Presidential candidates’ financial policies add to growing US debt

With the U.S. presidential election less than a month away, the campaigns for Vice President Kamala Harris and former President Donald Trump are racing to the finish line, leaving voters to mull over their divergent tax proposals that are both projected to raise the national debt.

According to an Oct. 7 report from the nonpartisan Committee for a Responsible Federal Budget, Harris’ plan could increase the debt by $3.5 trillion over the next decade, while Trump’s proposal could cause it to rise $7.5 trillion. The committee notes neither candidate has put forward a plan to address the rising debt, and it adds that its estimates involve a wide range of uncertainty and include many assumptions since neither candidate has issued detailed proposals. The analysis that led to central estimates includes official campaign announcements and websites, social media posts, speeches and similar proposals in presidents’ budgets.

Harris has pledged to increase the Child Tax Credit, with a larger credit of $6,000 for families with newborns. Additional proposals include more support for housing and health care, with a $25,000 tax credit for first-time homebuyers, and increasing taxes on corporations and households earning $400,000 or more. These increases would raise $4.25 trillion, according to the report.

Trump has promised tax breaks, including extending the individual tax cuts due to expire next year that were enacted by the Tax Cuts and Jobs Act of 2017. He also wants to further cut taxes for corporations, increase military spending, strengthen border security, expand deportations and immigration enforcement, and increase support for housing, health care and long-term care. According to the report, his only major revenue-raising provision would be to increase tariffs, which would bring in $2.7 trillion.

Both candidates favor the elimination of federal income taxes on tips – a rare area in which they agree.

Andy Drennen, certified financial planner and senior portfolio manager at Simmons Private Wealth in Springfield, said it’s concerning that the national debt – currently at $35.6 trillion – doesn’t appear to be reducing anytime soon, regardless of which candidate takes office.

“National debt, it’s getting out of control,” he said. “And even though corporate America is strong, looking on down the road, we’re most likely going to have to do something to raise up revenue to offset the expenses.”

Barring an act of Congress, he said the current personal tax rates are scheduled to sunset and revert to the higher pre-TCJA rates in 2026. The current tax rates range 10%-37% and are scheduled to revert to the pre-TCJA tax rate level, which range 10%-39.6%.

One aspect of the TCJA that was enacted was bonus depreciation, said Jacob Sanders, managing partner with Sanders, Myers & Blackwell CPAs LLP. It allows firms to deduct a larger portion of certain short-lived investments in new or improved technology, equipment or buildings in the first year.

“That’s a huge issue for especially small- to medium-sized business owners where you can get accelerated depreciation as you purchase through fixed assets instead of having to write them off on the life of the asset,” he said.

However, its impact has been diminishing in recent years as the 100% bonus depreciation phased out after 2022. Unless Congress enacts new tax law changes, the bonus percentage will decrease by 20% each year over the next few years until it eventually phases out completely by 2027. Trump is proposing permanently extending the bonus depreciation.

Tax cuts also are a common occurrence in Missouri, as Gov. Mike Parson announced the top income tax rate will decline to 4.7% from 4.8%, effective Jan. 1. It marks the fifth tax cut the governor has enacted in the past six years.

Lt. Gov. Mike Kehoe, who is running for governor, talked about the tax cut during a Sept. 20 candidate debate during the Missouri Press Association convention in Springfield.

“This is a conversation that we have constantly about what’s the appropriate structure,” he said of state taxes. “I believe there should be zero income tax, but you have to do it responsibly. You have to get it to a point where you’re not affecting essential services and education.”

Of the recent five tax cuts, he said there haven’t been any cuts to education or essential services.

“Most importantly, I believe Missourians can spend their money way better than any elected official could ever spend it,” he said. “Missourians understand what to do once they have more money in their pocket. It’s the largest amount of tax Missourians pay every year.”

Rep. Crystal Quade, D-Springfield, who also is running for governor, said at the debate the state’s tax structure needs to be evaluated to be sure the wealthiest in the state are paying their fair share.

“I want to have conversations around taxes that actually impact everyday working-class folks,” she said. “Conversations around getting rid of things like the food tax. I know as a mom when I go grocery shopping for my family, I see the increased cost of buying groceries every single day as a real thing that’s impacting folks.”

Tariff talk
Trump’s plan to increase tariffs fits into a protectionist ideology, said Jeff Jones, associate dean for the College of Business at Missouri State University.

“From an overall use of economic resources, generally speaking, tariffs and trade wars decrease efficiency. They lead to suboptimal allocations of resources,” he said. “But at the same time, that means that there are certain jobs that certain countries undertake, and they continue to go away from other countries.”

He cited the apparel industry as an example, noting there are few companies in the U.S. that create clothes and there’s been a need to import that commodity. The challenge with tariffs comes when you’re dealing with goods, services or products that are deemed essential, he said.

“The idea behind the protectionist landscape is we need to have control over anything that’s an essential industry for our own protection,” he said. “This would be the logic behind drilling for more oil, bringing manufacturing back to the U.S., bringing semiconductor and chip manufacturing back to the U.S. even though it might be more expensive to do. But the cost of not having control of that in our country, there could be some adverse consequences to that.”

While Jones said the federal government can’t make businesses move back to the U.S., it can provide a regulatory environment with incentives that makes it more economically attractive to do so.

Sanders said Trump’s desire to enforce a tariff of up to 20% on all imports, or 60% on those from China, is geared toward protecting U.S. industry.

“Trump’s tariffs are aimed at bringing more products back in the U.S. Whether or not that works or whether or not it just increases the inflationary aspect of it, I don’t know,” Sanders said. “He’s also talked about further lowering the corporate tax rates … for companies that make the products in the U.S. So clearly there’s also a push there to get those jobs back in the U.S.”

Checks and balances
In Washington, D.C., the Republicans have a slim majority in the House of Representatives, while Democrats hold a narrow majority in the Senate. Sanders said a split government does allow for some checks and balances, but it also can lead to inaction.

“Which is why every time we come down to a deadline on our budget, all this talk about the government shutdown and all this, they reach a last-second deal,” he said of Congress. “They’re always kicking the can down the road.”

Jones said even though Harris and Trump have ambitious ideas for tax reforms or adjustments, it’s important to remember that while a president can suggest certain policy, Congress ultimately must pass it to become law.

“I think it’s unlikely that we see one party have control of the presidency and both houses of Congress,” he said. “From a stock market perspective, stock markets tend to generally like divided government, because it forces compromise. It eliminates anything too extreme from either end of the spectrum.”

Drennen also has his doubts about Republicans or Democrats holding a majority in the House and Senate in this election. But if one party does take control, then there could be some major policy changes, he said, pointing to the TCJA, which passed the Senate without a single Democrat voting for it.

“I think we will have less disruption of the tax system if we have a divided government,” he said.