The Policy Stakes in this Election Are High
The outcome of this dull election will nonetheless have large effects on what the government does to and for us. Here are some effects I foresee.
Dear readers,
This presidential election is not very interesting, but it is important. And some of the reasons it’s important are the banal reasons that every presidential election is important: You get different policy outcomes depending on who gets elected.
I want to walk through what I think those policy outcomes will be — how our governance will differ if Biden is re-elected or defeated, and the different laws and appointees we will get depending on who controls Congress. I believe the balance of these differences cuts in favor of Democrats, and largely for reasons that are not at the top of day-to-day news cycles.
Let’s start with the economic policy.
Taxes
Regardless of who controls the government, there will be a major fight in 2025 over the future of the federal tax code. Many provisions of the 2017 tax cut law, the Tax Cuts and Jobs Act, are set to expire at the end of 20251 and Congress will have little option but to address those expirations with some kind of major tax legislation. As it happens, I’ll be in Washington D.C. next week to moderate a panel discussion on the future of the TCJA, which will focus in part on how different election outcomes will produce different policy outlooks. The broad picture is: if Republicans win, taxes will be lower than if Democrats win — especially for high earners.
If Republicans have unified government, they will likely extend most of the 2017 law’s provisions further into the future, while making some tweaks like increasing tax credits for business investment (a policy they have so far unsuccessfully tried to move through a divided Congress). This will add something on the order of $3.4 trillion to federal budget deficits over the next decade compared to current law, meaning the public debt can be expected to rise to 129% of GDP by 2035, instead of 120%, unless offset by new spending cuts.
If Democrats win control of the White House and both houses of Congress, they will still extend much of the law. President Biden has promised to ensure the expiration of TCJA provisions doesn’t cause taxes to go up on people making less than $400,000 a year. If he literally means he plans to hold every household in that income bracket harmless, he’ll need to extend about 75% of Trump’s tax cuts. If he just means he won’t raise the average tax burden on any bracket of earners below $400,000, he’ll still need to extend a lot of the tax cuts, but not quite as much as three-quarters. On top of that, he’s proposing more than $700 billion in additional tax cuts over 10 years aimed at low- and middle-income taxpayers.
Biden has said he intends to offset the cost of extending these tax cuts with lots of new taxes on high earners and corporations. Exactly how much more progressive Biden can make the tax code will be determined by the size and shape of his congressional majority. Any Democratic Senate majority is likely to be a very narrow one — quite possibly 50-50 — so his aspirations here will be limited by the most moderate Democratic senators. But in any case, a plan drawn by Biden and Democrats will tend to mean higher taxes, especially on the wealthy.
If there is split control of government after the election, there will be a negotiation. In 2012, a bipartisan negotiation over the expiration of the Bush Tax Cuts produced a split result of the sort we could see next year — that is, largely extending tax cuts for middle-class and affluent earners, while sunsetting tax cuts for the very rich, but not imposing new tax increases on high earners or corporations. Like the 2012 agreement, this would add significantly to future budget deficits — perhaps somewhere between $2 trillion and $3 trillion over the next decade. The difference between now and 2012 is that interest rates and inflation are significantly higher, so deficit increases will have much more significantly negative economic impacts, because they will make it harder to control inflation or get interest rates down.
Spending
As noted above, budget deficits are a real economic problem for the first time since the 1990s, and because they are continuing to fuel elevated inflation and high interest rates, they will be a real political problem for whoever is president in 2025. Democrats continue to talk a big game about the sorts of Groups-approved spending plans that were in the Build Back Better bill, but the fiscal space for major new social programs simply is not there, and I would not expect them to pass even if Democrats manage to narrowly achieve unified control of government. Economic realities will force some kind of spending austerity, regardless of who is in charge.
The better question is what sort of spending restraints will be imposed. Republicans will tend to cut spending more, and their spending cuts will fall harder on the poor and the elderly. They will seek to make social programs less generous by reducing eligibility and cutting benefits. And there will be some urgency behind these attempts because they are running on one policy proposal that would make Medicare more expensive — they want to repeal the Inflation Reduction Act provisions that allow Medicare to negotiate prescription drug prices, and doing so might cost the government $100 billion over five years starting in 2026.
The Republican hunt for social spending cuts would likely start with the Affordable Care Act. Republicans narrowly failed to produce the votes to repeal many of the key spending provisions of the ACA in 2017. Would they try again next year?
On one hand, since 2017, the ACA has become a more entrenched feature of red and blue state budgets and of the American health care system, and repealing it would be even more disruptive now than it was then. Repeal would be unpopular, especially once voters are reminded it would cause problems like rural hospital closures and the re-imposition of pre-existing condition restrictions on health insurance. “Repeal Obamacare” is no longer a political rallying cry for Republicans, and Republican politicians tend to demur when asked if they want to try repeal again.
