As the campaign proceeds, its proposals bring to mind that old election saw: “It is illegal to buy votes with one’s own money but okay to use the taxpayer’s funds.” Both Trump and Harris seem determined to buy votes with giveaways to certain groups and leave the expense to the American taxpayer. This discussion will take a critical look at what the Harris-Walz team has on offer. A later discussion will take up Trump-Vance.
Like all campaign materials from either party, the Harris-Walz proposals, entitled “A New Way Forward for the Middle Class,”contain a lot of fluff, bragging, and pointed, if distorted criticisms of the of the opposition. This sort of thing always makes reading difficult, except perhaps for the most committed partisans. Materials on the campaign website also miss some specifics available elsewhere, especially from the Tax Foundation. If the picture is not yet entirely clear, there is much of value from these sources.
The campaign materials say that its program will offer a “tax cut” to middle- and lower-income Americans. There is , however, no intention of shifting income tax rates for people in these brackets. Rather the campaign would retain for these groups the 2017 tax reforms that otherwise would expire in 2025. The “cuts” of which these campaign materials speak refer mostly to targeted tax credits: promises to make permanent at $3,000 a year the child tax credit, a $3,600 credit for children under six years of age, and a $6,000 credit for the first year of a child’s life. The campaign also promises widening accessibility to the earned income tax credit (EITC) using the 2021 rules as a guide. It would seek relief for student debt and exempt tip income from taxes in those occupations where tipping is customary.
The campaign makes two additional promises, presumably to the benefit of these income groups. It would offer first-time homebuyers a $25,000 grant on their downpayment. Businesses would get an increase in the startup tax deduction from $5,000 presently to $50,000. The first of these proposals is entirely straightforward, if perhaps costly. The second has erroneously been described in Republican quarters as a giveaway. That is an exaggeration. It only allows startups to deduct more expenses than previously from their tax bill. Since few startups turn a profit in their early years and some even suffer negative cash flows, this benefit is hardly as generous as it seems on the surface. Because the deduction can carry forward, it could be of use in time should the startup gain momentum. For the initial effort, however, the best it can offer is a hope for the future.
The campaign materials talk about making wealthier Americans and corporations pay their “fair share,” as President Biden did in his campaign and since. Presumably, a Harris-Walz administration would carry on that effort. The campaign web site specifies the effort on corporate taxes, stating the intention to raise the corporate tax rate from 21% presently to 28%, only partially reversing the cuts given by the 2017 tax reform. The administration would also raise the minimum corporate rate from 15% presently to 21%. It would raise the stock buyback rate from 1% presently to 4%. The campaign also talks about pursuing a global minimum tax, presumably to stop companies shopping for low-tax venues.
On individual income taxes, middle- and lower-income families would see no change in either their rate on ordinary income or capital gains. The campaign website offers few specifics on higher-income households. Tax Foundation materials offer more specifics. The plans are to raise the top marginal personal income tax rate from 37% presently to 39.6% for individuals with annual incomes over $400,000 and joint filers with incomes over $450,000 a year. For those with taxable annual incomes above $1.0 million a year, a Harris-Walz administration would at death tax unrealized capital gains at 28% (lower than the Biden proposal of 39.6%) for amounts above $5.0 million maximum, $10.0 million for joint filers. There is talk that for the super wealthy who have a net worth over $100 million, the administration would tax all capital gains, whether realized or not, at the same rate as ordinary income.
The rest of the plans consist of a series of promises to bring down costs and increase innovation in what the Harris-Walz website refers to as “critical industries of the future.” Here proposals sometimes become very vague, hardly a surprise in campaign materials.
To keep a lid on grocery prices, a Harris-Walz administration promises to avoid concentrations in supply chains. Beyond this aspirational point, the campaign materials give little idea of how this effort would proceed. There is no mention of anti-trust actions or even how to identify where such concentrations exist. The campaign materials talk about efforts to “go after price gougers” but offer no insight on how the administration would detect gouging or correct it. The campaign website references the many states that have anti-gouging legislation, but that is less than helpful as a model since the state legislation usually concerns itself with emergencies, such as natural disasters, and that is not what Harris-Walz are considering at the national level.
The campaign has placed considerable emphasis on controlling drug prices, largely through Medicare bargaining and other means used in the past. In this sense, it offers little different from the promises of the Biden-Harris administration or Trump for that matter. Similarly, the promise on keeping energy prices down references the need to continue with fossil fuels but mostly concentrate on promoting green energy. On housing there are more specifics. The administration would build 400,000 new owner-occupied dwellings. It claims that it can do this through a “neighborhood home tax credit” that would grant allocations to states for homebuilding. This would seem to offload the specifics of the effort onto the states. There is mention of efforts to “take on” abusive landlords but no specifics on what would constitute abuse or how the administration would take the landlords on.
On innovation, the campaign materials become vaguer. They reasonably refer back to the support of startups, adding a provision to establish a Small Business Expense Fund to make low-interest or zero-interest loans to business. The campaign materials also make the by now standard campaign promise to “cut red tape” with the usual lack of specificity except a promise to pressure states and localities to lift onerous licensing requirements or at least harmonize them. Without the promise of the kind of subsidies recently offered semiconductor manufacturers through the CHIPS for America Act, Harris-Walz promise to support industry with modernization, lowering emissions, and with promoting those industries of the future, which the materials identify as biotech, artificial intelligence, semiconductors, aerospace, autos, other forms of transportation, and basic research, a broad front indeed.
It is remarkable that nowhere in any of this material is there mention of restoring the federal tax deduction for the expense of state and local taxes. Such a deduction was part of the tax code for decades until 2017 when that year’s tax reform limited its size to $10,000. This was a big blow to higher-income people in high-tax states such as California, New York, Illinois, and Massachusetts. Since these are heavily Democratic states, one might have expected a Democratic campaign to help its constituents and reinstate a full deduction. The neglect is, however, entirely understandable. It would cost the treasury considerable to make such a move, and the Democratic ticket will win the electoral votes of these states anyway.
If history is any guide, these plans will suffer catastrophic revisions at the hands of Congress even if Harris takes the White House and her party takes both the Senate and the house of Representatives. But at least now, there is something against which to plan, and that is welcome.