Trump vs. Biden: An economic gamble either way

 Trump’s opponents’ main thrust, and also their weakest, is on taxes. .   Bill Pugliano/Getty Images/AFP (Getty Images via AFP)
Trump’s opponents’ main thrust, and also their weakest, is on taxes. . Bill Pugliano/Getty Images/AFP (Getty Images via AFP)

Summary

The challenger’s tariff and immigration plans might be risky, but are they worse than the status quo?

Blaming corporate greed for inflation isn’t working. Hence Team Biden’s new deflection: Donald Trump would make inflation worse.

The president’s chihuahuas in the press are running with the line. “Trump’s inflation bomb: How his second-term plans could make it worse," reads an Axios headline. The Atlantic warns of Mr. Trump’s plan to “supercharge inflation," while the New York Times states: “Trump Vows to Lower Prices. Some of His Policies May Raise Them."

The stories point to Mr. Trump’s immigration, tariff and tax-cut plans. It’s true that another Trump presidency would carry economic risks, though they pale in comparison with a second Biden term. The biggest danger if either wins is a recession exacerbated by policy mistakes.

Start with Mr. Trump’s promise to deport undocumented immigrants en masse, which would reduce the supply of workers, especially in such industries as construction and agriculture. A worker shortage would push up wages and prices. It could also reduce the availability of some goods and services, which would have the same effect.

Mr. Trump would struggle to execute his deportation plans owing to limited government resources and resistance by progressive “sanctuary" cities and states. He’s more likely to succeed at reducing the flow of migrants across the southern border, though it’s doubtful doing so would hurt the economy.

The current flood of migrants—around six times as high as during the Obama and Trump administrations—is unsustainable. Increased foreign immigration helped ease a worker shortage during the early years of Mr. Biden’s presidency, but most recent migrants aren’t working. They’re stretching the government safety net to a breaking point.

Employment among the foreign-born has increased by 637,000 over the last year while the foreign-born population over 16 has swelled by 1.5 million. This suggests only 40% of those who have come to the U.S. since May 2023 are working, compared with nearly 100% of those the year prior.

Demand for unskilled workers is cooling, especially in Democrat-run cities and states where unemployment is higher. New York, Chicago and others are begging Washington for aid to care for migrants as they face growing budget shortfalls. Don’t discount the chances of a blue-state bailout during a second Biden term.

On the other hand, Mr. Trump’s proposal for 10% tariffs on goods across the board would doubtless precipitate or magnify a recession, as the Hoover-era Smoot-Hawley tariffs did. They would raise prices, lead to reprisals by other countries, and harm U.S. businesses.

Mr. Trump’s opponents’ main thrust, and also their weakest, is on taxes. Mr. Trump is campaigning to extend his 2017 tax cuts. He’s also floated slashing taxes even more, though details remain fuzzy. While most of the 2017 corporate-tax reforms are permanent, most individual tax cuts expire in 2025.

His opponents contend that extending tax cuts would expand the deficit and “amount to fiscal stimulus with more spending money in the pockets of especially wealthier consumers than would otherwise be the case," as the New York Times put it.

Nice of the liberal media to acknowledge that loose fiscal policy can fuel inflation, a point they ignore when Democrats shovel out trillions of dollars in transfer payments and climate largess. But the media economic analyses get about everything else wrong.

Not all fiscal “stimulus" is equal. Government handouts, of the kind Mr. Biden favors, boost consumption but do little to stimulate the supply side of the economy. That was the problem early in the pandemic: People had more money to spend but fewer goods and services were available. Broad-based tax cuts increase the incentive to save, work and invest.

The Congressional Budget Office estimates that extending the expiring tax cuts would increase the deficit by $4 trillion over a decade. Yet the CBO’s forecasts don’t account for how incentives affect economic behavior. As a consequence, they often underestimate the cost of open-ended spending programs while overestimating the deficit effect of tax cuts.

Mr. Biden supports extending most of the individual tax cuts, which primarily benefit lower- and middle-income Americans. He wants to “pay" for them—plus trillions in handouts—with more than $6 trillion in tax hikes on corporations, capital gains, small businesses and those he deems rich.

His tax hikes would dampen the incentive to save and invest and thus depress an economy already slowing amid weak business investment. The result: higher unemployment and lower tax revenue. Mr. Biden would insist on more government handouts, which would further swell the deficit. GOP control of one chamber in Congress might hamper Mr. Biden’s tax ambitions, though his relentless regulatory fusillade would have a similar depressive effect.

Voters know they’ll get more of the same in a second Biden term. A second Trump term carries more uncertainty because of his unpredictable nature. But when you’re losing financially, you might be inclined to make a bigger gamble.

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