tax deduction for small business start-ups from the existing $5,000 to $50,000.

Consequences

These initiatives would be balanced by higher taxes on wealthy individuals and corporations, so they are not expected to increase the deficit, according to Zandi.

However, many of these proposals are unlikely to pass in a split Congress, as per Moody’s and Goldman. The $25,000 assistance for home buyers could significantly spur home sales and raise house prices, according to Zandi.

Nonetheless, some adjustments to the child tax credit are anticipated, even amidst a divided Congress, economists suggest. Additionally, Moody’s looks forward to increased funding for affordable housing.

Contributing: Reuters