In the midst of an angry, polarized election cycle, let us pause for a moment to sound an objective, rational note: No matter who wins the presidency in 2024, U.S. taxes will have to increase.
This is the inevitable conclusion ofa clear-sighted look at the U.S. budget deficit, the debt-to-GDP ratio and the current and prospective status of entitlements and other major budget line items.
The prediction is not aligned with the promises made by either candidate. There are significant differences, however. Whereas Vice President Kamala Harris’s tax plans are logical but may not be fully implemented by a divided Congress, Trump’s plan will plunge the economy into recession.
The more basic truth is that anyone who occupies the White House in 2025, and any party that controls either house of Congress, will have to grapple with an increasingly intractable set of fiscal conditions. Ultimately, a new approach to revenue generation and investment will be needed.
The debt and the deficit leave little room for meaningful programs that would drive growth. A quick review of the numbers tells the story:
- As reported by the Washington Post, citing the latest data from the Congressional Budget Office, the U.S. budget deficit was $1.8 trillion for Fiscal 2024
- The Post also reports that, as of Oct. 4, the U.S. public debt has reached $35.7 trillion. That amounts to more than 98 percent of GDP.
- In June, the Congressional Budget Office projected that the debt would be in excess of $50 trillion by the end of the decade and that the debt-to-GDP ratio would exceed its previous record high of 106 percent by 2027.
- In fiscal 2024, interest payments on the debt reached $950 billion, an amount larger than the Pentagon’s budget and exceeded only by the $1.45 trillion fiscal 2024 outlay for Social Security benefits. (Medicare costs were $869 billion and Medicaid stood at $826 billion.)
- Those numbers show that the federal budget is 75 percent entitlements and debt service. There is very little room for investment in new programs that drive growth and affect U.S. communities.
- Another perspective: In fiscal year 2008 – as the U.S. entered the financial crisis — the debt-to-GDP ratio was under 64 percent. In other words, the debt has sharply increased as a percentage of the U.S. economy to unsustainable levels. And not enough people feel that their taxes are producing real benefits. That is not the only explanation for the angry national mood, but it is certainly a factor.
Given all this, the question to bring to bear on both presidential campaigns is: Will your policies generate sufficient revenue, either through higher taxes, growth or some combination of the two to reduce the deficit and, ideally, create programs that improve lives in our communities?
It is concerning that the Trump tax program features significant tax cuts. According to The Tax Foundation’s summary, Trump proposes lowering the corporate income tax rate from 21 percent to 20 percent, or perhaps to 15 percent for domestic production. Further proposed cuts include making permanent the individual and estate tax cuts of his 2017 Tax Cuts and Jobs Act.
These cuts would reduce tax revenue and increase the deficit.
Then there are the tariffs. Simply put, tariffs are an inefficient tax. Organizations including The Tax Foundation and the International Monetary Fund have noted the impact of protectionist tariffs — higher prices, lower employment, lower wages and reduced GDP.
The nonpartisan Committee for a Responsible Federal Budget estimates that overall, Trump’s proposed economic programs and tax policies would increase the debt by at least $1.45 trillion and perhaps as much as $15.2 trillion by 2035.
Trump supporters explain that the former president’s focus is on growth that would produce more tax revenue. But that does not seem to be supported by strict analysis.
The Harris program includes a commitment to tax increases. Some of them have been proposed by Harris herself, including an increase in the corporate tax rate to 28 percent, a 28 percent top rate on long-term capital gains for taxable income above $1 million and an increase in the net investment income tax so that it reaches 5 percent on income above $400,000.
Others represent a softening of Biden administration tax policies, such as on capital gains. But in general, the Harris tax agenda is progressive, not regressive,
The Committee for a Responsible Federal Budget is more favorable to Harris — it estimates that the Harris proposals might cost as much as $8.1 trillion or might be fully funded by progressive taxation.
The major uncertainty about the Harris tax program is political. A polarized environment and an election that is likely to be closely contested make it unlikely her proposals will pass a divided Congress.
So here are the basic truths: Economic reality demands that taxes increase no matter who is elected. This is true not just in the U.S. The World Bank points out that many global economies are undertaxed at less than 15 percent of GDP. That means insufficient investment in human capital, infrastructure and services needed to drive growth.
But if Trump is elected and forced reluctantly into tax increases, or if Harris is elected but unable to enact her tax agenda, what hope is there for meaningful deficit reduction and future investment?
The sobering answer is that no matter which candidate takes office on Jan. 20, 2025, further spending cuts may be inevitable. Either candidate will face mounting pressure to undertake significant spending reforms.
Putting campaign promises aside, the realistic prospect is for hard choices and initiatives that are limited in scope. This will be equally the case in a Harris administration or the second presidency of Donald Trump.
Sadek Wahba is chair of the Wahba Institute for Strategic Competition at The Wilson Center and a member of the President’s National Infrastructure Advisory Council. The views expressed in the article do not necessarily represent those of these or any other institutions.