Policy Platforms of Both Major Political Parties

 

As we have discussed in previous content, markets typically act independently. However, those in control of Washington, D.C. can impact other important markers like taxes, government spending, trade, and regulations that can impact economic growth. Below is a primer on where both political parties stand on some of those issues as they pertain to individuals.

Corporate Taxes

Former President Donald Trump and a Republican-controlled Congress enacted the Tax Cuts and Jobs Act (TCJA) in 2017. Part of the TCJA expires at the end of 2025. The law cut the corporate tax rate to 21% from 35%. Note that the corporate income tax rate provision that reduced the rate to 21% does not expire, so any corporate tax changes proposed by the parties would need to be enacted.

 

Democratic Platform: Endorses increasing the levy to 28%. The platform also states that it wants to eliminate subsidies for certain sectors of the energy industry. While still below the pre-TCJA, this would be above the Organisation for Economic Co-operation and Development average of about 21%, potentially making U.S. businesses slightly less competitive.

 

Republican Platform: Vows to make the law permanent, restoring the regime that existed immediately after TCJA’s enactment. Also, former President Donald Trump recently said he wanted a 20% corporate tax rate and has floated a levy as low as 15%.

Income Taxes

The TCJA cut taxes for many income levels, including the highest earners. For example, the law decreased the top marginal income tax rate for individuals to 37%. The top rate will go back to 39.6% if the TCJA expires. The bill also nearly doubled the standard deduction and doubled the estate tax exemption. It also capped the state and local income tax (SALT) deduction at $10,000. This will no longer apply if the TCJA expires. Lastly, the TCJA increased the standard deduction to $12,000 for individuals and $24,000 for married couples filing jointly while eliminating many itemized deductions. Standard deductions will be reduced by roughly half if the TCJA expires.

 

Democratic Platform: Wants to partially repeal the TCJA and states that no American earning less than $400,000 will pay more in taxes. It also endorses billionaires paying a minimum income tax rate of 25%. Vice President Kamala Harris has also stated she wants to eliminate taxes on tips. Democrats have stated they want to eliminate the SALT cap within the TCJA. On a related note, Democrats have expressed interest in a larger child tax credit, funded by higher taxes on the wealthy. Overall, it is estimated that the top 1% would see their after-tax income decrease by $9,000 under Vice President Harris, according to a recent study by the Wharton School of the University of Pennsylvania.

 

Republican Platform: Vows to make the TCJA permanent. The platform also states the party wants to eliminate taxes on tips. Former President Trump has also entertained the idea of eliminating taxes on Social Security benefits. On a related note, Republicans have also expressed interest for a larger child tax credit. Under Former President Trump’s forthcoming policies, it is estimated that the top 1% would see their after-tax income rise by $47,000 in 2026, according to the recent Wharton study.

Tariffs

Former President Trump imposed nearly $80 billion in new tariffs in 2018 and 2019. President Joe Biden kept most of the tariffs and increased tariffs on China. Academic and governmental studies found that the tariffs have acted as a tax on Americans and raised prices and reduced output and employment, negatively impacting the U.S. economy. Also, the studies found that the tariffs cost the average household hundreds of dollars since the cost of various products increased.

 

Democratic Platform: Appears to endorse “targeted” tariffs on China. If businesses pay more for foreign goods, those costs may be passed onto consumers.

 

Republican Platform: Endorses baseline tariffs on all foreign-made goods. If businesses must pay more for foreign goods, those costs may be passed onto consumers.

Government Deficits/Debt

In fiscal year 2023 (the most recent full year available), the U.S. posted a $1.7 trillion budget deficit. According to recent estimates by the Congressional Budget Office, that figure is expected to increase 53% to $2.6 trillion by 2034. Because of the rising debt burden and tighter monetary policy, the interest cost to service the debt ballooned to $659 billion in 2023. This is arguably the biggest issue neither side is discussing in any detail. The country’s interest expense on the debt is growing substantially and needs to be addressed. If the country’s spending does not slow down, higher taxes on individuals may be needed to address the deficit. Furthermore, the largest spending remains in areas that are “non-discretionary” obligations such as Social Security, Medicare, interest, and defense.

