How Harris could bridge the voter divide on economic matters

Presidential debates typically don’t play an outsized role in election outcomes; however, one between Kamala Harris and Donald Trump could prove the exception to that rule. Polls reveal a very tight race; with Trump leading Harris significantly due to voter discontent with post-COVID inflation which has caused consumer prices to increase by 20 percent since President Biden assumed office.

Harris will need to convince voters they can trust her economic management for her election chances to succeed, however this task will prove challenging due to two main considerations. First, voters are aware of low inflation during President Donald Trump’s presidency before its rise under Vice President Joe Biden’s administration. Second, Harris unveiled last month her Opportunity Economy Plan without providing sufficient explanation on how it would address inflation.

How might Harris respond to these challenges? She must begin by providing an explanation for why inflation spiked; my own assessment suggests this pattern has been driven mainly by global shocks and responses by policy makers to them over the past 15 years.

At both Obama’s and Trump’s presidencies, inflation was subdued after the 2008 Financial Crisis due to weak recoveries worldwide and low or negative interest rates; demand remained modest thus keeping inflation at bay.

As unemployment increased due to COVID-19 pandemic in 2020, massive federal programs were implemented in response to stabilize household incomes while simultaneously supporting construction demand with its zero interest-rate policy from the Federal Reserve’s zero-interest-rate policy. By 2021 however, resilient demand and global supply disruptions combined produced dramatic price spikes that ultimately drove prices worldwide upward.

Though the Federal Reserve had expected inflationary pressures would subside shortly, global markets were further shaken up by Russia’s invasion of Ukraine in February 2022 and further COVID waves that brought with them additional price pressures that led to new round of price inflationary pressures.

In response, the Federal Reserve responded aggressively by raising interest rates. Their efforts, along with improved supply-chain bottleneck management and diminishing fiscal stimulus packages have contributed significantly towards decreasing inflation; as a result, Fed Chair Jerome Powell announced earlier this month that interest rates may begin declining this month.

Mortgage rates have dropped to 6.35 percent, 1.4 percentage points lower than their peak level set last October.

Harris faces two significant hurdles. First, President Donald Trump may contend that former Vice President Joe Biden’s lax fiscal policies contributed to inflation. To counteract that argument, Harris can point out how President Donald Trump adopted similar expansionary policies as Biden while favoring COVID relief payments for families as part of his final term compared with $4.3 trillion approved under Biden thus far according to the Committee for Responsible Federal Budget (CRFB).

Harris also faces difficulties because parts of her economic plan are flawed, particularly where it blames food retailers for price gouging. According to The Washington Post Editorial Board’s assessment, Harris instead “squandered the moment on populist gimmicks”. Critics liken this strategy to wage price controls instituted during Nixon’s term in office that proved ineffective or even counter-productive.

Harris would do well to prioritize policies which encourage competition and boost productivity, such as his plans to double start-up tax incentives for start-up companies to $50K from $5,000 announced this week.

Harris can take solace from the fact that her administration recently struck an agreement with pharmaceutical companies to significantly decrease costs of 10 commonly-prescribed drugs, and her proposal to restore child tax credit from coronavirus relief package remains popular with voters.

However, these talking points alone might not convince voters of Harris’ handling of the economy and therefore she must also raise doubts over Trump’s economic proposals.

Harris’ strongest case lies with her opposition to Trump’s plan for increasing tariffs on Chinese imports by 60 percent and on other imports by up to 20%; these plans echo Smoot-Hawley Tariff Act’s provisions which provoked retaliatory reactions among America’s trading partners and contributed significantly to Great Depression.

As Harris noted in her address at the Democratic National Convention, tariffs serve as a national sales tax on various goods that ultimately fall heaviest upon low and middle income families.

The Peterson Institute for International Economics estimates that Trump’s proposals could cost middle-class households over $2,600 annually in lost after-tax income – equivalent to over 4 percent less after considering reduced income tax payments under an extended Tax Cut and Jobs Act. This estimate does not consider reduced tax burdens resulting from any extension.

Trump’s tariffs would cut their after-tax income by 6.3% versus only receiving an incremental 0.5% tax cut from the Tax Cuts and Jobs Act.

Overall, these estimates demonstrate that Trump’s proposed tariffs and tax cuts will do more harm than good for most American families; only households in the top 1 percentile would fare well from them.

Harris must convince voters of her superior plans in order to win them over and secure victory on Election Day. For her strategy to succeed, this means showing how Harris plans are effective versus those of her opponent.

Nicholas Sargen, Ph.D. is an economic consultant affiliated with the Darden School of Business of University of Virginia. He has published three books including, Investing in the Trump Era: How Economic Policies Impact Financial Market.”