the issues: fiscal policy
In the 2024 presidential election, Kamala Harris and Donald Trump present differing visions for the U.S. economy, particularly concerning fiscal policy and how it relates to interest rates. Fiscal policy refers to the government’s use of spending and taxation to influence the economy. While interest rates are primarily set by the Federal Reserve, the fiscal decisions made by the president and Congress can have significant impacts on economic conditions, which in turn affect how the Federal Reserve adjusts interest rates. This essay will explore the positions and track records of both Kamala Harris and Donald Trump regarding fiscal policy, their approach to government spending and taxation, and how their policies could influence interest rates.
Kamala Harris: A Focus on Government Investment and Fiscal Responsibility
As a Democratic candidate and former vice president, Kamala Harris has consistently emphasized the importance of government investment in infrastructure, education, healthcare, and social services as a means of fostering long-term economic growth. Harris supports a fiscal policy that seeks to reduce economic inequality, expand social safety nets, and invest in programs that benefit working- and middle-class Americans. These goals, however, come with significant government spending, and Harris has emphasized the need to pay for such investments through tax reforms aimed at wealthier individuals and corporations.
Government Spending and Investments: Harris’s fiscal policy centers on the idea that strategic government spending is necessary to address social and economic challenges, including healthcare access, education, climate change, and income inequality. As vice president, Harris was a key supporter of the Biden administration’s *American Rescue Plan* and *Inflation Reduction Act*, both of which involved substantial government spending. The *American Rescue Plan* provided $1.9 trillion in stimulus to address the economic fallout of the COVID-19 pandemic, while the *Inflation Reduction Act* allocated hundreds of billions of dollars to clean energy and healthcare initiatives.
Harris has advocated for continued government investment in these areas, arguing that they will yield long-term economic benefits. For instance, she supports significant infrastructure investments to modernize transportation, expand broadband access, and create green energy jobs. These initiatives, while costly, are viewed by Harris as necessary to ensure the U.S. remains economically competitive and to reduce long-term economic disparities.
Tax Reform to Fund Investments: To fund these initiatives, Harris has supported tax reforms that focus on increasing taxes on wealthy individuals and corporations. During her time in the Senate and as vice president, she backed proposals to increase the corporate tax rate and raise taxes on individuals earning more than $400,000 per year. Harris argues that such tax increases are necessary to ensure that the government can make critical investments without increasing the deficit excessively.
Impact on Interest Rates: The fiscal policies championed by Harris, particularly those involving increased government spending, can have implications for interest rates. When the government runs large deficits, it often needs to borrow money, which can lead to higher interest rates as demand for credit increases. However, Harris’s focus on taxing the wealthy to fund spending could mitigate some of the inflationary pressures that might otherwise arise from large-scale government borrowing. Additionally, Harris has argued that investments in infrastructure and education will spur economic growth in the long term, potentially reducing the need for the Federal Reserve to raise interest rates to combat inflation.
Harris has also been supportive of the Federal Reserve’s policies under Chairman Jerome Powell, particularly during the COVID-19 pandemic, when the Fed lowered interest rates to near-zero levels to support the economy. Harris and the Biden administration have generally deferred to the Federal Reserve’s expertise in setting interest rates, viewing fiscal policy and government investment as tools to complement the Fed’s efforts to maintain economic stability.
Donald Trump: A Focus on Tax Cuts and Deregulation
Donald Trump’s approach to fiscal policy is markedly different from Harris’s. Trump, both during his presidency from 2017 to 2021 and in his 2024 campaign, has advocated for tax cuts, deregulation, and reduced government spending on social programs. His fiscal policy is grounded in supply-side economics, which emphasizes the importance of reducing taxes and regulatory burdens on businesses and individuals to stimulate economic growth.
Tax Cuts as Economic Stimulus: The most prominent feature of Trump’s fiscal policy was the *Tax Cuts and Jobs Act* (TCJA), passed in 2017, which significantly reduced the corporate tax rate from 35% to 21% and lowered individual income tax rates for the wealthy. Trump argued that these tax cuts would spur economic growth by encouraging businesses to invest, hire more workers, and raise wages. While the tax cuts did contribute to a short-term economic boost and lower unemployment rates, they also increased the federal deficit.
Trump has proposed further tax cuts as part of his 2024 platform, arguing that reducing taxes will continue to drive economic growth. Specifically, Trump has called for making the individual tax cuts from the TCJA, which are set to expire in 2025, permanent. He has also proposed additional tax cuts for middle-income Americans and eliminating the estate tax.
