The next person to reside in the White House in the United States, after the elections next Tuesday, November 5, will face a very important tax problem after taking office.
Experts at the Committee for a Responsible Federal Budget (CRFB), a Washington-based nonprofit public policy organization, estimated that Vice President and Democratic nominee Kamala Harris’ tax proposals would increase the U.S. debt by $3.95 trillion through 2025, while Republicans’ Donald Trump plan would increase the country’s liabilities by $7.75 trillion.
As of January, the U.S. debt exceeded $35.7 trillion, according to the Treasury Department. This represents 124% of the country’s total GDP and makes it the most indebted country in the world, along with China.
Generally speaking, the US economy has proven quite resilient to current circumstances, such as the inflationary crisis that began after the pandemic and continued with Russia’s invasion of Ukraine. The latest IMF report confirms the famous “soft landing” of the American and global economies. They predict that the United States will close this year with GDP growth of 2.8%.
In the campaign, economic concerns come before issues such as abortion or immigration. The majority of Americans, regardless of the poll, place it first, followed by abortion and migration. But despite this, did not occupy this place in the campaign. Many press editorials blame the candidates for this, especially given the enormous fiscal problem facing the country.
According to the International Monetary Fund’s fiscal monitor, U.S. debt will close this year at 121% of GDP and continue to grow through the end of 2029 at 131.7%. Regarding the deficit, it closed the year 2023 at 7.1% of GDP and forecasts from the multilateral institution indicate that this year it will increase to 7.6%, to correct slightly to 6% in 2029.
“The US budget deficit will be reduced only slightly and will remain around 6.1% in 2029, and about half of this deficit will reflect interest rate spending. With current policies, the United States public debt will not stabilize and will reach almost 134%. % of GDP in 2029,” says the organization.
For its part, according to the current reference law of the Congressional Budget Office (CBO), Debt is expected to grow by almost 102% of GDP at the start of fiscal year 2026 and at 125% at the end of 2035. Thus, the debt will exceed its record as a percentage of the economy (106% established in 1946) in three years.
“According to our central estimates, Vice President Harris’ plan would increase the debt to 134 percent of GDP in fiscal year 2035, which would represent a 9 percent increase in GDP. We estimate that President Trump’s plan would increase the debt to 143%. of GDP in 2035, which would represent an increase of 18% of GDP”, say the experts of the Washington think tank.
At the same time, according to the Fiscal Modeling Panel at the Penn Wharton Business School at the University of Pennsylvania, Donald Trump’s economic agenda would increase the primary budget deficit (which includes debt repayment). up to $5.8 trillion (5.3 billion euros) in a decade. For their part, they predict that Harris’s would imply an increase in the public deficit of 2.1%, or 1.2 trillion dollars in a decade, or less than half that of the Republican, but this would still be worrying.
“None of the major candidates vying for the 2024 presidential election have presented a plan to address the growing debt burden,” CRFB said.
Additionally, they reaffirm that Harris and Trump will “likely” further increase the deficit and debt “above levels projected under current law.”
It’s true that Harris has a softer cushion when it comes to handling his economic setback. The candidate and vice-president inherits from her boss, Joe Biden, a robust labor market, with minimum unemployment, strong GDP growth and a historic increase in wages in the United States due to the pandemic.
But of course, Bidenomics, as Joe Biden’s economic miracle is called, came from a rather unfavorable situation that Donald Trump left in 2020 after the scourge of the Covid pandemic.
Trump did well and bragged about it at the time. He managed to maintain the unemployment rate at 3.5%something that hadn’t happened since the late 1960s. Then the pandemic arrived and, as happened all over the world, good data gave way to an economic crisis.
Before the significant job losses of 2020, due to Covid, nearly 6.7 million jobs were created in the first three years of the Trump presidency, according to nonfarm employment data, covering about 80 % of positions in the active population.
In terms of growth, the American economy grew by 2.3% on average between 2017 and 2021 and under the current mandate of Joe Biden, the average is 2.2%, so the progression of the economy is practically the same. even.
Will affect GDP
This inability to solve the US budget problem will hamper its growth. At Penn Wharton, GDP is estimated to fall 1.3% in 2034 and 4% in 30 years. On the other hand, capital investments and working hours will decrease, so they estimate that wages will decrease by 0.8% in 10 years.
For its part, Trump’s plan provides for a reduction in GDP of 0.4% in ten years and 2.1% in 30 years. On the other hand, with regard to capital investments and working hours, they assert that “after an initial increase”, they will eventually decline. “These conventional gains and losses do not include the additional debt burden that will weigh on future generations, who will have to finance almost all of the tax cuts,” they say.
Ultimately, Trump’s economic plan proposes another second wave of tax cuts with the permanent extension of the Tax Cuts and Jobs Act of 2017 (TCJA). This is a tax break for businesses and citizens that, according to CRFB, a non-profit association dedicated to analyzing candidates’ proposals, “would be a costly mistake,” amounting to $1.2 trillion. in a decade.
To this must be added taxes on social security benefits and the reduction in the corporate rate (the equivalent of our corporate tax) from 21% to 15%.
According to what he declared during the campaign, Trump intends to finance this enormous tax cut with a universal tariff of 10%. That is, taxing any goods coming from anywhere in the world, which would be in addition to new customs duties on Chinese products above the 60% already imposed by the Joe Biden administration, including also 100% for electric cars.
Harris’ plan far from solving pressing problem of the dark fiscal future facing the country by 2030would also imply an increase in the public deficit of 1,200 billion dollars, or less than half of the Republican deficit, but this would still be worrying.
The basis of his economic program is Joe Biden’s 2025 budget. The Democrat seeks to establish tax benefits for low- and middle-income households within the U.S. tax system. At the same time, it is studying the possibility of subsidizing the acquisition of the first home. Of course, to pay for all of this I would use a corporate tax increase from 21% to 28%.
Among the measures proposed to families, we find the expansion of the child tax credit, from $1,700 set in 2024 (with a forecast that they would fall to $1,000 in 2026) up to $3,600 per child five or younger and $3,000 for those over five up to age 17. Additionally, families with newborns would benefit from a $2,400 credit in the first year of life. So the maximum value would be $6,000 total.
For those buying their first home, Harris offers a $25,000 down payment grant.
CRFB experts assure that the greatest uncertainty caused by Vice President Harris’ plan “lies in his proposals to extend the TCJA to those earning less than $400,000 a year, to fund higher education, to support paid leave and child care and to increase corporate taxes.
In Trump’s case, the biggest sources of uncertainty are “his proposals to expand and amend the TCJA, end overtime taxes, increase defense spending, crack down on immigration and to increase customs tariffs.
