Inflation has cooled so much over the past year that even Federal Reserve Chair Jerome Powell is pleased with the progress. But, in poll after poll, Americans have sent a clear message: They aren’t.
That has created a prime opportunity for Vice President Kamala Harris to take a populist approach to how she’ll handle the economy if elected president.
“We will create what I call an opportunity economy … where everyone has the chance to compete and a chance to succeed,” Harris said in her speech at last week’s Democratic National Convention, where she formally accepted the party’s nomination for president.
“[A]s president, I will bring together labor and workers and small-business owners and entrepreneurs and American companies to create jobs, to grow our economy and to lower the cost of everyday needs like health care and housing and groceries,” she said.
Harris continued by attempting to contrast herself with former President Donald Trump, who she claimed has only elite interests top of mind.
Her approach may jive well with some voters, but there’s an open question as to whether the economic policies she has proposed — which thus far have been only vaguely outlined in speeches and fact sheets shared with reporters and aren’t on her campaign site — will benefit them in the long run, if at all. (The Harris campaign declined to comment.)
Housing concessions
One of Harris’ key economic agenda items involves providing up to $25,000 in down-payment support for first-time home buyers. This, along with several of Harris’ other economic proposals, would require congressional approval.
Her down-payment assistance proposition comes as home prices are at a record high — a likely reason why the share of Americans who plan to purchase a home in the next six months is at the lowest level in over a decade, according to new data from the Conference Board’s Consumer Confidence July survey released Tuesday.
On the surface, it may sound like a good idea to provide financial assistance to Americans to help them cover what’s become an even heftier down payment. But Jaret Seiberg, policy analyst at TD Ameritrade, sees a few issues.
He said it would benefit “homeowners at the expense of home buyers.” That’s because, by itself, the plan would “boost demand without increasing the supply of available homes. More bidders mean higher prices,” he said in a note earlier this month after Harris delivered a campaign speech in North Carolina that unveiled parts of her economic policy.
“Such programs also produce little benefit despite costing a lot of money,” he added.
In total, the nonpartisan Committee for a Responsible Federal Budget estimates that the first-time home buyer credit Harris is proposing — which would be in effect for four years and applicable to 4 million home buyers, according to campaign figures — would raise the federal deficit by at least $100 billion over 10 years.
Taking aim at high food prices
Harris also proposed a plan to stop food companies from allegedly gouging consumers. She would introduce new laws that would limit food manufacturers’ and grocers’ ability to raise prices. This comes as grocery costs have risen by more than 20% since she took office alongside President Joe Biden. But food price pressures have been fading, with costs up 1.1% for the 12 months ended in July, down from their 2022 peak of over 13%.
Harris’ plan would involve “new penalties for opportunistic companies that exploit crises and break the rules,” she said in an August 16 campaign speech.
Many economists, including Jason Furman, a top economist in the Obama administration, have spoken out against this policy, arguing it could create more problems than it solves.
For starters, it could lead to shortages of goods if businesses, as a result, put fewer products on the market if the profit margins they could earn are lower or if people buy more than they otherwise would have, absent any price controls.
“This is not sensible policy, and I think the biggest hope is that it ends up being a lot of rhetoric and no reality,” Furman told The New York Times earlier this month. “There’s no upside here, and there is some downside.”
At the same time, he said in a CNBC interview this week that “there’s too much populism in both political parities” and there’s “too little recognition” of the positive contributions businesses have had on the economy.
No taxes on tips
In a play to win over voters who work in the service and hospitality industries, a disproportionate share of whom live in Nevada, a key swing state, Trump vowed to eliminate taxes on their tips. Two months after he floated it, Harris made a similar campaign promise.
“This is good politics, but bad policy,” Erica York, senior economist and research director at the Tax Foundation, a right-leaning think tank, told CNN.
She expressed concern that eliminating taxes on tips would be overly complicated and unfair to workers other than the “tiny slice” who would benefit.
Removing federal taxes on tips also has big implications for the federal budget deficit, though the amount would depend on what provisions the legislation contains.
But just excluding tips from federal income taxes could reduce revenues by at least $107 billion over 10 years, according to the Tax Foundation.
Trump leans in to populism, too
Like Harris, Trump has also leaned in to populism despite mountains of criticism from economists. For instance, in addition to eliminating taxes on tips, he’s advocating for ending taxes on Social Security for seniors. If enacted, that could deplete trust funds for Social Security and Medicare sooner and leave seniors worse off.
He’s also proposed enacting sweeping tariffs, including a 60% levy on imports from China, in an attempt to boost the American workforce. Economists have warned that such steep tariffs could fuel higher inflation — or even worse, put the economy in a recession.
Despite criticizing Trump, Harris hasn’t shared many details on what she would do regarding tariffs. Biden has left in place some of the tariffs on Chinese imports Trump enacted and has floated introducing new tariffs.
