Trump or Harris – not much room for maneuver

First outlines of Harris's economic program...

Vice President Harris has quickly secured the support of her party and the necessary delegate votes for a nomination as the Democratic presidential candidate, she is thus likely to be officially appointed as such. It is not yet possible to say whether this will change Donald Trump's current role as favorite. It will be several weeks before polls allow us to make viable statements.

Harris's economic program will probably be largely based on that of the Biden administration. In addition, various statements made by Kamala Harris in recent years, especially those made in the course of her failed bid to become the Democratic presidential candidate in 2020, suggest that she has her own ideas. The key points will probably be:

An extension of tax relief for all incomes under 400 thousand dollars per year: President Biden has already brought this into play. According to estimates by the Committee for a Responsible Federal Budget (CRFB), this would cost between 1.6 and 2.5 trillion dollars over the next ten years, depending on the specific structure. The tax cuts for high incomes, on the other hand, are set to expire at the end of 2025 as planned.
An increase in corporate tax: During her candidacy in 2020, Harris brought an increase from 21% to 35% into play; this would return corporation tax to the level it was at before Trump's tax cut (unlike the cut in income tax, the cut in corporation tax has no expiration date). However, such a large increase seems unrealistic. Harris is more likely to take his cue from Biden's proposals, who has floated an increase to 28%.
Affordable housing: This was a core demand of Harris in 2020. As in many other countries, housing is in short supply in many regions in the US, which is seen as a major stumbling block for the economy. Harris proposed housing subsidies for those on lower incomes. She also proposed subsidies of 100 billion dollars to help disadvantaged people with mortgage loans. The Biden administration had recently brought into play a cap of 5% on rent increases for housing companies.
Ecological conversion of the economy: The ecological conversion of the economy should be further promoted and the extraction of oil and gas through fracking should be further restricted. The latter would be a change from the practice of the Biden administration. After all, the extraction of fossil fuels has increased significantly in recent years. However, drastic restrictions are likely to fail due to resistance from some Democratically governed states that produce oil.
Restrictions on foreign trade: The increased tariffs on imports from China are likely to remain in place. In addition, the export of high technology to China will probably be further restricted. Harris has not appeared as a free trader anyway; she was one of 10 senators to vote against the update to the North American Free Trade Agreement (NAFTA) negotiated under Trump. She was also against other free trade agreements such as the Trans-Pacific Partnership (TPP). In any case, further free trade agreements will not make headway in the US; the political wind has changed here.

... but there is not much room for expensive plans

Regardless of which candidate wins the election in November, the budget situation is likely to significantly limit the next administration's room for maneuver. This will cause considerable political adjustment pain in Washington. After all, no one there has been interested in reining in the exorbitant deficits in recent years. Against the backdrop of various emergencies, first and foremost the coronavirus crisis, and the long period of low interest rates, this was politically understandable.

Now, however, the situation has deteriorated significantly. The Congressional Budget Office's (CBO) baseline projection for the deficit over the next ten years shows just how little leeway there is. This even assumes quite favorable conditions. This is because the CBO calculates its projections on the basis of the current legislative situation, which provides for a complete expiry of the income tax cuts from the end of 2025. This would reduce the budget deficit by around 1% of GDP per year. However, these cuts are likely to be extended either in full (at least according to Trump's promise) or in part (the Democratic plan).

The CBO assumes that the deficit of presumably 6.7% in the current fiscal year 2024 will fall slightly in the years from 2026 (the effect of the income tax increase), but then increase again and finally reach 7%. In other words: hardly any relief is to be expected. New programs would further increase the already very high deficit and undermine the long-term sustainability of public finances even more.

For full text see attached PDF-Version.