On the other hand, not to be a broken record, but I will point out again that budget deficits are high, as are interest rates and inflation. Despite this fact, Republicans have ambitious plans to cut taxes, they want to increase the defense budget, and they know that cuts to old-age entitlements are a political minefield. As such, repealing the spending provisions of the ACA — which is to say, kicking approximately 20 million Americans off of Medicaid and taking subsidized insurance away from 14 million more — is likely to be a tempting deficit reduction option for Republicans. Notably, Donald Trump continues to talk about his desire to repeal the law.
Beyond the ACA, Republicans have other ideas about how to reduce social program spending. The Republican Study Committee — a group that represents about 80% of House Republicans — has proposed converting the non-ACA component of Medicaid2 into a block grant to state governments and limiting the growth of that grant over time. This is essentially a way to starve the program, forcing states to either raise their own taxes or reduce benefit eligibility or generosity. They also propose to tie the Social Security retirement age to life expectancy, which would amount to an across-the-board reduction in the generosity of Social Security benefits for future retirees.3 In his first term, Trump shied away from major entitlement cuts (except the ACA repeal he pursued) but the economic and political imperative to cut deficits could make matters different next time, especially since he won’t need to worry about seeking re-election.
If Democrats win, they will try to find approaches that reduce spending on social programs without direct impacts to beneficiaries. The lowest-hanging fruit is to further expand Medicare’s authority to negotiate drug prices. But there is only so much fruit to pick here — my broad expectation for full Democratic control is that there will be modest tinkering around the cost of social programs, without significant new programs added and without major new tax revenue sources (any tax increases will get eaten up with the cost of extending much of the Trump Tax Cuts). As such, budget deficits will remain higher than is appropriate, and elevated interest rates will remain a moderate drag on the economy.
A divided government scenario is likely to produce more spending cuts than Democrats would make if they have sole control. This process would be unnecessarily chaotic — I would expect Republicans to once again hold the debt limit hostage to demands for a bipartisan agreement on spending cuts, something they would not do to a Republican president (and would not have the power to do if they controlled neither chamber of Congress). The good news is that the 2025 expiration of tax provisions makes it possible that this deal will entail significant revenue increase provisions along with spending cuts, at least relative to current policy. That is, the “grand bargain” on deficit reduction that Barack Obama and John Boehner pursued in 2011 (when it was not truly warranted in the then-depressed economic condition) could be both politically and economically feasible in 2025 if there is split government control.
Or, you know, maybe we will just muddle along with Republicans agreeing not to cut spending and Democrats agreeing not to raise taxes, and it will never again be possible to get a mortgage rate under 5%.
Monetary policy
It’s not clear to me there is much of a difference here — while Republicans often sound hawkish notes on monetary policy, there’s a reason that Trump chose Jerome Powell to lead the Fed and then Biden reappointed him. My main concern is that Trump, a “low-interest rate” guy, will seek through his Fed appointments and other influence channels to politicize monetary policy-making in a way that promotes low rates at times when they would have bad economic effects. Toward the end of his term, Trump tried to appoint some real wackos to the Fed board with the clear intention of being able to directly influence monetary policy in whatever direction he thought would help him politically. The Senate just barely prevented Judy Shelton from getting on the board, but a Republican Senate would be likely to give Trump his way on future appointments, including for the chairmanship.
The problem of a politicized Fed might be self-limiting — if Trump gets his rate cuts at a time when they would be very inflationary, then inflation will spike, which will be unpopular, and even Trump will want the Fed to raise rates to bring inflation down. But I do worry about the risk that a chaotic Trump Fed would lose the confidence of the markets and lose some of its ability to influence interest rate and inflation expectations, which would make it harder to respond effectively to future economic crises.
Abortion
This is a big one. Trump says he wants a federal law prohibiting abortion after 15 weeks. I don’t think this is likely to pass, even under full Republican control — Republicans would need to eviscerate the filibuster rule to get it through the Senate, and with a narrow House majority they might not have the votes to move any ban through that chamber, either.
But I worry a lot about what Trump could do through executive action. I would expect his appointees at the Food and Drug Administration to try to remove abortion drugs from the market, or otherwise severely restrict doctors’ and patients’ ability to obtain them. This would reduce the availability of abortion and it would also subject many women to surgical abortions when less-invasive medication abortion would be more appropriate. And unlike most restrictions that have been imposed to date, these moves would affect abortion access in both blue and red states. Beyond the FDA, I would expect any Republican administration to find ways to harass and inhibit abortion providers through executive or judicial action, including by interpreting the Comstock Act as making it illegal to transport abortion medication (or any other products to be used in abortions) through the mail.
