What will the US presidential election mean for the economy?

Episode Summary

Executive Summary: The episode contrasts Biden-era and Trump-era economic views on what the next president will inherit and how policy could shift. Both economists see a need to address unfair trade and the deficit, but diverge sharply on tariffs, corporate taxes, and wealth taxation. They agree child tax support has strong social benefits and some economic upside.

Main Topics: Inherited economic conditions (Priority: 5/5): Jared Bernstein described a solid expansion with easing inflation, low unemployment, and rising real wages, while Kevin Hassett argued the economy briefly looked recession-bound last summer but then rebounded sharply, leaving momentum uncertain. Tariffs and trade policy (Priority: 5/5): Hassett endorsed aggressive tariff policy toward China, including reciprocal tariffs and strategic-industrial protection; Bernstein supported only targeted tariffs, warning that sweeping tariffs would raise consumer prices and hurt domestic producers. Corporate tax rates (Priority: 5/5): Bernstein backed raising the corporate tax rate to 28% to fund government and maintain investment incentives, while Hassett said the increase would be highly damaging and likely reduce competitiveness and investment. Taxing unrealized capital gains / wealth taxation (Priority: 4/5): Bernstein defended a prepayment tax on future realizations for ultra-wealthy taxpayers as a fairness measure; Hassett argued it functions like a wealth tax and can impose near-100% effective taxes on capital income, harming growth. Child tax credit and earned income tax credit (Priority: 4/5): Both speakers were supportive in different ways: Bernstein highlighted large anti-poverty and long-term growth effects, and Hassett said child-related tax credits help offset inflation pressures on families. Deficit reduction and fiscal sustainability (Priority: 5/5): Both agreed deficits matter and a major budget showdown is likely, but Bernstein emphasized no immediate funding crisis while warning sustainability problems will worsen without action; Hassett argued spending, not revenue, is the main driver of the fiscal gap.

Key Arguments: Targeted tariffs can protect against unfair trade, but sweeping tariffs act like a broad consumer tax and can disrupt producers and supply chains. China is singled out by Hassett as a strategic and intellectual-property threat that justifies tougher trade action. Bernstein argues the U.S. economy is still in solid shape: inflation has eased, unemployment remains low, and real wages are rising. Hassett argues the labor market showed recession signals last summer, then recovered, making the outlook unusually uncertain. Bernstein supports a higher corporate tax rate because the growth benefits of lower rates are small relative to the revenue lost. Hassett argues the 28% rate hike would be one of the largest developed-world corporate tax increases in decades and likely damaging. Bernstein frames taxing unrealized gains as a fairness and cash-flow issue for ultra-wealthy households with low effective tax rates. Hassett says taxing unrealized gains is economically equivalent to a wealth tax and can severely discourage capital formation. Both view child tax benefits as valuable, though Bernstein emphasizes poverty reduction and long-run human capital gains while Hassett stresses relief for inflation-hit families. Both expect deficits to remain a central political and fiscal issue after the election, but differ on whether taxes or spending cuts should lead the adjustment.

Data Points: Job gains over past three months: 186,000 - Bernstein cited recent payroll growth as near the break-even level for labor market stability. Unemployment: Low, though up a bit - Bernstein described unemployment as slightly higher than before but still low. Inflation: Close to target - Bernstein said inflation has fallen from its peak without major growth sacrifice. Tariff comparison: ~6.5% vs ~3% - Hassett said countries average about 6.5% tariffs on U.S. exports versus about 3% on U.S. imports. India bound tariff: 50% - Hassett cited India as an example of a country with a high maximum bound tariff. Corporate tax rate proposal: 28% - Bernstein said the administration proposes raising the corporate rate to 28%. Corporate tax rate change: 7 percentage points - Hassett described 28% as a 7-point increase from current law. Corporate tax cut history: 35% to 21% - Hassett referenced the 2017 tax cut as a comparison point. Estimated score of 2017 corporate tax cut: About $300 billion over 10 years - Hassett said the Joint Tax Committee scored the change as nearly revenue neutral after other offsets. Wealth threshold for unrealized gains proposal: Above $100 million - Bernstein said the proposed prepayment tax would affect only a few thousand taxpayers. Child poverty reduction: From roughly 12-13% to around 6% - Bernstein said expanded child benefits during the American Rescue Plan cut child poverty by about half. Debt-limit timing: Probably around next March, with possible extension to June - Hassett predicted a budget/debt-limit showdown next year. Spending above normal: About 4% of GDP higher - Hassett argued spending, not revenue, is elevated relative to historical norms.

Pivotal Quotes: "we're happy to import disinflation. We won't import deindustrialization." — Jared Bernstein: On the limits of tariffs: accept cheaper imported goods, but not broad trade practices that hollow out U.S. industry. "however harsh a trade policy a country wants to have towards China, I think that it's deserved." — Kevin Hassett: On China-focused tariffs and the rationale for aggressive trade policy. "I think the taxing out accrual is just a wealth tax is the way to think about it." — Kevin Hassett: On proposals to tax unrealized capital gains.

Implications: Markets should expect policy divergence on trade and taxes to shape inflation, investment, and fiscal outcomes. The election may determine whether the U.S. moves toward higher taxes and targeted industrial protection or toward lower taxes and broader tariff escalation.