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The phrase “It’s the economy, stupid,” coined by James Carville during Bill Clinton’s 1992 campaign, is still relevant. While unemployment remains low, inflation has dropped from its post-pandemic peak of 9% to around 2.5%. The stock market is hitting new highs, interest rates are falling, and energy prices have eased—all pointing to economic strength. Right? Some analysts even suggest that we may be closer to the middle stage of a traditional business cycle rather than the late phase, which typically precedes a recession. Nevertheless, voter dissatisfaction is persisting.
A recent Gallup poll shows that most Americans still rank the economy as their top concern, with nearly 45% describing it as poor. This may be unsurprising when everyday costs- for groceries, school supplies, or insurance premiums—seem to continue climbing, leaving consumers feeling the financial pinch.
Since the pandemic, consumer purchasing power has declined by 2.5%, making many feel worse off than they were before. Can the next president turn that around? Let’s examine their policy platforms and potential economic effects.
The Economy and Markets
Economic growth generally benefits everyone, but former President Donald Trump and Vice President Kamala Harris propose different routes to get there. Trump advocates for lower taxes, fewer regulations, and protective tariffs for American businesses. According to the famous economist, Art Laffer, the basic idea of the Laffer Curve is undeniably true — 0% tax and 100% tax on income both result in zero tax revenue, and the maximum revenue is from some tax rate in between. Like Laffer’s belief, Trump recognized lower taxes align with a more robust, and sustainable economy. On the other hand, Harris supports raising taxes on corporations and the wealthiest individuals. The problem with this approach is that corporations do not worry about the imposition of tax. Instead, they pass this cost along to the consumer. In essence, raising taxes on businesses means raising taxes on consumers, regardless of their financial status.
However, it is wise to be cautious about making financial decisions based on campaign promises or political preferences. Even in a divided Congress, campaign rhetoric does not always translate into concrete policies. Historically, the stock market and economy have continued to grow under various political administrations, with party control having little long-term impact on performance.
Taxes
Although election outcomes may not significantly affect the markets, tax policy changes can impact your financial situation. Trump has called for extending the 2017 Tax Cuts and Jobs Act provisions, which are set to expire in 2025. This would preserve the current top-income tax rate of 37% and maintain the standard deduction. Additionally, he has suggested raising the limits on mortgage interest and state and local tax (SALT) deductions and even eliminating taxes on Social Security benefits.
Meanwhile, Harris has proposed maintaining lower income and capital gains tax rates for individuals earning less than $400,000, while letting rates revert to 39.6% for higher earners. Her platform also includes a “billionaire’s tax,” which would apply a 25% minimum tax rate on income for those with $100 million or more in assets. Other measures might include removing the stepped-up basis for inherited assets and tightening rules around Roth conversions. Most of what Harris proposes equals rewritten versions of President Biden’s plan.
Both candidates have supported eliminating taxes on tips and expanding the Child Tax Credit. Harris has proposed increasing the credit to $3,600 per child and offering a one-time $6,000 credit for newborns. While Trump has not released specific proposals, his running mate, Senator JD Vance, called for increasing the credit to $5,000.
On corporate taxes, Trump suggests lowering the top rate to 15%, while Harris plans to raise it to 28%.
Consumer Prices
Despite some improvements, the cost of living remains a major issue. For instance, food inflation has dropped from its peak in 2021, yet grocery prices have been up 27% since 2019. This is the primary reason consumers feel strapped. If elected, Trump’s trade policies, including proposed tariffs of 10% on all imported goods and up to 60% on Chinese products, could lead to slightly higher consumer prices. However, we do not believe Trump’s tax decreases would provide a greater offset. Harris, on the other hand, has suggested penalizing companies for price-gouging, although implementing such measures could be complex.
As Vice President Harris portends, the idea of price fixing is more aligned with socialism. For example, the former Soviet Union was widely known for “price fixing” because its communist economy relied heavily on government-set prices for goods and services, essentially controlling the market with strict price controls. This often resulted in shortages due to insufficient market signals to adjust production based on consumer demand.
Housing
The housing market also presents challenges. Mortgage rates remain elevated while down from their 2023 highs, and home prices continue to rise due to limited supply. Harris has proposed a $25,000 tax credit for first-generation homebuyers and a $10,000 credit for other first-time buyers. She also advocates tax incentives to build affordable housing. Such a policy will come with costs that taxpayers will fund. Conversely, Trump aims to reduce regulatory hurdles for homebuilders and open more federal land for development. Lower mortgage rates and increased supply could ease the pressure on housing prices, benefiting potential buyers.
Health Care
Rising healthcare costs remain a top concern for many voters. Harris supports increased subsidies for state-run health exchanges, broader price caps for Medicare prescription drugs, and closing the Medicare Part D coverage gap. Trump has pushed for cheaper catastrophic health plans and more price transparency, though he has yet to provide specific proposals. Several government subsidies imposed by the Biden administration are set to end in 2025, meaning health care will begin to rise faster since taxpayer dollars would no longer be artificially lowering these costs.
Energy
While energy prices have come down from their 2022 peaks, they remain higher than pre-2022 levels. Trump promised to reduce energy costs by ramping up domestic fossil fuel production. During his first term, he implemented this plan, and the results were prolific. The outcome was that Harris, in contrast, supports a transition to renewable energy through subsidies for green initiatives and electric vehicles. Green energy is certainly something we should work on, but the timing for such a transmuting is premature and likely to create more inflation.
Plan for Election Uncertainty
Regardless of who wins the upcoming election, preparing for different possible economic outcomes is essential. The next president’s ability to enact sweeping policy changes will depend mainly on congressional dynamics. Still, executive orders could allow for immediate shifts in policy.
That is why having a solid financial plan is crucial. At OmniStar Financial Group, we have guided clients through multiple elections, recessions, and global events. Our expertise gives you the peace of mind to weather uncertainty and stay focused on your financial goals.
