Key Takeaways
- Vice President Kamala Harris and former President Donald Trump have each proposed spending plans and tax cuts that would add to the federal deficit.
- Harris has also proposed tax increases on the wealthy that could pay for some or all of her other spending priorities, according to one analysis.
- Economists are skeptical that Trump’s proposed tariffs would raise enough money to make up for the tax cuts he favors.
The spending and tax plans being discussed by Vice President Kamala Harris and former President Donald Trump could have a big impact on the federal deficit.
According to separate analyses by nonpartisan think tank the Committee for a Responsible Federal Budget and the Penn-Wharton Budget Model at the University of Pennsylvania, Harris’s policies could increase deficits by up to $2 trillion, while Trump’s policies could increase them up to $4 trillion.
Neither organization’s analysis encompassed all of the tax cuts, spending programs, and taxes proposed by the candidates in recent days. However, the analyses highlight the rival politicians’ starkly different approaches to how they would manage the federal budget and the $35 trillion (and counting) national debt.
Harris, the Democratic presidential candidate, favors tax cuts and credits for middle-income and lower-income households paid for by higher taxes on the wealthy, with the two potentially balancing one another out. Republican candidate Trump wants across-the-board tax cuts, while proposing tariffs on imports to generate revenue.
As Michael Gregory, senior economist at BMO Capital Markets, put it in a commentary: “Harris and the Democrats have no problem increasing both spending and taxes, relying on the latter to control the deficit. By contrast, Trump and the Republicans are inclined to cut taxes and constrain spending, with the latter relied on for deficit control. The starkness is likely to become clearer over the next two months of campaigning as even more polices are proposed.”
Neither candidate would be able to enact their most ambitious economic plans without support from lawmakers. According to recent polls, Democrats face an uphill battle to retain control of the Senate, while Republicans are unlikely to win a majority in the House of Representatives. Forecasters project a divided government as the most likely outcome, meaning that most economic plans would likely have to be compromised to have any hope of passing.
Breaking Down Harris’s Economic Plan
In terms of its effect on the budget, Harris’s biggest proposal would be an expansion of the child tax credit to up to $3,600 per year per child from its current level of $2,000, matching the temporary credit expansion implemented by President Joe Biden in 2021 as a pandemic relief measure. On top of that, she would add a $6,000-per-year credit for children in their first year of life.
Together, her proposals would cost $1.2 trillion over 10 years, according to the analysis of the Committee for a Responsible Federal Budget. Other items pushing up the deficit: expanding the earned income tax credit for lower income workers, providing a $25,000 tax credit for first-time homebuyers, and expanding Affordable Care Act subsidies, pushing down premiums for people enrolled in Obamacare.
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Harris’s proposed tax hikes on the wealthy and corporations could cover most or all of those costs in the CRFB’s analysis. The most significant would be increasing the corporate tax rate to 28% from 20%, which would raise $1 trillion. The 25% “billionaires tax” on income and unrealized investment gains for people with more than $100 million unrealized investment gains would raise an additional $500 billion.
Breaking Down Trump’s Economic Plan
Trump’s costliest proposal is ending the tax on Social Security benefits, which would reduce revenue by $1.6 trillion to $1.8 trillion in the CRFB’s analysis. Lowering the corporate tax rate to 15%, as Trump proposed, would reduce revenue by another $200 billion.
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Trump has promised to pay for those tax breaks—and pay down the national debt— by raising tariffs on foreign imports; estimates by multiple economists projected those policies would not bring in nearly enough to cover the tax breaks, let alone put a dent in the national debt. The CRFB estimated Trump’s 60% tariff on Chinese imports could take in as much as $300 billion, or end up reducing revenues by as much as $50 billion because of how much it would hurt the economy.