Reducing Government Spending: In contrast to Harris, Trump has called for reducing government spending, particularly on social programs such as Medicare, Medicaid, and Social Security. While Trump did not enact major cuts to these programs during his first term, his administration did propose budget cuts to various domestic programs, including education and healthcare, in an effort to reduce the federal deficit. Trump’s fiscal philosophy is that reducing government spending and cutting taxes will reduce the need for government borrowing, thereby keeping interest rates low.
Impact on Interest Rates: Trump’s fiscal policy, particularly his focus on tax cuts, has implications for interest rates. The *Tax Cuts and Jobs Act* added significantly to the federal deficit, as the government lost revenue from the tax cuts without corresponding cuts in spending. Increased deficits can put upward pressure on interest rates, as the government must borrow more money to finance its operations. Higher borrowing can lead to higher interest rates as the supply of available credit tightens.
During his presidency, Trump frequently called for the Federal Reserve to keep interest rates low, even as the economy grew. Trump’s public criticism of the Fed, particularly in 2018 and 2019, when the central bank raised rates to prevent the economy from overheating, was unusual for a sitting president. Trump’s pressure on the Federal Reserve to keep rates low was driven by his desire to maintain strong economic growth heading into the 2020 election.
In his 2024 campaign, Trump continues to advocate for low interest rates, arguing that they are necessary to maintain economic growth. He has suggested that his policies of tax cuts and deregulation will keep inflation low, allowing the Federal Reserve to maintain low interest rates without risking economic instability. However, critics argue that Trump’s tax cuts have added to the deficit and could eventually lead to higher inflation, which would force the Federal Reserve to raise interest rates to combat rising prices.
Key Differences Between Harris and Trump on Fiscal Policy and Interest Rates
Government Spending:
Kamala Harris: Harris supports increased government spending on infrastructure, education, healthcare, and climate initiatives. She argues that these investments are necessary for long-term economic growth and reducing inequality. Harris plans to pay for these investments through tax reforms that target wealthy individuals and corporations.
Donald Trump: Trump advocates for reducing government spending, particularly on social programs, while increasing defense spending. His focus is on reducing the size of government and cutting taxes to stimulate private-sector growth.
Tax Policy:
Kamala Harris: Harris supports raising taxes on the wealthy and corporations to fund government programs and reduce the deficit. She believes that tax reforms are necessary to ensure that the government can invest in critical areas without adding to the national debt.
Donald Trump: Trump’s fiscal policy centers on cutting taxes for businesses and individuals. He believes that lower taxes will spur economic growth and ultimately increase government revenues by expanding the economy.
Impact on Interest Rates:
Kamala Harris: Harris’s fiscal policies, which involve government spending funded by taxes on the wealthy, are likely to have a more moderate impact on interest rates. Her focus on long-term investments in infrastructure and education could help boost economic growth without adding significantly to inflationary pressures.
Donald Trump: Trump’s tax cuts have increased the federal deficit, which could put upward pressure on interest rates as the government borrows more money. However, Trump has consistently advocated for low interest rates, arguing that they are necessary to sustain economic growth.
Approach to the Federal Reserve:
Kamala Harris: Harris has generally supported the Federal Reserve’s policies and its independence in setting interest rates. She has not publicly criticized the Fed and believes that fiscal policy should complement the central bank’s efforts to maintain economic stability.
Donald Trump: Trump frequently criticized the Federal Reserve during his presidency, particularly when it raised interest rates in 2018 and 2019. He has pressured the Fed to keep rates low and has suggested that his fiscal policies will allow for low interest rates without risking inflation.
Kamala Harris and Donald Trump present distinct approaches to fiscal policy, each with implications for interest rates and the broader economy. Harris advocates for increased government investment in infrastructure, education, and healthcare, funded by higher taxes on the wealthy and corporations. She believes that these investments will promote long-term economic growth while addressing inequality. In contrast, Trump focuses on tax cuts and deregulation as the primary drivers of economic growth, arguing that reducing the role of government will spur private-sector investment and job creation. While Harris’s policies could result in more moderate impacts on interest rates, Trump’s approach of tax cuts combined with increased deficits could lead to upward pressure on interest rates, despite his push for the Federal Reserve to keep rates low. Ultimately, voters will have to decide which approach they believe will best serve the country’s economic future.