Jon Hartley: Donald Trump offers growth, while Harris pitches economic stagnation

Following the Republican and Democratic conventions, we finally are beginning to get a glimpse of where both U.S. presidential candidates stand on key economic policy issues.

On many issues, both Trump and Harris have taken a populist tack. Both have endorsed ending taxation for tips in service sector jobs. Both seem intent on keeping a number of tariff provisions, which make a break with the historically more free trade era of the Clinton, Bush and Obama years. Ultimately, these are both relatively smaller impact policies that are more politically expedient than good pro-growth economic policy.

Republican Vice Presidential nominee J.D. Vance has called for a dramatic expansion of the child tax credit to $5,000. Harris’s economic plan calls for expanding the child tax credit to $3,000 per child at and above age 6 and $3,600 per child under age 6, and $6000 per newborn. Such policies would be hugely costly to the tune of trillions of dollars over decades. To the extent either candidate wants to promote fertility or fight child poverty, direct baby bonuses (paying per child) would be a more effective and less costly way to achieve such a desired result compared to child tax credits. Few think about having babies while they’re doing their taxes and claiming credits. Knowing that baby bonus payments would arrive immediately makes them more effective.

While on spending (including tax expenditures) and debt, both the Republican and Democratic tickets look similar (to the dismay of fiscal disciplinarians), there are many contrasts when it comes to regulation and tax schedules, particularly for corporations.

When it comes to tax rates, next year will be a monumental year due to the many expiring provisions of the Tax Cuts and Jobs Act signed into law in 2017 and is one of Trump’s key policy achievements. The law permanently lowered the U.S. corporate tax rate from 35 per cent, which was in 2017 the highest corporate tax rate in the OECD, to 21 per cent, which is roughly in the middle of the pack. Harris proposes to raise the corporate tax rate to 28 per cent, while Trump has proposed lowering it further to 15 per cent.

Trump here is correct from the perspective of promoting job growth and wage growth, including for those earning below the median income. Low corporate taxes are essential to keeping the U.S. a competitive place to do business for corporations. A more efficient tax system rather than taxing highly mobile corporations, instead should be focused on taxation of less mobile individuals, ideally their consumption over their income (with some progressivity).

Harris does not want small tax hikes on individuals, to say the least, with enormous tax hike plans to raise the top marginal income tax rate on all forms of income to 44.6 per cent, while promising to keep taxes on brackets below $400,000 unchanged. This promise may be difficult to believe, since almost all significant enhancements of the welfare state around the world end up in middle class tax increases like in Canada and elsewhere. There simply aren’t enough ultra high income individuals to tax.

Another area where Harris significantly errs is on supporting price controls, say on groceries, as well as nationwide rent control. Price controls have a long history of failure ranging from Roman emperor Diocletian to U.S. President Richard Nixon. Price controls create warped incentives that lead to less production, less supply and shortages, to the detriment of the broader population. In the dying days of Biden’s campaign, the Biden campaign proposed national rent control as a last minute ploy to shore up support from the socialist progressive left. Harris has said she will continue with pushing for national rent control. Such a policy of rent control, time and again, has been shown to slow housing supply growth, contribute to housing shortages, and incentivize less maintenance and upkeep on units.

Further on housing, Harris is also proposing $25,000 in down-payment assistance for first-time homebuyers, which does not sufficiently address the root causes of why housing is so unaffordable: land use regulations and housing supply. Instead, her proposals could very well boost demand, making housing prices (before subsidies) even higher.

Many advanced countries suffering from affordability issues like in Canada or the coastal U.S. need fewer land use regulations to increase housing supply, and a federal government that supports it. Pierre Poilievre in Canada has made this a focus of his campaign. Former President Barack Obama also mentioned land use regulations as a problem in his DNC speech, which is a welcome statement. To move the needle on housing supply, the U.S. has to craft its own policy similar to Pierre Poilievre’s proposal in Canada, to withhold federal and state infrastructure funds if housing supply growth is not being achieved at the municipal level.

While there’s lots of populism in both candidates, when it comes to regulation and taxes, it’s clear that Trump has the better pro-growth economic policy plan that can help those below the median income in the long-run.

Jon Hartley is a senior fellow at the Macdonald-Laurier Institute and a research fellow at the Foundation for Research on Equal Opportunity.