Harris and Trump both hate inflation. Their economic proposals could drive up prices

By Alicia Wallace, CNN

(CNN) – Inflation is slowly returning to what is considered a more sustainable pace, but for many Americans it’s hard to take comfort: The post-pandemic surge in price increases has sharply increased the cost of living.

Both Vice President Kamala Harris and former President Donald Trump have pledged to reduce those costs. But some economists warn that the candidates’ goals — including an initial economic policy presented by Harris on Friday and economic statements made in recent months by Trump — could push prices higher … and in the latter’s case, possibly much higher.

Both candidates’ plans would likely increase the deficit and increase demand, including through government spending and a tightening of the labor market, Joe Brusuelas, RSM USA chief economist, told CNN via email.

But Trump’s plan, or what he has released so far about it, poses more risks, Brusuelas said. “Both likely inflation and the risk of permanently higher inflation are higher with Trump’s proposal.”

Going deeper into the red

The Committee for a Responsible Federal Budget’s analysis, released Friday of Harris’ “Cost-Cutting Agenda for American Families,” found that her proposed policies could increase deficits by $1.7 trillion over a decade (and would could rise to $2 trillion if housing policies were permanent). ). Most of those costs, at an estimated $1.2 trillion, come from Harris’ proposed expansion of the child tax credit.

“Where we look now, I think it’s likely that both campaigns will be in the (fiscal) red for their proposals,” Marc Goldwein, senior vice president and senior policy director for CRFB, told CNN. “Higher short-term deficits mean more inflationary pressures, which either means people will see more cost increases at the grocery store, at the pump, in their homes, or it means the Federal Reserve will have to respond by cutting rates. more slowly.”

A separate analysis from the Tax Foundation estimated that Harris’ proposed tax subsidies and expansions of federal programs would likely exceed $2 trillion in costs over 10 years.

Trump has never released an economic plan as detailed as Harris. However, a previous CRFB analysis of Trump’s proposal to eliminate taxes on Social Security benefits found the plan would cost between $1.6 trillion and $1.8 trillion by 2035.

The CRFB plans a more comprehensive review of both campaigns’ proposals in the coming weeks as more information – particularly details about how they will be funded – is released.

Both the CRFB and the Tax Foundation noted that their estimates could change as the Harris campaign provides more financing details and as the Trump campaign issues more comprehensive policy statements.

“Higher debt, both short-term and long-term, means higher interest rates … and that’s especially a problem for the government because interest is now the second-largest government program,” Goldwein said . “We spend more in interest than we spend on Medicare, then we spend on defense.”

Demand supply risks

A central part of Harris’ economic plan is to make housing more affordable. The plan, which builds on President Joe Biden’s proposals, includes building 3 million new housing units, down payment assistance and a tax credit for first-time home buyers.

Economists told CNN that efforts to increase supply would help ease the current gridlock that has hampered the nation’s housing market and driven up prices (and kept inflation high in the process); however, they were more reluctant about incentive efforts.

“The problem right now is that too many people are watching too few houses,” Justin Wolfers, a professor of public policy and economics at the University of Michigan, told CNN. “The solution to this is not to give people more money to buy houses.”

Another possible boost to inflation could come from an expanded child tax credit by adding more money to people’s wallets.

However, during the Covid-19 pandemic, the expanded child tax credit has helped families afford childcare and living expenses and helped keep people in the workforce, said Michelle Holder, economist of Labor and Associate Professor of Economics at John Jay College in the City University of New York.

There is a question about how much it will take to extend the tax cut for good, Holder said. “On the other hand, I think there’s a reasonable counter to that criticism, which is that it gets money into the hands of people who will spend it. And families with children really face high costs in terms of child care … and make it more affordable for parents, especially women, to go out and work.”

Separately, economists told CNN that Harris’ proposal to ban price gouging could be problematic, saying similar laws have motivated people to buy more goods than they otherwise would have.

Warnings of ‘reviving inflation’

Trump has not released a detailed economic plan, but has laid out several proposals, including raising tariffs on imported goods; the extension of tax cuts from 2017; further reduction of the corporate tax rate; fighting immigration and enacting “mass deportations”; and expanding drilling for domestic oil and energy.

In a June letter, 16 Nobel Prize-winning economists sent a stark warning that Trump’s agenda — notably raising tariffs on China and international trading partners, extending the 2017 tax cuts and further reducing the tax rate on profit – not only will it “rekindle. inflation,” but would have “a negative impact on the U.S. economic situation in the world and a destabilizing effect on the U.S. domestic economy.”

Harris argued Friday that Trump’s agenda, specifically the 20 percent tax on imports, would raise prices for the typical American family by $3,900 a year.

The $3,900 figure Harris cited comes from the Progressive Center for the American Fund for Progress, which analyzed a higher than 20 percent tax on imports that Trump sometimes cites in his rally speeches. A separate analysis from the Peterson Institute for International Economics estimated that the tariff proposals would cost the typical middle-income household at least $1,700 a year.

The Nobel Prize-winning economists’ letter did not mention Trump’s immigration proposals; however, mainstream economists warned that his stated intentions to deport 15 to 20 million people, possibly using the National Guard, could have dire consequences for the US labor market, which has finally normalized after faced the job demand and supply shocks caused by the pandemic. .

Economists told CNN that businesses will be forced to raise wages and prices. In fact, they have the opposite, increased immigration helped to recover the labor market and increase productivity, which helped to slow inflation.

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CNN’s Matt Egan and David Goldman contributed to this report.