A Trump win with a Republican Senate win would also mean more conservative appointees to the judiciary. It’s likely that Clarence Thomas and Samuel Alito would retire during his term, meaning the court would go into 2029 with at least five conservative members under the age of 65 (plus the Chief Justice, who would be 73). And if Sonia Sotomayor does not retire this year, that means we’ll all be watching to see how many more years she’ll have to wait before she has an opportunity to retire and be replaced by a younger liberal justice. In other words, there will be little hope of any shift toward a more liberal jurisprudence on abortion.
If Biden is re-elected, we can expect the status quo on abortion to continue, whether or not he commands a majority in Congress. Democrats like to talk about “codifying Roe,” but the filibuster poses a problem for getting abortion-rights legislation through even a Democrat-controlled Senate, and it’s unclear why we would expect the Supreme Court to uphold a law that purports to enjoin the states from restricting abortion. Still, Democrats in control of executive agencies will look for ways to promote abortion access and not pull any shenanigans to restrict abortion, while Democrats will continue to fight at the state level for policies to protect abortion rights.
Immigration
Here, the implications of the election are a lot less clear than it seems like they ought to be. Changing circumstances on the ground — that is, a huge and undesired wave of people illegally crossing the border — have changed the politics on this issue, and President Biden seems to genuinely want tools to better enforce immigration law. A Trump administration will still be far more eager to arrest, deport, and restrict. But like in his first term, Trump will face legal strictures, and Democrats in Congress will be far less willing to support laws to give the president more power on immigration if Trump is president. (This is one of the reasons Sen. James Lankford was so eager to cut a bipartisan enforcement deal this year — it won’t be possible next year if Trump is president.) Democrats would also block the new restrictions Trump wants on legal immigration, including through the use of the filibuster if necessary. Basically, I expect a lot of muddling through regardless of who wins the election — Trump will have a lot more desire than Biden to really crack down, but that doesn’t mean he’ll have the tools.
Foreign Policy
Trump has signaled a desire to dial back US support for Ukraine and our NATO allies more broadly, which will tend to invite Russian aggression.
Trump and Biden have similarly hawkish views about China, with Trump being more bombastic but Biden seeming to have found more effective economic tools to push back against China. Trump has shown himself to be easily distractible on China issues — making soybean purchases a primary goal of his China diplomacy in his last term, and more recently reversing his stance on Chinese ownership of TikTok under the influence of major Republican donor Jeff Yass, who owns a large stake in its parent company, ByteDance. News reports that the Chinese aren’t sure which candidate to prefer make some sense to me, but I’d certainly prefer a president with a focused policy to contain China over a chaotic and scattershot one.
Republicans seem to believe they will convince Mexico to be more cooperative in its efforts to contain illegal migration to the US, but they haven’t made clear exactly how they would elicit such cooperation, other than by floating cockamamie ideas to essentially invade Mexico.
Trump claims he will impose a 10% tariff on all imported goods. This would wreck many of our global trading relationships, kneecap American exports, raise the cost of American manufactured goods with imported components, and constitute a large tax increase on consumers at all income levels — so much for the idea that a second Trump term would help hold consumer prices down.
More broadly, I would worry — as I did in Trump’s first term — about his completely unsuitable temperament for world leadership, and the tail risks that he would create, such as the possibility that he would blunder our way into a nuclear war or some similarly awful foreign policy catastrophe.
As for the Middle East — this disagreeable backwater has long taken up a disproportionate amount of space in America’s politics and its international relations. It’s been a mess forever and will remain one regardless of who wins the election. A lot of leftists are mad at Biden for failing to control the actions of Israel’s government; I don’t think they’ll be happier with a Trump administration that doesn’t even try.
Election results matter
Some of what I’ve laid out here, especially in the foreign policy area, is specific to the question of whether or not Donald Trump, personally, will lead the country. But a lot of it is what we’d be considering in any partisan presidential election — do we want a larger government or a smaller one; what sort of taxes do we want it to collect, and how do we want it to spend them? These questions are always important, and in the current economic context, they’re important for answering the question that seems to be top of mind for most persuadable voters: which candidate will address inflation and make my life more affordable?
I think a key reason that Trump appears more likely than not to win this election is that economic conditions were better in 2018 and 2019 than they are now, and voters believe his policies are what produced better economic conditions. I don’t think that’s right — as I discussed above, I think Trump’s policies would actually impose more risk around inflation and interest rates than Biden’s, even though Biden’s would be imperfect, because Trump would tend to run larger budget deficits and produce less predictable monetary policy. And on another top issue for persuadable voters — abortion — the difference between the candidates is stark.
