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--:-- John Bickley: Welcome to Morning Wire, I'm John Bickley, editor-in-chief of the Daily Wire, and I'm joined today by my co-host Georgia Howe.
--:-- Georgia Howe: Thanks for having me, John.
--:-- John Bickley: Today, we're discussing Kamala Harris' economic proposals and how they could impact American taxpayers. Joining us is Thomas Savage, an economist at the American Institute for Economic Research. Thomas, thanks for coming on.
--:-- Thomas Savage: Thanks for having me.
--:-- John Bickley: Let's start with the big picture. The Penn-Wharton budget model analyzed Harris' proposals and said they would lead to lower GDP, less economic activity, and wage reductions. Is that a correct assessment in your view?
--:-- Thomas Savage: Yeah. While I haven't looked at the specific numbers, the general trends are right on the money. A lot of what we could expect is what's been going on in the current administration, which is record-breaking regulations, higher taxes, and all things that kill employment, kill wage growth, and make the average American family feel the pinch.
--:-- John Bickley: Now, let's get more specific on some of her policies. Harris is proposing tax deductions of up to $50,000 in startup costs for small businesses. Currently, that deduction is set at $5,000. How would that proposal work?
--:-- Thomas Savage: That proposal, like most tax credits, is that people will pay money to the government and have to jump through hurdles to apply for a lower tax bill or get a little bit of that money back. So it's more of a gimmick than it is actual savings. I was reading some early estimates that said it could cost up to $230 million, and it's a gimmick to try to get small businesses excited.
--:-- John Bickley: Now, it seems like Harris is talking about raising corporate income taxes, although it seems like they don't want to raise it as high as President Biden had previously proposed. But it's still a raise. And really, the elephant in the room is the Tax Cuts and Jobs Act set to expire next year.
--:-- Thomas Savage: Vice President Harris and President Biden have never made any sort of commitment to extending those tax cuts, which those sound tax reforms really helped Americans keep more of what they earn. And that's really what America needs is sound tax reforms, not gimmicks.
--:-- John Bickley: More on the Trump tax cuts. What are some of the components of those tax reductions that have been effective?
--:-- Thomas Savage: Some of the most effective ones have really been the personal income taxes and the business income taxes, as well as how taxes get reported, how income gets reported, exemptions for research and development. That's really what's going to help businesses grow. But again, really, you know, for the average American, it's really the changing in the personal income tax rates, both for single filers and for families. Once those expire, you're going to see your tax bill go up, and I doubt most Americans are going to see more bang for their buck in terms of tax dollars.
--:-- Georgia Howe: Harris has also proposed a down payment credit on home purchases. That may sound good to first buyers. How will that work in reality?
--:-- Thomas Savage: In reality, if you really want to make housing more affordable, you need to look at things like zoning reform. You need to look at property tax reforms. And those are things that need to happen, of course, at the federal, state, and local level. And it gets back to how much the government is taking away in income. You think about your tax bill, think about the money that's going to the government. That could go towards the down payment of a house. It could go towards a number of things, but instead, your tax dollars are being thrown away into the behemoth in Washington.
--:-- Georgia Howe: And so what we're likely to see is that while people rush to try and get housing, it's going to increase, say, the demand for housing, but it's not really going to do much to increase the supply of housing. Unless the supply of housing is allowed to increase in tandem, and normally that happens when you have regulatory reforms, you roll government back and allow people to build.
--:-- Thomas Savage: When you're having that home building constrained by regulations, it's just going to drive up the price of homes. Sellers might say, "Oh, a first-time buyer wants to buy this house. Let me jack up the price about $25,000 because I know they're getting that money from the government."
--:-- John Bickley: Now, Harris has also proposed an unrealized capital gains tax. This is by far the most controversial of her proposals. It would tax the increase in value of an individual's assets without them actually selling that asset, so taxing money that wasn't made. How would such a proposal affect investors?
--:-- Thomas Savage: It would hurt everybody, not just investors. First, look at the history of the income tax. There's a viral screenshot going around right now of somebody asking ChatGPT, "What did the income tax first look like? Who did it apply to?" And ChatGPT says, "Oh, it only applied to the very top income earners in America." And then the person asks, "How many people have the income tax applied to them now?" And ChatGPT goes, "Virtually every working American." So even though this kind of thing is promised to only be for certain income earners, only for the high income, it's eventually going to make its way down to everybody else.
--:-- Georgia Howe: And particularly if you're taxing these quote unquote unrealized gains, it's going to create a barrier to entry for the average American looking to invest and grow their savings a little bit. And even worse than that, you're going to deter private investment from those high income earners. And private investment is what grows businesses. Growing businesses create jobs, and that gives gainful employment to Americans looking to earn more money or build a life for themselves.
--:-- Thomas Savage: And so when you're hampering economic growth like that, you're basically ensuring that the cost of living for the average American is only going to get worse.
--:-- John Bickley: Could a policy like that even hold up constitutionally?
--:-- Thomas Savage: You know, that's a great question. Personally, I'm not a constitutional scholar. I imagine, at least looking at the sort of incentives that government has, they know they can at least drag it out in court. So even if it is inevitably turned down as unconstitutional, they can at least drag the arguments out in court for a bit and try to collect as much money as they can before it gets checked by the judicial branch.
--:-- Georgia Howe: The shame of it is, in government, it often is, "What can we get away with? How can we grow our agency?" Because when you look at government success, really, success is measured in two things economists find: first, the size of your discretionary budget, and second, the number of people working under you. And so the only way for those two things to grow is mission creep. And so agencies that might support that through, say, the enforcement mechanism, particularly folks at the IRS, they'll be excited about that because it enables them to grow and get that bureaucratic success.
