Jim Hartman
While advertising their politically shrewd economic policies, Kamala Harris and Donald Trump ignore economic realities this year.
Economists regularly advise against price controls, tariffs, discriminatory taxes and wider budget deficits. Yet, Harris and Trump are promoting them despite being bad economics.
Trump’s proposal to end taxes on tips was a play for service worker votes in Nevada and was quickly copied by Harris.
There’s no economic justification for the proposal, which would carve out one kind of income from taxation in violation of equitable tax principles.
It’s inequitable because it would tax people paid mostly via wages, such as cooks, more heavily than similar people paid mostly through tips, such as waiters.
The exemption would further narrow the tax base with an estimated cost to the Treasury of $150 billion over 10 years. Workers and many employers would rearrange their income, or restructure compensation, to exploit the tips tax advantage.
The losers are consumers who already resent proliferating requests for tips.
Harris has a political problem with Biden-Harris economic policies delivering inflation and declining real incomes. With the high cost of food a particular problem, the vice president’s response is to make it worse by resorting to left-wing populism.
She proposes a “first-ever federal ban on price gouging on food and groceries,” including “new authority” for the Federal Trade Commission to punish companies for charging too much.
This would effectively have the FTC set prices. But what’s an excessive price? Is $4 too much for a gallon of milk in Elko? Is it a different price in Minden?
There is no evidence supermarkets are gouging anyone. They have meager margins on sales – 1.6% compared to an average 8% for other businesses.
Fixing prices is a recipe for shortages. They have failed everywhere tried, from Moscow to Caracas. President Nixon tried price controls for 90 days in 1971. They were removed after shortages and prices immediately soared when controls were lifted.
With homes unaffordable resulting from inflation, Harris’s brainstorm is to provide $25,000 in down-payment assistance for “first-time” home buyers. This would merely drive home prices higher.
Harris endorses Biden’s plan to take away tax breaks from developers that raise rents more than 5%. That will effectively discourage new housing development.
Economists hate tariffs. They are a tax on imports paid for by American consumers.
Trump’s tariffs on China, which he proposes to expand, arguably reduce U.S. vulnerability to an adversary.
But Trump’s proposed 10% or even 20% “baseline” tariff on every country and product serves no obvious purpose. He claims it would cause American consumers to buy U.S. instead of foreign-made goods boosting jobs and reducing the trade deficit. But it would force consumers to pay thousands of dollars extra.
Despite tariffs, the trade gap widened during Trump’s presidency. China and the European Union will likely retaliate as they did in Trump’s first term.
Trump would end income taxes on Social Security benefits.
The Committee for a Responsible Federal Budget estimates Trump’s Social Security tax repeal would cost at least $1.6 trillion; and Harris’s promises, beyond those made by Biden, cost about $1 trillion over a decade.
The nonpartisan Congressional Budget Office projects a 2024 fiscal year federal budget deficit exceeding $1.9 trillion. Our national debt is currently over $35.3 trillion.
If enacted these plans would make it worse.
In December 2020, Trump called for new $2,000 stimulus checks that even at the time looked excessive. The Democratic candidates in Georgia’s runoff election picked up the call. After they won, the new checks became a Biden stimulus centerpiece helping fuel inflation today.
Former Treasury Secretary Larry Summers, a Democrat, warned the 2021 American Rescue Plan Act ($1.9 trillion) and the 2022 Inflation Reduction Act ($364 billion) would be inflationary. Harris cast the tie-breaking Senate vote approving each.
Harris and Trump fail basic economics.
Email Jim Hartman at lawdocman1@aol.com.