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As the 2024 United States presidential elections draw near, both Donald Trump and Kamala Harris have revealed their plans to alleviate the economic woes of Americans struggling with soaring US economic inflation, skyrocketing healthcare costs, and escalating property and rental expenses. While Trump has not yet released a comprehensive economic plan, he has hinted at various aspects of his agenda through statements made during media appearances and public engagements. Each candidate has proposed new initiatives aimed at reducing the rising cost of living, attempting to appeal to voters seeking relief.
However, this approach highlights a fundamental flaw in democracies worldwide: the tendency for politicians to prioritize short-term gains over long-term sustainability in the lead-up to elections. Trump and Harris are no exception, as they engage in a populist bidding war, trying to outdo each other with attractive promises without providing clear details on how they intend to fund these measures. This lack of transparency raises concerns about the potential for unsustainable policies that may offer temporary relief but ultimately exacerbate the economic challenges facing Americans in the long run.
Both Trump and Harris have pledged to reduce the prices of groceries and everyday essentials. Trump has indicated that once elected he will pass an executive order to ensure bringing down prices and Harris said that she will specifically go after price gouging. This may sound encouraging to voters but in a free market economy, implementing price controls can be challenging. Trump's plan to reduce oil and gas prices by increasing drilling ignores the fact that the pump prices of gas are governed by global OPEC prices which in recent times has been considerably affected by the Ukraine- Russia conflict and the stringent economic sanctions imposed on Russia.�
Moreover, Trump's proposals to raise import tariffs by 10% across the board and 60% on Chinese goods will most likely increase prices in the short term. For instance, imposing a 60% tariff on heavy machinery imported from China will only escalate upstream costs. Although Harris hasn't explicitly mentioned tariffs, the Biden administration, with Harris as VP, has maintained the tariffs earlier imposed by the Trump presidency, indicating a similar approach. Their rhetoric may sound appealing, but the reality is that their policies may lead to higher prices, not lower ones.
While Trump and Harris's efforts to alleviate the financial struggles of middle-class and lower-income Americans are commendable, their proposed solutions may raise concerns among economists. Both candidates' plans rely heavily on tax credits, monetary benefits for housing, free federal land for housing development, and eliminating federal taxes on tips. Although these promises may resonate with voters, they lack financial prudence and may be seen as short-sighted.
Economists may argue that such measures could lead to increased government spending, higher national debt, and potential inflation impact on economy. Furthermore, these solutions might not address the root causes of financial burdens, such as stagnant wages, rising healthcare costs, and inadequate access to affordable education and job training. A more comprehensive approach that balances short-term relief with long-term sustainability and fiscal responsibility may be necessary to truly support the economic well-being of middle-class and lower-income Americans.
The proposed tax cuts by political parties pose a paradox: reducing government revenues by cutting down on taxes while at the same time increasing spending through financial incentives. For instance, Kamala Harris has pledged to provide $25,000 down payment support for first-time homebuyers, supplemented by a $10,000 tax credit. Furthermore, she plans to offer tax concessions to builders who construct homes for first-time buyers, aiming to stimulate the supply side of the real estate market. The Republican Party has also suggested significant tax sops for first-time homeowners.
Donald Trump has proposed tax credits for senior citizens by reducing Social Security taxes, which would undoubtedly benefit fixed-income seniors by increasing their disposable income and helping them, cope soaring US inflation trends. However, this plan has a significant downside: the revenue generated from taxing Social Security benefits is crucial for funding the Social Security retirement trust fund, which supports Medicare and other essential benefits. Depleting this fund would necessitate government intervention to inject funds and maintain the solvency of other social benefit schemes. This could lead to a heavier burden on taxpayers and potentially jeopardize the long-term sustainability of these programs.
This strategy of both the Republicans & Democrats of cutting taxes and increasing spending on incentives, risks putting a significant strain on the countrys finances, highlighting the need for a more balanced fiscal policy.
In 2023, the U.S. government's expenditures soared to an astounding $6.1 trillion, significantly outpacing its revenue of $4.4 trillion. This discrepancy led to a substantial budget deficit of $1.7 trillion, forcing the government to borrow heavily by issuing securities. To cover the shortfall, $1.7 trillion worth of Treasury bonds and other debt instruments were issued. Unfortunately, this pattern of annual borrowing, similar to what occurred in 2023, has become a disturbing trend, with little political will to reverse it. By July 2024, the unchecked accumulation of U.S. government debt had swollen to nearly $36 trillion, highlighting the urgent need for fiscal responsibility and sustainable budget management. The growing debt burden poses significant risks to the nations economic stability, prosperity, and the well-being of future generations.
Policymakers must take decisive action to curb unchecked government borrowing. The debt ceiling, established by the Second Liberty Bond Act of 1917, was designed to limit the total amount the U.S. government can borrow to meet its financial obligations. However, this ceiling has been repeatedly raised or suspended, perpetuating a cycle of reckless borrowing. Advocates of high debt levels argue that the U.S. has always met its repayment obligations, but they often overlook the considerable risks associated with excessive borrowing. High debt levels endanger the countrys coveted credit ratings, as demonstrated by the unprecedented downgrading of U.S. Treasury debt from AAA by Standard & Poors during the 2011 debt ceiling crisis. This event serves as a stark reminder of the need for fiscal discipline and responsible management of the nations debt. Compounding this issue is the sharp rise in foreign-held debt over the past 50 years, which adds another layer of vulnerability to the U.S. financial system.
US Government Domestic & Foreign Debt in 1970 & 2023
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Following the US Elections result 2024, the new administration must adopt more innovative strategies for managing the U.S. financial system. A key focus should be reducing the Treasurys reliance on deficit financing. For instance, Trump, in addition to offering incentives for first-time homebuyers, wisely proposed cutting regulations that inflate housing costs. Similarly, the next administration needs a fresh, bold approach to the Ukraine-Russia conflict. Resolving this issue could not only lower military aid expenses but also pave the way for easing or lifting sanctions on Russia, which would release more Russian oil into the market and help, stabilize global gas prices. In this regard, a new Trump administration may be better positioned than a potential Harris presidency. Addressing the Israel-Hamas conflict with similar boldness could also yield significant financial benefits for the United States.
On the matter of rising healthcare costs, The American Journal of Medicine has suggested focusing on disease prevention rather than cure. Additionally, implementing and regularly reviewing regulations to eliminate unnecessary tests and procedures could reduce costs. New policies are also needed to control prescription drug prices, with greater transparency that only the government can ensure.
Mitigating the impact of inflation requires more than just offering tax breaks that increase national debt. Political parties should move beyond populist promises and develop strategies to combat inflation directly. While tax relief may offer temporary respite, it ultimately burdens citizens with the long-term costs of servicing the national debt. As inflation rises, so do Federal Reserve interest rates, leading to even higher future taxes to cover interest payments.
Both Trump and Harris must address this vicious cycle of interest rates, inflation and national debt with substantive policies, not just election promises.
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