Trump vs Harris: the bill for each

Donald Trump’s agenda would add an estimated $7.5 trillion to the national debt over ten years, and Kamala Harris’s about $3.5 trillion. That is the conclusion of a detailed study by the Committee for a Responsible Federal Budget (CRFB), which costed the explicit economic proposals in both 2024 presidential platforms.

The starting point is already poor

Both figures come on top of a baseline that was bad before either candidate said a word. The Congressional Budget Office already projects deficits of around six per cent of GDP for years to come, a level normally seen only in recessions or wars, and expects federal debt relative to the economy to pass its post-war record within a few years. Net interest payments now exceed defence spending. The CRFB numbers describe how much worse each candidate would make that path, not whether it can be fixed.

Much of the debate turns on a deadline. The individual income tax cuts passed in 2017 expire at the end of next year, and extending them is expensive. Mr Trump wants to extend them in full. Ms Harris would extend them for households earning less than $400,000 a year. Either way the next president inherits a fiscal cliff, and the cheapest political option, extending most of the cuts without paying for them, is also the most costly for the Treasury.

Neither plan adds up

Trump pairs permanent corporate tax cuts and tariff revenue with large spending promises. Harris combines social subsidies and clean-energy spending with higher corporate taxes that will struggle to get through Congress. Neither candidate has a plan that would stop the $35 trillion federal debt from growing. The flood of long-dated Treasury supply will keep coming.

The details show why. Mr Trump has promised to exempt tips, overtime pay and Social Security benefits from income tax, and to cut the corporate rate to 15 per cent for companies that manufacture in America. He proposes to pay for part of this with tariffs of 10 to 20 per cent on all imports and 60 per cent on goods from China. Ms Harris proposes an expanded child tax credit, with $6,000 for families with newborns, help of up to $25,000 for first-time homebuyers, and her own exemption for tips, funded partly by raising the corporate tax rate to 28 per cent and taxing the wealthy more heavily.

Why the estimates are so wide

The central figures conceal a large range. Campaign proposals are vague, and costing them requires assumptions about details the candidates have not supplied. Tariff revenue is especially uncertain: it depends on how much trade shrinks, whether other countries retaliate, and whether the duties survive at all. Harris's revenue raisers depend on a Congress willing to pass corporate and wealth tax increases that failed even when her party controlled both chambers.

The CRFB also tested what happens if the economy grows faster or slower, and if interest rates move. Higher rates add to the cost of any plan, because a larger debt must be refinanced at worse terms. That feedback loop is the one bond investors care about most: bigger deficits raise the supply of Treasuries, which can lift yields, which raise interest costs, which widen deficits further.

How the bond market pays for it

The mechanism runs through the Treasury's auction calendar. Every dollar of deficit must be financed by selling bills, notes or bonds to investors. When the Fed was buying Treasuries through quantitative easing, and foreign central banks were piling up reserves, the supply was absorbed easily. Today the Fed is shrinking its holdings, and foreign official buyers are not adding to theirs, so more of the debt must be sold to price-sensitive private investors. They demand a higher return, which shows up as a higher term premium on long bonds.

That premium has been rising this month as polls tightened and investors weighed the prospect of large, unfunded tax cuts. Ten-year yields have climbed since the Fed cut rates in September, a sign that the bond market is doing its own sums on the election.

A precedent from the 1990s

Deficits have been brought down before. The budget deals of 1990 and 1993, combined with the strong growth of the late 1990s, turned deficits into surpluses by the end of that decade, and long-term interest rates fell as a result. Those deals required both tax increases and spending restraint, agreed across party lines, at a time when interest costs were high enough to concentrate minds. Neither campaign this year has proposed anything resembling them.

The more recent precedent is less encouraging. The 2017 tax cuts were passed at a time of low unemployment, when textbook economics would call for smaller deficits, and they were not paid for. Growth did pick up for a time, but revenue fell short of what supporters promised, and the deficit widened even before the pandemic.

The case against the numbers

There are fair objections. The CRFB is an advocacy group for fiscal restraint, and its estimates are only as good as its assumptions. Campaign promises are rarely enacted in full; a divided Congress would trim both agendas heavily. Supporters of Mr Trump argue that tax cuts and deregulation would raise growth enough to recover much of the cost, and that tariffs would bring in more than critics expect.

Those objections narrow the range but do not change its direction. Even the more optimistic scenarios add to the debt under both candidates. The most likely outcome, a partial extension of the 2017 tax cuts with few offsetting measures, would still leave deficits well above the level that would stabilise debt relative to GDP.

What to watch after the vote

The make-up of Congress matters as much as the presidency. A single party controlling the White House and both chambers could pass tax legislation through budget reconciliation, which avoids a Senate filibuster. The debt ceiling, suspended since last year, returns on 1 January, giving whichever party controls Congress a lever over spending. Treasury's quarterly refunding announcement, due early next month, will show how it plans to finance the growing deficit.

Bond investors now have the numbers to back their fears. Whoever wins, America will run deficits in the trillions for years, and the extra supply will probably keep long yields high well into the next administration. A clean sweep for either party would make the larger of these bills more likely to be enacted, and the ten-year yield would probably reflect that within weeks of the result.