Here’s what could happen to inflation, jobs and the deficit if Trump or Harris win
Former President Donald Trump has floated restricting some of the Federal Reserve's ability to make decisions independently. He's since walked back the proposal.
New York (CNN) — In poll after poll, Americans have indicated the economy is their top concern as they prepare to cast votes this election.
Dealing with high inflation for years will do that to you. Although inflation has cooled significantly since it peaked at a 40-year high in 2022, Americans are paying around 20% more for goods and services now compared to before the pandemic, according to Consumer Price Index data.
On the flip side, the job market, which had been the greatest source of strength in the US economy after the pandemic, has been flashing warning signs lately. The unemployment rate is hovering near three-year highs, and employers are cutting back on hiring, with the number of job openings across the economy recently falling to the lowest level since January 2021, according to the Labor Department.
In response to the anxieties Americans have about the economy, Vice President Kamala Harris and former President Donald Trump have put vastly different policy proposals on the table, which they’re set to highlight during Tuesday night’s presidential debate. Their contrasting approaches could have far-reaching effects on the economy – and for you.
Here’s a look at what could happen to inflation, jobs and the deficit if Trump or Harris win in November.
Inflation and jobs
Trump’s tariff policy would controversially charge dramatically higher import taxes on practically everything that comes into the country’s ports from overseas. That could raise revenue for the government — but it could also cause Americans to pay higher prices for goods and services. Goldman Sachs economists estimated that every one percentage point increase in the effective tariff rate could raise core inflation as measured by the Personal Consumption Expenditures price index by a tenth of a percentage point. And Trump is talking about 10% to 20% tariffs on most things except Chinese goods — which would get a 60% tariff.
Meanwhile, Trump promises to drill a lot more oil, a key cost for many businesses, to bring down prices — but there’s an open question over whether he could achieve that. The United States is already pumping more oil than any nation in history.
Additionally, the unprecedented immigration crackdown Trump has vowed if he returns to the White House could also lead to higher inflation, economists say, despite Trump recently asserting prices would “come down dramatically and come down fast” as a result.
If mass deportations occur, businesses could struggle to fill open positions, forcing them to raise wages and pass those costs to consumers.
Even deporting 1.3 million workers, which is lower than the 10 to 20 million deportations Trump has advocated for, would be an “inflation shock” that lifts inflation by 1.3 percentage points after three years, according to research presented at the Peterson Institute for International Economics by Australian economist Warwick McKibbin. Gross domestic product, the broadest measure of the US economy, would be 2.1 percentage points lower – a dramatic decrease.
If 7.5 million workers were deported, inflation would be a staggering 7.4 percentage points higher and GDP would be 12 points lower after three years, the research found.
Harris has warned that the immigration system is “broken” and her campaign pledges on its website to bring back the bipartisan border security bill. Yet Harris has not pledged mass deportations or a crackdown anything like what Trump has called for.
That’s why Goldman Sachs told clients recently it expected only a “modest further reduction” in net immigration under a Harris presidency.
The supply of workers from immigration will be 10,000 per month lower if Trump wins with a divided government than if Harris becomes president, Goldman Sachs estimates. If Republicans sweep in November, Goldman expects America’s supply of workers from immigration would be 30,000 lower than if Harris becomes president.
But Harris’ policies aren’t inflation-proof.
The first-time homeowner tax credit and tripling of the child tax credit for newborns she’s proposed could leave consumers with more money to spend on goods and services. But as a result, that could increase the prices they pay for them.
Harris has also proposed a plan that her team says would result in 3 million housing units. The issue is the timing: If the first-time homebuyer credit goes into effect before more new units are available, it could cause home prices to spike.
“The problem right now is too many people chasing too few houses,” said Justin Wolfers, professor of public policy and economics at the University of Michigan, told CNN. “The solution to that is not to give people more money to buy houses. If you don’t fix the supply side, then everyone you helped is hurting someone else.”
One potential wildcard for inflation is the two candidates’ different approaches to the Federal Reserve, the independent central bank tasked with controlling inflation. Harris has promised a hands-off approach, while Trump has suggested the president should have influence in decision-making — an argument he later walked back.
The deficit
No matter who wins in November, expect to see the federal budget deficit grow significantly.
A budget deficit occurs when the government spends more than the revenue it collects. Currently, the US government is running a $1.5 trillion budget deficit, according to Treasury Department data. The nonpartisan Penn-Wharton Budget Model projects it will increase to $2.1 trillion by 2034 if the status quo is maintained.
The size of the deficit has big implications for Americans. The higher the deficit, the riskier it becomes to hold US debt, which tends to grow when the deficit does. As a result, the government could have to pay higher interest rates to borrow money. That can reduce the amount of investment in other programs the government can make.
Higher interest rates on government debt, typically sold off in bonds and Treasury notes, could also cause borrowing costs to increase for Americans since the interest rates are connected to interest rates paid to invest in government debt.
Several of the tax policies Trump is proposing would substantially limit the amount of money the government collects. Those policies include permanently extending individual and corporate provisions from his Tax Cuts and Jobs Act, which is set to expire next year. That, among other things, would keep the top tax rate individuals pay at 37% compared to 39.6% before it went into effect.
He’s also proposed slashing the corporate tax rate to 15% versus the current 21% for companies that make products domestically and ending taxes on Social Security benefits for seniors as well as tips for service workers.
Trump says he plans to pay for those initiatives with his tariffs. But the revenue the government would collect from the tariffs would not be enough to fully offset the lost tax revenue. The Penn-Wharton Budget Model, which doesn’t take into account new proposals Trump made last week as well as ending taxes on tips, estimates that his proposals could cause the deficit to increase by an additional $5.8 trillion over the next 10 years.
The model also doesn’t factor in savings that could come from a commission Trump announced he’d form led by Elon Musk to cut down on wasteful government government spending.
Meanwhile, the tax proposals Harris has put forth so far mostly involve imposing higher taxes, which would have a positive impact on the deficit. For instance, she’s endorsed raising the top individual income tax rate to 44.6% and the top long-term capital gains tax rate to 28% versus the current 20%. And on the corporate side, she’s in favor of raising the tax rate to 28%.
But the additional tax revenue the government could collect from this could be offset by the hefty tax credits she’s proposed, which include expanding the child tax credit and offering a $25,000 first-time homebuyer credit.
And like Trump, she’s promised to end taxes on tips. She’s also pledged not to raise taxes on households making less than $400,000 annually. Both would growon the deficit.
Taken together, the Penn Wharton Budget model estimates Harris’ proposals could increase the deficit by an additional $1.2 trillion by 2034.
Neither candidate has proposed a credible solution to the country’s fiscal mess, said Joshua Gotbaum, a visiting economics scholar at the Brookings Institution. “But what Harris has proposed would create much less of a mess,” he said.
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