On Friday, Vice President Kamala Harris began outlining details of her economic agenda as part of her fast-moving 2024 presidential campaign. TaxA tax is a compulsory payment or levy imposed by local, state, and national authorities on individuals or businesses to cover the costs of general government services, goods, and activities.
Harris’ tax policy continues many elements of President Biden’s tax vision while expanding tax credits and incentives to reduce costs for families.

One of the most important tax policy ideas is the restoration and expansion of child and youth unemployment insurance. Tax creditA tax credit is a provision that reduces a taxpayer’s final tax liability dollar for dollar. A tax credit is different from deductions and exemptions, which reduce taxable income rather than directly reducing the taxpayer’s tax liability.
(CTC), expanding the Earned Income Tax Credit (EITC), and creating tax incentives for homebuyers. Like candidate Donald Trump, Harris supports the idea of ​​not taxing tips. She also proposes many other regulatory changes, including price controls, which we do not model.

Harris’s tax agenda is problematic for three main reasons: it would embed social policy and spending even more firmly in the tax code, it would subsidize homebuyers rather than address supply constraints, and it does not provide sufficient offsetting measures to finance the subsidies, thereby further worsening the unsustainable debt trajectory.

Details on Harris’ tax and regulatory proposals

Harris would restore the CTC expansion under the American Rescue Plan Act (ARPA) of 2021, which increased the credit from $2,000 under current law to $3,000 for older children and $3,600 for younger children for 2021 only. The ARPA expansion also removed the work and income requirements to apply for the credit, allowing eligible individuals to receive the maximum credit regardless of whether or not they earned income.

In addition to this expansion, Harris would provide $6,000 for newborns in their first year of life, creating a CTC that provides $6,000 for children under one year of age, $3,600 for children between the ages of two and five, and $3,000 for children six and older.

The Tax Foundation estimates that Harris’ CTC expansion would cost about $1.6 trillion over 10 years on a conventional basis. The expansion would shrink long-term economic output by about 0.1 percent by removing the credit’s phasing-in period and extending the credit’s phasing-out period, both of which would increase marginal tax rates for workers.

Harris would extend or make permanent the expansion of health insurance premium subsidies (PTCs) enacted under ARPA, which expire at the end of 2025, and expand the EITC for single and joint filers who do not report children on their tax returns. If both proposals are consistent with the ARPA expansions, making the PTCs permanent would cost about $238 billion over 10 years, and the EITC expansion would cost about $160 billion.

The details are still unclear, but Harris has said she will eliminate taxes on tips for service and hospitality workers and will work with Congress to put safeguards in place for that policy. But even with safeguards, a tip exemption for low- and middle-income earners would not be sufficiently effective given the relatively small share of the population that works in tipped jobs. Worse, the exemption itself and any additional safeguards would only add complexity to the overall tax code. Depending on how it is designed, an exemption could cost around $100 billion over the course of the 10-year budget cycle.

Harris also proposes a wide range of new tax incentives and penalties for housing. For housing, she proposes an expansion of the existing low-income tax credit (a similar proposal in the 2025 fiscal year from Biden and Harris would cost $37 billion over a decade) and a new tax credit for building starter homes. However, Harris would increase the deductions for interest and depreciationDepreciation is a measure of the “useful life” of a business asset, such as a machine or a factory, to determine the multi-year period over which the cost of that asset can be deducted from taxable income. Rather than allowing businesses to deduct the cost of investments immediately (i.e., full cost accounting), depreciation requires deductions to be taken over a longer period of time, reducing their value and discouraging investment.
for large real estate investors.

The package would establish a $25,000 down payment assistance program for first-time home buyers. Previously, the Biden-Harris administration proposed a combination of loans and direct assistance to assist similar groups, but the new proposal focuses exclusively on down payment assistance. The Harris campaign’s proposal would create a Average of $25,000 for all eligible first-time homebuyers, with additional assistance for first-time buyers. Depending on how the subsidies are structured and capped, the fiscal cost would be about $100 billion over four years, based on the plan’s goal of reaching 4 million first-time homebuyers.

Many, but not all, of Harris’ housing policy proposals flow through the tax code. As for non-fiscal policy levers, Harris’ plan calls for streamlining regulations to make it easier to build, cracking down on certain pricing tools in rental housing management, and a new fund for public housing.

Harris’s reliance on subsidies for housing with limited supply would be economically damaging to families because it would primarily stimulate demand and lead to higher home prices. While some of her policies do indeed target supply, such as the expanded low-income tax credit and the homeownership credit, these exclusive tax breaks have not been effective in the past.

Subsidies for various niches of the housing market are not a good substitute for better tax treatment of housing investments in general. Multifamily housing construction has still not recovered to 1986 levels because the 1986 Tax Reform Act reduced investment deductibility.

Rather than reversing this poor tax treatment, the Harris package would further penalize rental housing construction by cutting depreciation and interest deductions for certain large real estate investors, thereby reducing incentives to invest. These penalties would come on top of a Biden-Harris administration proposal that aims to cap rent increases by banning certain depreciation deductions.

Harris would impose economically ruinous price controls in a number of other ways. Harris would cap the cost of insulin at $35 and the prescription drug copayment at $2,000 for all households, slow the pace of Medicare negotiations on prescription drug prices as part of the inflationInflation occurs when the general prices of goods and services across the economy rise, thereby reducing the purchasing power of a currency and the value of certain assets. Fewer goods, services and bills can be paid for with the same salary. It is sometimes called a “hidden tax” because it leaves taxpayers with less wealth due to higher costs and “cold tax” while increasing the government’s purchasing power.
The Price Reduction Act prohibits certain price increases on food and groceries.

Price controls harm consumers by reducing incentives to produce price-controlled goods. For example, price controls on prescription drugs are likely to prevent the development of new drugs, resulting in up to 135 fewer drugs coming to market by 2039. Harris’ proposed price controls on groceries inadequately address a problem that doesn’t exist, because profit margins in grocery stores are much lower than average across industries.

Finally, Harris’ agenda lacks details on how her proposed tax subsidies and expansions of federal programs will be financed, which risks worsening the debt trajectory. The total cost of the proposals would likely exceed $2 trillion over 10 years. This, if financed through deficits, would put upward pressure on inflation and lead to a further extension of the Federal Reserve’s high-interest rate policy.

Persistently high interest rates are making the national debt even more unsustainable, with interest on the debt set to rise to an unprecedented 3.4 percent of GDP as early as next year. Further straining the budget also complicates the task of protecting taxpayers from economically damaging tax increases at the end of 2025, when individual provisions of the Tax Cuts and Jobs Act (TCJA) expire.

Harris could rely on hefty tax increases on top earners and corporations, as President Biden has proposed, with most or all of the revenue going to new proposals and resolving expiring TCJA contracts. This would weaken the economy and fail to address the main driver of debt – the unsustainable growth rates of mandatory social programs – which would keep the debt curve on a dangerous trajectory.

share

Þjórsárden
LinkedIn
on facebook.
e-mail