About a month ago, the presidential race took a dramatic turn when President Biden exited the race and endorsed Vice President Kamala Harris. This shift has redefined the dynamics of the election. Prior to this, following the CNN Presidential debate in June, a Trump victory seemed almost certain. The 'Trump trade' was in full swing, with small-cap stocks rallying on expectations of lower corporate taxes and interest rates. Meanwhile, crypto and oil stocks surged as investors anticipated a favorable regulatory environment under Trump. However, Harris’s ascent to the Democratic ticket has invigorated the party, turning what seemed like a likely Trump landslide into a fiercely contested race. In this article, we will explore Kamala Harris’s economic plan in detail and analyze how it could impact the economy and personal finances.
Higher Taxes on Corporations
Kamala Harris formally accepted the Democratic nomination at the Democratic National Convention last Thursday night, unveiling her vision of an “opportunity economy.” She says her plan aims to enhance economic equity by imposing higher taxes on corporations. Harris advocates increasing the corporate tax rate from 21% to 28%.
Additionally, Harris's plan includes raising the tax on stock buybacks from the current 1% (established under the Inflation Reduction Act of 2022) to 4%. Furthermore, under her proposal, salaries exceeding $1 million would no longer be eligible for tax deductions, impacting high-income earners and executives.
Harris also plans to raise the minimum business tax from 15% to 21%. The Harris campaign say the move is designed to ensure that corporations pay a fair share of taxes, particularly those that manage to minimize their tax burdens through various loopholes and deductions. Critics, including the Trump campaign, argue that such increases in taxes and regulations could drive American companies to relocate to countries with more favorable tax policy. In response, Harris has proposed an international agreement to standardize business taxation globally. This agreement would raise the international business tax minimum from 15% to 21% and assess taxes based on income earned in each country where a company operates, rather than on global profits.
Higher Taxes on Wealthy Americans
Harris’s tax plan includes several provisions aimed at increasing taxes on high-income earners. While she supports retaining many aspects of Donald Trump’s 2017 Tax Cuts and Jobs Act (TCJA) for individuals earning less than $400,000 annually, she proposes significant tax hikes for those with higher incomes. Harris plans to increase the top marginal tax rate from 37% to 39.6%. In addition, she supports raising the Medicare tax from 3.8% to 5% for individuals making more than $400,000 a year. These changes would result in a top marginal rate of up to 44.6% when both income and Medicare taxes are combined.
Moreover, Harris aims to reform the taxation of capital gains. Currently, investment earnings are taxed at a lower rate than ordinary income. Under her proposal, Americans with incomes exceeding $1 million would face the same tax rate on their investment earnings as on their regular income. Harris’s plan also targets the ultra-wealthy with a minimum tax of 25% on their income and unrealized capital gains for individuals with a net worth over $100 million. A tax on unrealized capital gains would be unprecedented, and it remains unclear how it would be implemented or whether unrealized losses would be eligible for tax deductions.
Raising the Child Tax Credit
Harris has proposed a significant increase in the child tax credit. Under her plan, parents of newborns would receive a $6,000 tax credit. She also supports reinstating parts of President Biden’s American Rescue Plan, which provided annual payments of $3,000 for each child aged 6 to 17 and $3,600 for each child under age 6 in 2021. This expanded credit was available to individuals earning less than $75,000 and married couples making less than $150,000. The current child tax credit is $2,000 per child, so Harris’s proposal represents a substantial increase. Republican Vice Presidential candidate J.D. Vance has also proposed boosting the child tax credit to $5,000, regardless of income.
Ban on “Price Gouging”
A notable component of Harris’s economic plan is a federal ban on “price gouging.” This measure would empower the Federal Trade Commission (FTC) to set what are considered fair prices for goods. Although the details of this plan are not fully fleshed out, it has drawn significant criticism from economists. Mark Zandi, chief economist at Moody’s Analytics, has argued that “while high inflation has many causes, aggressive or unfair pricing practices are not significant factors.” Zandi also points out that “state laws already address predatory pricing during emergencies, suggesting that a federal ban might not substantially impact food prices.”
Historical precedents include President Nixon’s 1970 wage and price controls, which led to further inflation and shortages. Critics argue that Harris’s plan could have similar adverse effects, though her campaign contends that this proposal differs from Nixon’s approach. The effectiveness and potential consequences of such a policy remain contentious.
Housing Policy and Changes to Estate Tax
With the housing market facing challenges and 30 year mortgage rates at 6.5%, housing policy has become a central issue for both the Harris and Trump campaigns. Vice President Harris advocates for a substantial expansion of affordable housing, including the construction of 3 million new housing units. Her plan also includes $25,000 down payment assistance for first-time homebuyers and increased tax credits for homeowners.
Harris has endorsed the American Housing and Economic Mobility Act of 2024, reintroduced by Senators Elizabeth Warren and Raphael Warnock. This bill proposes significant changes to the estate tax, including a 55% tax on estates valued up to $13 million, 60% on amounts between $13 million and $93 million, and 65% on amounts exceeding $93 million. Currently, the estate tax ranges from 18% to 40%. The bill also suggests lowering the estate tax exemption threshold to $3.5 million and introducing new surcharges on high-income estates and trusts, such as a 5% tax on gross income over $200,000 and an additional 3% tax on income over $500,000.
Additionally, Harris supports ending the “step-up in basis” tax policy, which allows inherited assets to be taxed at their value at the time of sale rather than at the original purchase price. Her proposal would tax these assets at the original owner’s death, with exceptions for surviving spouses.
Conclusion
In summary Vice President Harris’s plan for an “opportunity economy” would provide tax cuts and increased tax credits for lower and middle class Americans, but raise taxes on wealthy Americans and corporations. Most of these economic and tax plans would require support from both the House of Representatives and the Senate. A divided government would require more compromise, elected officials are set to negotiate new tax policy as many parts of the Tax Cuts and Jobs Act are set to expire in 2025.
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