The Antigrowth Agendas of Harris and Trump
Both candidates are running on economic platforms filled with destructive nonsense.
July 25, 2024 The Wall Street Journal
The economic platforms of both presidential candidates are littered with antigrowth proposals. The Biden platform, on which Kamala Harris will presumably run, is a pumped-up version of typical Democratic policies. It features significant increases in taxes and spending. Donald Trump is proposing to hold the line on spending and current tax policy but would raise tariffs and pursue an economically destructive immigration policy. The resilience and resourcefulness of the U.S. private sector is remarkable, but why test it with these wrongheaded proposals?
Neither candidate seems to have learned much from history. Every 100 years or so, the protectionist wing of the Republican Party pushes through significantly higher tariffs. The outcome is never good. In 1930, at the start of the Great Depression, Congress enacted the Smoot-Hawley tariffs. The stated purpose was to protect U.S. industries and absorb the excesses that resulted from productivity advances in the 1920s. The tariffs aggravated the dramatic global depression and were repealed two years later. The Tariff of 1828—the so-called Tariff of Abominations, which raised tariffs by up to 50%—accentuated the divide between the industrialized North and the agricultural South and was largely reversed three years later. Why don’t the lessons from history resonate?
Tariffs are fees charged on goods imported by U.S. companies. These increased costs typically result in higher prices for consumers. The hope is that the increase in the relative costs of imports compared with goods produced domestically will lead to a shift toward domestically produced goods. But the benefits of any shift are more than offset by inefficiencies, the higher costs to domestic consumers, and the foreign retaliation that usually occurs. Frequently the result is slower global trade, which isn’t good for the U.S.
In 2018 Mr. Trump imposed tariffs of 25% on steel imports and 10% on aluminum imports, declaring, “Trade wars are good and easy to win.” China retaliated in various ways and Mr. Trump’s promise that manufacturing jobs would suddenly flood back to the U.S. proved worthless. Global trade and production declined and U.S. manufacturing jobs flattened. Tariffs violate the simple but sound law of comparative advantage. It may be wise to ban trade in sensitive goods related to national security, but Mr. Trump’s fear of bilateral trade deficits with foreign partners is simply economic nonsense.
On the Democratic side, the Biden-Harris economic platform includes an assortment of tax increases aimed at wealthy taxpayers. Purportedly these tax hikes will raise revenue to pay for costly Democratic spending priorities. Some proposals are simple job destroyers, while others are truly menacing. Significant increases in corporate taxes, including raising rates, nearly doubling the rate on global intangible low-taxed income, and raising taxes on high-income employees of private firms would reduce expected returns on capital and cut business expansion and hiring plans.
If unraveling the stock market was your goal, you could get it done quickly by doing what the Biden-Harris economic platform proposes: taxing long-term capital gains and dividends as ordinary income for high-income taxpayers and imposing a 20% effective tax on an expanded measure of adjusted gross income that includes unrealized capital gains for taxpayers with very high net worth. The negative feedback effects of a decimated stock market on job creation and the broader economy and would be significant.
Meanwhile, both candidates have pledged not to touch the benefits and structures of Social Security and Medicare. These are the primary sources of large deficits and mounting government debt. Promising to leave these programs alone may be good short-run politics, but it’s irresponsibly bad economics.
I’ve prepared side-by-side comparisons of presidential candidates’ economic platforms since 1992. A review of these comparisons makes two things obvious. First, the Democratic Party has moved decidedly leftward. Most in the 2024 party would consider Hillary Clinton’s 2016 economic platform conservative. The Biden-Harris platform’s focus on income and wealth redistribution echoes the Bernie Sanders agenda of 2016 and 2020.
Second, while Mr. Trump’s tax and spending platform is standard GOP stuff, his proposals on tariffs and immigration move the party away from its traditional embrace of free enterprise. His mass-deportation plan is impractical and antithetical to economic growth in a nation whose population is aging.
These polarized and polarizing platforms are truly unhealthy. Economists should press the candidates for explanations. Voters who want to live in a growing economy should ask: Whatever happened to common sense?
Mr. Levy is a visiting fellow at the Hoover Institution and a member of the Shadow Open Market Committee.
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Appeared in the July 26, 2024, print edition as 'The Antigrowth Agendas of Harris and Trump'.