Low-engagement voters are likely to decide this election, and I’m not sure about how much they will consider the relationship between the candidates, the “vibes,” and the policies that are actually likely to determine how much it costs to finance an automobile purchase. But if they do engage, I hope they’ll weigh the major consequences above, and conclude that re-electing Joe Biden is likely to make them better off.
Very seriously,
Josh
In general, the 2017 law’s changes to the corporate income tax are permanent, while changes to the individual income tax code are set to expire at the end of 2025. So, Congress will not need to reauthorize the reduction of the corporate income tax rate from 35% to 21%. But cuts to individual income tax rates, curtailment of itemized deductions like the state and local tax deduction, expansion of the standard deduction, child credit enhancements, and tax preferences for “small business” income that passes through to individual income tax returns — these will all expire unless Congress decides to extend them for more years. The reason for this split between temporary and permanent provisions has to do with the laws around budget reconciliation. The budget reconciliation process allows Congress to pass fiscal policy changes with only a simple majority in the Senate, but there are restrictions. Most importantly, laws passed through reconciliation must not be forecasted by the Congressional Budget Office to increase budget deficits for the period more than 10 years after the law is passed. The 2017 law contained enough permanent revenue-raising provisions to offset the forecast permanent cost of its corporate tax cuts, but not its individual income tax cuts. So, the individual income tax cuts were made temporary in order to avoid adding to budget deficits after 2027. This is similar to how the Bush Tax Cuts worked — the tax cuts passed in 2001 were set to expire in 2011, a deadline that was later extended to 2013. After the 2012 election, negotiations between the Obama administration and congressional Republicans led to the expiration of Bush's tax cut provisions for high earners, while middle-class tax cuts were maintained. If Mitt Romney had won the election, the high-earner tax cuts likely would have survived, and high-earner tax increases in the Affordable Care Act might well have been repealed along with many of its spending provisions. Election results matter!
While the ACA extended Medicaid benefits to virtually anyone making less than 133% of the poverty line, the pre-ACA component of Medicaid generally covers patients in long-term care, some extremely indigent people, and specific groups of lower-income people like children and pregnant women.
As it relates to Social Security old-age benefits, “full retirement age” is a bit of a misnomer. Social Security is a flexible program, in that beneficiaries have long been allowed to claim a reduced benefit as early as age 62, even as the full retirement age has been gradually raised from 65 to 67; they may also claim an increased benefit if they wait until they are older, up to age 70. As the full retirement age has risen, the penalty for claiming benefits at 62 has gotten steeper, while the bonus for waiting until 70 has gotten smaller. So a proposal to further raise the full retirement age is really just a proposal to cut the generosity of Social Security benefits at any age of retirement; it would not actually be about requiring people to claim benefits later or retire later. This is different from most proposals to raise the Medicare age, which generally would make people wait longer in order to claim any Medicare benefit.
“Low-engagement voters are likely to decide this election, and I’m not sure about how much they will consider the relationship between the candidates, the “vibes,” and the policies that are actually likely to determine how much it costs to finance an automobile purchase.”
This is infuriating and utterly depressing. It makes me angry at a swath of the American people that not only are not taking seriously Trump’s utter character unfitness for office; they’re not even thinking through which candidate will deliver policies that will personally benefit them more. If they want to shoot themselves in the foot, our democratic system enables them to do so. It just sucks the rest of us have to live with the consequences of that.
I am an optimist, but if trends don’t significantly improve for Biden, he will lose. Trump already over performs his polling, and he’s currently *leading.* If these low information voters show up in droves, and if there really is as much of shift away from Biden in the working class vote, especially among young voters and voters of color, then it’s not going to be close. Trump will win in an electoral college landslide with Biden winning the popular vote by a few million point margin.
I am pulling for Biden big time, I personally like him, and he damn sure doesn’t get the credit he deserves from these voters. But the facts are what they are, and I think we all need to at least be prepared for another Trump presidency and what that entails across the board.
The spending category is why I have a hard time stomaching full democratic control. Biden’s proposed spending increases are just insane in the current circumstances. Democrats continue to keep pushing to normalize the incredibly expensive expanded child tax credit. Tax policy will be better under Democratic control, but as your multi-time guest Jason Furman has pointed out, Democrats won’t be able to make any significant deficit headway by holding the line at 400k. Obviously just about everything looks worse if Trump is in the White House. And republicans sure aren’t making a pivot towards sanity on any front.
Good article, albeit depressing.