This election has occupied my mind more than it deserved. My experience tells me to ignore the rhetoric and focus only on policy proposals. Yet, I’m equally aware that there is no truly reliable way to predict their impact on the economy and markets. I think most would agree, it’s an exhausting process that feels both wasteful and beneath us. Supposedly, it’ll be over very soon, right? One can only hope.
A few legitimate things have caught my eye, though. Namely, proposals that might impact inflation and future tax policy.
Voters seem confused about inflation. The post-pandemic fever broke and inflation has come down a lot. The global supply of goods and services simply caught up with the surge in pent-up demand after Covid. Inflation is now approaching the Fed’s official 2% target. The fight isn’t over yet, but it’s quite close.
Yet, many voters believe inflation remains sky-high. There’s clearly a fundamental misunderstanding. Declining inflation doesn’t mean prices are in outright decline. That would be called deflation. And believe me, deflation is not a desirable goal, especially for those who owe money. Lenders hoping to be paid back someday don’t want to see deflation, either. Low and steady inflation is the goal for a good reason.
Speaking of debt and inflation, Donald Trump’s campaign is filled with proposed tax cuts. He’s called for zero tax on tip income, zero tax on overtime, the elimination of taxes on Social Security benefits, interest deduction for car loans and large tax cuts for corporations. Recently, he even floated the idea of eliminating all income taxes. All these proposals are expected to be funded by higher tariffs on imports from China and others and faster economic growth. However, trained economists are clear that tariffs are ultimately inflationary and act just like a tax hike.
Kamala Harris has proposed some tax cuts and targeted tax credits, as well. Her proposals are standard fare for a Democratic candidate. These include higher tax credits for those with children, tax credits for business start-ups and first-time homebuyers. Not to be beaten in Las Vegas, however, she also called for the elimination of tax on tips. Her proposals are balanced by higher taxes on corporations and high-income households and, also, faster expected economic growth.
Naturally, neither campaign has informed the public about the cost of their tax proposals’ impact on future federal deficits and our debt burden. It’s about getting the votes, first. Yet, with the 2017 tax cuts expiring in a little over a year, I do think voters deserved a much deeper discussion about tax policy. But, alas, this isn’t the world we live in today.
Despite all the noise, tension and fury, I’ll now add to the unbelievable cacophony of calls, texts, and mailers that we’ve all been receiving: Go vote. It does matter.