 

Democratic Platform: Says the deficit will be reduced by $160 billion over the next ten years by limiting Medicare costs to pharmaceutical companies. Vice President Harris has been largely quiet on the subject. The Wharton study found that her current economic plan would add more than $1 trillion to the debt over a decade. Vice President Harris’ plan to raise corporate income taxes to 28% would raise $1.1 trillion. Her ideas of increasing the child tax credit to $6,000 for newborns, expanding the earned income tax credit, extending the tax credit that currently exists for health insurance premiums, and providing down payment support for first-time homebuyers would cost about $600 billion. Raising the child tax credit for all children other than newborns would cost an additional $1.7 trillion over a decade. The Wharton study concludes that Vice President Harris’ proposals would increase the national debt by 4.4% above its current trajectory by 2034 and 7.7% by 2054.

 

Republican Platform: Does not specifically address the debt or deficit. Former President Trump has largely been unclear on the subject, and the Wharton study found that his economic plan would add almost $6 trillion to the debt over a decade. Extending the individual income tax cuts would cost $3.4 trillion over ten years; doing the same for the corporate income tax cuts would bring the total to about $4 trillion. Former President Trump wants to cut the corporate income tax even further to 15% from its current 21% at an estimated cost of $600 billion and abolish the income tax on Social Security benefits, which would cost another $1.2 trillion. The Wharton study concludes that former President Trump’s proposals would increase the national debt by 9.3% above its current trajectory by 2034 and 12.7% by 2054.

GDP Growth

The U.S. economy (real GDP) grew a solid 2.5% in 2023. Overall, GDP has held up remarkably well during 2024. Neither candidate nor party has provided much detail on how to keep growth strong. In fact, their policy proposals would cause the economy to lose some steam.

 

Democratic Platform: Vice President Harris’ proposals would see the U.S. GDP fall by a total amount of 1.3% relative to the current baseline by 2034 and by 4% within 30 years (2054), according to the Wharton study.

 

Republican Platform: Former President Trump's proposals would see U.S. GDP fall by a relatively modest amount of 0.4% relative to the current baseline by 2034 and by 2.1% in 30 years (2054), according to the Wharton study.

Social Security Funding

Social Security and related costs are the largest expenditures for the U.S. government. The program faces a long-term financial shortfall due to a combination of factors, including an aging workforce and an increase in the number of people collecting benefits.

 

Democratic Platform: Vows to protect the program and rejects any efforts to privatize it. It also notes the party will ask the wealthiest Americans to pay more. The exact amount is unknown, but the top 5% of the income distribution will fare worse. Neither the party nor its officials have expressly said how they will keep Social Security solvent.

 

Republican Platform: Endorses protecting the program and will not cut it. Also vows to leave the retirement age unchanged. Former President Trump has discussed making Social Security tax-free, which could further strain the system’s funding. He has also promoted cutting expenses elsewhere in the budget to maintain Social Security benefits. Neither the party nor its officials have expressly said how they will keep Social Security solvent.

Final thoughts

It should be noted these positions can change over time. These markers may be modified depending on how much control either party has, as actual legislation (like the TCJA) can take a long time to pass through Congress and become law. Also, we are not endorsing either party or its vision for the country. If anything, we wish both candidates had more definitive positions on the important subjects above. The race is expected to be close, and we know clients and 1834 employees all have their own positions on the election. Again, remember that markets largely act independently of elections and the results.

 

 

Article published: September 5, 2024

 

 

Sources: Wall Street Journal, Democratic Party Platform White Paper, Republican Party Platform White Paper, Tax Policy Center, Tax Foundation, Axios, The Wharton School of the University of Pennsylvania.