Trump or Harris: Who has the better economic plan?

US Presidential candidate Donald Trump recently invoked Ronald Reagan’s iconic phrase - “Are you better off today than you were four years ago?” - in an attempt to portray the Biden administration’s economic policies in a bad light.

Inflation, taxes, and the housing crisis have been dominant factors ahead of November 5 polls.

In a holistic view, Trump and his rival Vice President Kamala Harris are proposing divergent policy proposals to overhaul the American economy.

While both candidates see the housing crisis with urgency, their explanations for its cause and proposed solutions differ. Harris plans to fix the housing deficit by building three million new homes and offering a substantial tax credit for first-time homebuyers.

Trump, however, sees irregular immigration as a significant factor contributing to the housing deficit. While he’s yet to outline a comprehensive plan to address the crisis, he believes reducing corporate tax and blocking illegal migration can fix it.

To examine the economic visions of both candidates, TRT World spoke to three experts specialising in the US economy.

Joann Weiner, an economist at George Washington University, says it’s hard to pin down “the fundamental issue the country is facing” on the economic front.

“It’s not the deficit,” Weiner says, adding, “Politically, it may be inflation or immigration, but neither candidate’s policies effectively deal with those issues”.

Weiner says there is no evidence to prove that illegal immigration is linked to housing shortages. “Illegal immigrants frankly don’t have enough dollars to have a noticeable impact on housing prices,” he says.

Steve Keen, an Australian economist and honorary professor at the University College London, echoed a similar view, saying the housing crisis is not caused by population growth but the increasing level of mortgages.

“Ironically, because less people take new mortgages, the rate of change of mortgages is likely to be heading to the negative and that actually slows down house prices,” Keen says.

“That’s independent of what is being done in immigration or supply of housing. So I have got a feeling house prices will start going down in America rather than going up for a short while”.

Wharton shots down Harris’s plan

With Trump pushing for tax cuts favouring businesses, corporate tax rates can go further down to 20 percent from the 21 percent – a cut he initiated when he was last in office.

He argues that the move will create more investment, jobs, and help achieve long-term productivity gains. He has also proposed to end income tax on Social Security benefits.

“Trump's tax cuts for the rich may encourage some investment, but without a focus on human capital, the returns on these investments will diminish.

Investment in physical capital alone won't drive the innovation necessary for sustained economic growth, especially in the face of global competition from countries like China,” says Guido Cozzi, Professor of Macroeconomics at the University of St. Gallen in Switzerland, who specialises in political economy.

Cozzi believes Harris's focus on increasing the housing stock could address the core issue of supply, which will “ease market stress and improve affordability for the lower middle class and the poor.”

But the Wharton School, one of the world’s leading institutions in business studies, last month shot down Harris’ plan saying it would not leave a positive impact on the US economy. The business school didn’t take a favourable view of Trump’s proposal either, saying while it may increase GDP for a few years, the numbers will slide by the end of the 10-year budget.

According to Wharton, Harris’ plans could raise the deficit by $1.2 trillion, while Trump’s would cost $5.8 trillion over 10 years.

The prediction raises a fundamental question – how to cover all this spending without increasing the national debt?

To fund these initiatives, Harris proposes sharp increases in taxes for the highest earners and large corporations. Her proposal would revert corporate tax rates back to pre-Trump levels at 28 percent, and increase the top tax bracket to 39 percent.

“Harris cut for all but top incomes. Trump cut for all. Make estate tax cut permanent. Eliminate SALT cap. Trump’s plan has few if any offsetting spending cuts, which is why his plan increases the federal deficit by about three times as much as Harris’s plan,” says Joan Weiner from The George Washington University.

The China angle

On the question of the US government’s income, Trump has proposed using tariffs to counteract potential revenue losses. Here it becomes a geopolitical matter. If re-elected, he wants to impose a 60 percent tariff on Chinese imports, a measure aimed at protecting American industries and reducing the trade deficit.

If American consumers and businesses can easily switch to domestic alternatives, the tariff might boost local production. However, if substitution is difficult, higher costs could reduce overall demand, ultimately lowering federal revenue.

British economist and a former Joint Head of the United Kingdom's Government Economic Service, Vicky Pryce, says a lot will depend upon local producers' response to provide local alternatives to imported goods such as Chinese electric vehicles.

“But trade usually helps to direct production where there is comparative advantage and that leads to greater efficiency and low prices- put tariffs up or sanctions or quotas and that benefit disappears,” Pryce tells TRT World.

US-China trade tensions have widened the US trade deficit, which reached $419.2 billion in 2018 during previous tariff battles with Beijing. The pressure from Chinese competitors is unprecedented. Chinese car export volumes to the US are relatively small. The Beijing slogan "In China, for China” reflects growing preference for local manufacturers.

US exports, such as cars, are highly dependent on imported components, as they are in many industries. Tariffs disrupt production chains and reduce domestic output, further complicating the economic picture. This scenario would likely lead to increased prices, exacerbating inflation—an outcome that could prove unpopular with voters already concerned about rising costs.

“On overall economy, Harris has specific incentives for various groups; Trump has few specific plans beyond keeping tariffs and extending TCJA”, says Weiner.

So who has the better plan? That’s for voters to decide. But one thing is certain — America’s economic future is definitely on the line.