Dollars and Divides: How Trump and Harris Tax Policies Potentially Shape America's Economy

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The upcoming presidential election in the United States is undoubtedly the talk of the town, with former President Donald Trump and Vice President Kamala Harris taking different approaches to their fiscal policies and social equality. Trump’s tax reforms, characterized by significant cuts in business sectors to stimulate growth, contrast sharply with Harris’ proposals to reduce income inequality by taxing the rich. Taxation policies play a pivotal role in government strategies, influencing everything from the living standards of individuals to the economic growth of the country. These policies can directly affect disposable income, determining how much money families have to spend on necessities and leisure, while also influencing trade surpluses or deficits by impacting consumer spending and investment decisions.

It is undeniable that Trump thinks like a businessman. In his campaign, he has made it clear in his proposals that one of his main goals is to boost and strengthen America as one of the world’s leading economies. One of his plans is to lower corporate tax rates on domestic production from 21% to 15%, which can incentivise investment as firms can enjoy a higher income net of tax. Additionally, he has put forward the idea of tax-free capital gains, the increase in value of investments relative to their original price. However, under such a policy, lower-income households would get the short end of the stick, as it allows higher-income households, who have more access to investment opportunities, to retain a larger proportion of returns and therefore accumulate more wealth. 

Trump is well known for being adamant that tariffs are necessary. He advocates for a 10% tariff on all imports and a 60% tariff on Chinese imports, raising their costs and making domestic products more competitive in pricing. By doing so, not only may consumers be encouraged to buy locally produced goods and boost domestic industries, but businesses can also be incentivised to invest in local manufacturing firms, subsequently creating more jobs which can reduce the country’s unemployment problem and increase production capacity. On the other hand, Trump intends to maintain the Tax Cuts and Jobs Act (TCJA), which he introduced during his last presidential term. Moreover, a $2000 child tax credit would be maintained, with the estimated average tax break in 2026 for low and middle-income families of $490 and $1430 respectively. 

With America’s strong tipping culture, both candidates have proposed to put an end to federal taxes on tips, benefiting the working class. In industries with workers heavily reliant on tips like hospitality and catering, tax-free tips allow workers to retain more of their income which could provide significant relief to these low-wage workers, improving their quality of life. With more disposable income, service workers may even spend more in their communities, stimulating local economies and potentially increasing gross national income (GNI).

Contrary to Trump’s focus on the corporate side of America, Harris’ taxation policies take the approach of first alleviating economic inequality in America. It was proposed that corporate tax rates increase from 21% to 28%, a change that was previously advocated by President Biden, alongside a rise in excise tax from 1% to 4%. The income disparity in the US is a major concern of the general public, as 67% of the country’s wealth is owned by the top 10% earners as of 2024. By taxing large corporations, the increased government tax revenue can be used to redistribute wealth more evenly, narrowing the wealth divide. Conversely, Harris is in favour of the tax rate on long-term capital gains to 33%, a 28% rate plus a net investment income tax rate of 5%, while intending to introduce a new tax on unrealised capital gains on individuals with net worth of $100 million. This indicates her focus on taxing wealth rather than just income as an effort to address wealth inequality and ensure that the ultra-wealthy contribute a fairer share of taxes, even on assets that have not yet been sold or realized as income. From the above tax policies, it is evident that the Democratic Party wants to cultivate a more equitable tax system for the country. 

Regarding its citizens, Harris intends to expand the child tax credit (CTC) and earned income tax credit (EITC) temporarily. The EITC for childless workers would be increased to $1500, whereas CTC would provide up to $6000 of financial aid for children ranging from newborns to 17-year-olds, both schemes aim to directly boost the financial capabilities of low-income households in the face of economic hardships. Under CTC, low-income families with children would gain $2,750 on average, a substantial surge in benefits compared to the TCJ. This may be an attempt to garner support among the working class by advocating a tax reform for better economic security. 

All in all, the upcoming presidential election presents a stark choice between two contrasting fiscal visions for America. Trump's approach focuses on stimulating economic growth through tax cuts and tariffs, aiming to bolster domestic industries and maintain corporate competitiveness while risk widening the wealth gap by disproportionately benefiting higher-income households. Alternatively, Harris prioritises reducing economic inequality through increased taxation on corporations and the wealthy, with plans to redistribute resources towards low and middle-income families. Her policies aim to create a more equitable economy by expanding tax credits and targeting wealth accumulation. The election will serve as a referendum on these differing philosophies, shaping the nation's economy and social fabric.

Disclaimer: This essay is intended purely as an economic analysis of the upcoming presidential election and does not reflect personal political opinions. The views expressed are based on factual information and are meant to provide an objective perspective on the candidates' fiscal policies.

Source: Rosenberg, J. (2024, September 26). Harris vs. Trump on Tax Policy. Urban Institute. https://apps.urban.org/features/2024-candidates-tax-policy/