--:-- Thomas Savage: Even if it is inevitably shut down, I think they will try to get away with it for as long as they can, if it does get passed, and that is a huge if.
--:-- John Bickley: Now, inflation remains one of the most important issues in this election. Recent polls show that voters trust Trump more than Harris on the economy and inflation. He leads by about nine points in an ABC poll. How has inflation affected the bottom line for Americans?
--:-- Thomas Savage: We've seen some data from personal savings and credit card delinquencies that are pretty troubling. What are we seeing there?
--:-- Georgia Howe: Yeah, you're not seeing good things. And inflation at the end of the day is a tax, as Milton Friedman said, and it is an extremely regressive tax. The poorest Americans are being hit the hardest because the purchasing power of their dollar is just diminishing. You look at real wages and real salaries since 2020, they've really contracted. It's incredibly concerning.
--:-- John Bickley: So it's hit every American, but it's hit the poorest Americans the hardest, which is why it's so important to get monetary policy back under control, back under those constrained rules. Because at the end of the day, it's like you had mentioned, and you're seeing record numbers of credit card delinquencies. We're seeing generally household debt increasing as well because more families have to start floating expenses on their credit cards.
--:-- Thomas Savage: And then their credit card bills are going up, and somebody gets a nominal raise. Are they just getting their purchasing power back that they had a couple of years ago? And let's say somebody is fortunate enough to get a raise in their wages or in their salary to try to beat inflation. Sometimes that means they end up in a higher tax bracket. So they're caught between a rock and a hard place with inflation eroding the value of their dollar.
--:-- Georgia Howe: And then they're trying to make up for that a little bit by earning more. But then they get put in a higher tax bracket and they lose it to taxes. So inflation, you know, again, it's hurting everybody, but it is really hurting the poorest Americans the most.
--:-- John Bickley: Yeah, really vicious cycle. How do we break that? What's the best way to address inflation and which candidate is set up to do that?
--:-- Thomas Savage: What you would want to see to fight inflation is rules-based monetary policy, and then, of course, you want to constrain fiscal policy, too, because at the end of the day, we have massive amounts of debt and unfunded obligations for Social Security and Medicare, and there's never been a greater temptation than to pay all of that off really quickly with surprise inflation.
--:-- John Bickley: So it's tough to say right now with either candidate, but you would want to see a candidate that makes a credible commitment to constraining spending and constraining the Federal Reserve to focus on monetary policy.
--:-- Georgia Howe: Now, gas prices have ticked down in recent weeks since the end of the summer traveling season, though they still far higher than when Trump left office. What should we expect from gas prices in the future?
--:-- Thomas Savage: There are a number of factors that affect the price change of gas. Whether or not we could see gas prices come down in the future is whether or not energy production is able to meet demand. And if we see regulatory reform that pulls government out of the energy sector, gets government out of the way, because as we've seen over the past four years, the current administration has really pushed heavy-handed regulations, heavy-handed on ESG priorities, which constrains energy production in the United States, and has contributed to rising gas prices over the past couple of years.
--:-- Georgia Howe: Speaking of ESG, we've seen some movement against that lately in terms of the various key industries. Is ESG on the decline?
--:-- Thomas Savage: Yeah, ESG is on the decline. I would say it's good news for now, but I don't think it's ever going to really go away, right? And of course, with major economic concerns, businesses are really tightening their belt. They have to focus on what makes a business successful, and they have to be willing to cut dead weight in order to survive. And a lot of that dead weight is in these ESG initiatives because as research shows time and again, ESG neither achieves its stated social goals nor makes money. So everybody loses on that front.
--:-- Georgia Howe: But I also sort of feel like this is the point in the monster movie where everybody thinks the monster is dead, but there's still 30 minutes left to run time in the movie. So something else is going to pop up, right?
--:-- Thomas Savage: Before there was ESG, there was corporate social responsibility, green investing. There were tons of labels before ESG, and they all sort of meant this generally: we're going to invest and use our money to pursue political goals, pursue a political agenda, even if that comes at the expense of investment returns or revenue or profits. And that ends up hurting not just businesses, but Americans that are invested as well.
--:-- Georgia Howe: And when you think about investors, it's not just guys sitting in a corner office chewing on cigars. It's pensioners, it's retirees, it's folks with a public pension. When ESG creeps into a public pension portfolio, those police officers, firefighters, teachers, librarians, their retirement, their nest egg that they were promised doesn't grow as fast. And then the taxpayers, the state taxpayers are expected to foot the bill.
--:-- Thomas Savage: So when you look at it, John, I'd say right now ESG is on the retreat, but I wouldn't be surprised if it comes back in some way, shape, or form in the future, especially when times are a little better and businesses are seeing higher profits and we're kind of out of this economic turmoil when there's a little bit more wiggle room in, say, families and businesses' savings. That's when this stuff starts to creep back in.
--:-- John Bickley: Yeah, I guess then it's just a matter of finding a new euphemism to revitalize it.
--:-- Thomas Savage: Exactly.
--:-- John Bickley: Thomas, thanks so much for coming on.
--:-- Thomas Savage: Thanks for having me.
--:-- Georgia Howe: John, thank you very much for having me.
--:-- John Bickley: That was Thomas Savage, economist at the American Institute for Economic Research. And this has been an extra edition of Morning Wire.
