Cost of living crusade: Harris’ policies are aimed squarely at what matters most to American voters at present—their pockets. She is proposing to build millions of new homes per year, offer financial help to first-time homebuyers, ban price gouging by grocery companies, cap medical costs, and cut taxes for low- and middle-income families. The measures would be paid for in part by hiking taxes on corporations and the wealthy.
Superficial measures trump structural reforms: While the Vice President’s proposals tap into many concerns shared by ordinary Americans, in many cases they do little to tackle the underlying causes of the country’s economic problems—and may make some of them worse. For instance, simply capping medical costs does nothing to improve the inefficient overall architecture of the health system; the U.S. spends far more on health than even other advanced nations, yet has a lower average life expectancy than many emerging economies. Giving a payout to first-time homebuyers will likely translate into higher housing prices—exactly the problem the measure attempts to tackle. And cutting taxes will only widen a fiscal deficit which is already over 6% of GDP, putting upward pressure on public debt and raising financial stability risks.
The least bad option: Though Harris’ proposals will not herald an economic step-change in the U.S., if approved they are unlikely to seriously harm the economy, and should be more favorable for growth than Trump’s measures, which we looked at in a recent insight piece. The election outcome is currently in the balance; the Consensus is for the U.S. economy to grow close to 2% in the coming years, above the G7 average. However, if the economy does achieve such growth, it will have much more to do with the U.S.’ innate economic strengths—world-class research, flexible labor markets, a strong regulatory environment and leadership in emerging tech domains—than government policy, regardless of the election’s victor.
Insight from our analyst network
Goldman Sachs analysts commented on future tax policy:
“A Democratic sweep [in Congress] would likely result in substantial fiscal legislation in 2025 that raises the tax rate on corporate income and upper-income households, including investment income, while also increasing fiscal transfers to households (e.g., the child tax credit) and establishing new benefit programs (e.g., subsidized child care). By contrast, a Democratic presidential win with a divided Congress would result in much less policy change outside of the expiration of the upper-income portion of the 2017 tax cuts at the end of 2025.”
On the economic upshot of a Harris government with a divided Congress, ING analysts said:
“Somewhat tighter fiscal policy will be a headwind to growth, but a more certain trade and economic backdrop may mitigate this, particularly if the Fed feels content with a lower inflation profile. Some fiscal restraint will help dampen price pressures relative to Trump. A limited migration and trade impact should also lessen inflation fears over the medium term.”
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