The economic record: Trump vs Biden/Harris

On 11 July, the Wall Street Journal published a poll of 68 economists. The majority thought that inflation would be higher under another Trump term than under another Biden/Harris term. There were three reasons that were given:

Tax cuts. The first reason is the "Trump tax cuts" enacted at the end of 2017 will expire at the end of 2025. This means that the US corporate tax rate would rise from 21% at the end of 2025 to 35% at the beginning of 2026. This would result in a dramatic fall in after-tax corporate earnings. Stock prices would then fall heavily in line with those earnings. Trump proposes to extend and make permanent those tax cuts. Other individual tax cuts would also be extended.

Higher import tariffs. The second reason is Trump proposes higher import tariffs on China.

Illegal immigration.The third reason is that Trump proposes to halt illegal immigration.

Again, there was a consensus that if these programs were enacted, the result would be higher inflation under another Trump term than under another Biden/Harris term.

It is worth noting that we are in the unusual position of having at hand a trial run of all these policies. This is because in his first term, Trump enacted all three of these policies in practice.

In his first term Trump cut corporate tax rates. He also raised tariffs on China. He further dramatically reduced illegal immigration. Did these policies increase inflation? We went through the process of calculating the median level of the US headline CPI through the four years of the first Trump term from January 2017 to December 2020. The median level of inflation under the first Trump was 1.9%. It is our understanding that this is the fourth lowest level of inflation achieved by an American President since 1953 (see references). Clearly these policies on their own are not inflationary.

What do we say about the record of the Biden/Harris administration? Did the policies of the Biden/Harris administration increase inflation? We went through the same process of calculating the median level of US headline CPI through the four years of the Biden/Harris term from January 2021 until now. The median level of inflation under the first Biden/Harris term is 5.3%.

It is our understanding that this is the fourth highest level of inflation achieved by an American President since 1953. Clearly the Biden/Harris term was highly inflationary. What did Biden/Harris do to achieve this level of inflation? The answer to the Biden/Harris high inflation can be found by looking at the IMF numbers on US whole of government fiscal deficits. Our data is drawn from the World Economic Outlook database April 2024.

We calculate that the average US whole of government deficit from 1930 to 2020 was a deficit of 3.6%. The Biden/Harris administration began in 2021. The two most recent Biden/Harris budget deficits were:

2023 8.79%

2024 6.54%