Compare Trump's pro-business tax cuts, protectionist trade policies, and healthcare proposals with Harris' middle-class tax relief, affordable housing initiatives, and healthcare reforms in the 2024 election
Trump vs. Harris over key economic policies
In the upcoming US presidential election in November, Republican nominee Donald Trump and Democratic nominee Kamala Harris are advancing and advocating distinctive economic policies to woo different spectrums of the US electorate.
Here is a comparison of their latest economic policy proposals based on media reports, their public speeches, and information from their respective official websites at this time of writing.
Donald Trump’s Economic Policies
Tax policy:
The extension of Trump’s signature Tax Cuts and Jobs Act (TCJA) enacted in December 2017 while he was in the White House will expire in 2025, including lower tax rates and higher deductions such as eliminating taxes on the services industry workers’ tips. However, the top marginal individual income tax remains unchanged at 27%, in contrast, the corporate tax rate would be reduced further to 21% to 15%.
Eliminating taxes on Social Security benefits where Trump proposes to eliminate taxes on Social Security retirement benefits to appeal to US senior citizens
Further business tax cuts would restore full “bonus” depreciation for businesses and make other business-friendly tax provisions permanent. Under the current administration tax policy, the TCJA allowed companies to deduct the full cost of qualified new investments in the year those investments are made (referred to as 100 percent bonus depreciation or “full expensing”) for five years. Bonus depreciation then phases down in 20 percentage point increments beginning in 2023 and is fully eliminated after 2026.
Trade and Tariffs:
Hawkish tariff proposals where Trump intends to impose significant tariffs on US imports, including a 10% to 20% tariff on all imports regardless of country origins and up to a blanket 60% on Chinese imports to protect US industries from goods dumping.
Kamala Harris’s Economic Policies
Tax policy:
Child tax credit where Harris plans to introduce a new US$6,000 child tax credit for families with newborns for middle and low-income families and aims to restore the expanded child tax credit from Biden’s American Rescue Plan enacted in 2021 that paid out US$3,600 per child under six years old and $3,000 per child ages 6 to 17.
Taxes on tips is a similar approach to Trump's, which eliminates federal income taxes on tips, though Harris would retain payroll taxes on them.
Unrealized stock gains tax has been labelled by some in the US political circle as a “billionaire minimum income tax” where a new minimum tax of 25 percent on traditional income and unrealized capital gains for taxpayers with more than US$100 million in total wealth.
Housing and Rent:
Affordable housing plan that involves building 3 million new homes over the next four years to alleviate the housing shortage. In addition, Harris aims to provide up to US$25,000 in down payment assistance for first-time homebuyers.
Rent control to curb rent increases by cracking down on unscrupulous corporate landlords and price-setting data firms.
- Price gouging and consumer protection:
Enacting price controls to alleviate inflationary pressure on consumables; Harris proposes a federal ban on price gouging for food and groceries and empowers the Federal Trade Commission and state attorneys to enforce these measures
- Healthcare:
Prescription drug costs where Harris aims to cap the cost of insulin, a much-needed diabetic drug in the US for survival at US$35 and limit out-of-pocket prescription drug costs to US$2,000 annually for all Americans.
- Medical debt:
Harris proposes working with states to eliminate medical debt and prevent its accumulation. According to a Consumer Financial Protection Bureau research report published in April, some 15 million Americans have medical bills on their credit reports. In addition, Americans owe at least US$220 billion in medical debt based on an analysis from KFF, a leading health policy organization in the US.
Comparison between Trump and Harris
For tax policy, Trump’s approach heavily favours tax cuts for businesses and higher-income individuals, while Harris focuses on middle-class tax relief, particularly for families and essential workers. Overall, Trump seems to be more pro-business, and Harris is leaning toward pro-workers and the “man in the street”.
Over international trade relations, Trump’s policy emphasizes protectionism with high tariffs, with a potential US-China Trade War 2.0 on the horizon, while Harris’s platform is less focused on trade issues so far despite her predecessor, Biden’s “tiering tariff system” proposal on China’s imports.
Issues on healthcare and social welfare where Harris is committed to reducing healthcare costs and protecting consumers, whereas Trump’s proposals focus on tax relief for seniors and maintaining his previous tax cuts.
Solving the housing crisis in the US that has been caused by both demand (low-wage jobs) and supply side (a shortage gap of around 4.5 million homes according to Zillow) factors; Harris’s plan pushes out affordable housing and rent control to address the demand side while Trump has not presented similar initiatives at this juncture.
Why does it matter to the financial markets?
Regarding tax policy, Trump’s preference for deeper tax cuts for corporations will likely favour the US stock market more than Harris’s approach that focuses on middle and low-income support.
Coupled with an impending US interest rate cut cycle that is likely to kickstart by the US Federal Reservice after its September FOMC meeting that may further stimulate the US economy on top of Trump’s tax cuts, the US Treasury yield curve is likely to stage a further potential bull steepening where the 2-year US Treasury yield falls at a faster pace than the 10-year US Treasury yield.
In a bull steepening US Treasury yield environment, the cyclical, financials, and small caps stocks that are concentrated in the Dow Jones Industrial Average, and Russell 2000 may outperform the mega-cap technology stocks that are heavily weighted in the S&P 500 and Nasdaq 100 based on past historical price actions.
According to the Bipartisan Policy Centre, the monthly US federal budget deficit stood at US$242 billion in July 2024 and is running a cumulative deficit of US$1.5 trillion so far in FY 2024.
Both Trump and Harris's tax and spending proposals may add to further strains to the US federal budget according to estimates from the Penn Wharton Budget Model.
The Penn Wharton Budget Model has projected Trump and Harris's proposals may increase the federal budget deficit by US$5.8 trillion and US$1.2 trillion over the next 10 years.
Hence, both US Presidential nominees proposed tax and spending policies are likely to see a significant increase in the government budget deficit in the coming years that in turn lead the market to question the credit standing of the US government (such as the prospect of more frequent government shutdowns) that may see an erosion of confidence in US Treasuries and strengthened Gold (XAU/USD).
Trump’s protectionism and more aggressive trade policy may see less demand for China imports and to some extent the rest of the world’s products due to higher import costs via higher tariffs which in turn is likely to support a firmer US dollar.