President Joe Biden and former President Donald Trump have laid out starkly contrasting blueprints for the U.S. economy as they vie for a second term in November.
Trump has said he would seek to extend and expand his 2017 tax cuts, severely restrict illegal immigration while deporting millions of foreign-born residents, impose tariffs on all U.S. imports, and roll back much of Biden’s initiatives to transition the nation to clean energy.
Biden would extend some of the Trump tax cuts − but not for wealthy individuals and corporations – establish more targeted tariffs on Chinese imports and toughen immigration constraints but not nearly as dramatically as Trump.
He also would push a lengthy wish list of social service programs that would make child care more affordable, provide free college tuition, cancel more student loan debt and lower drug prices, among other proposals. But analysts say they’re unlikely to pass a divided Congress.
“Biden’s policies are better for the economy,” says Mark Zandi, chief economist of Moody’s Analytics. “They lead to more growth and less inflation.”
According to a Moody’s study, Trump’s plan would trigger a recession by mid-2025 and an economy that grows an average 1.3% annually during his four-year term vs. 2.1% under Biden. (The latter is in line with average growth in the decade before the pandemic.)
Next year, under a Trump administration, inflation would rise from the current 3.3% to 3.6%, well above the 2.4% forecast under Biden, the Moody’s analysis shows. Compared with Biden, the U.S. would have 3.2 million fewer jobs and a 4.5% unemployment rate, a half percentage point higher, at the end of a Trump tenure.
The Moody’s projections defy polls that have consistently shown Americans rate Trump a better steward for the U.S. economy than Biden. Forty-six percent of respondents trust Trump on the economy and 32% trust Biden, according to an ABC/Ipsos poll in late April. Their views on the economy are expected to be a major focus of a June 27 debate between the two candidates hosted by CNN.
Even right-leaning economists agree Trump’s trade and immigration policies would hobble the economy. Scott Lincicome of the libertarian Cato Institute says they would be “highly damaging to the U.S. and global economies.” He adds, however, that specific forecasts “should be taken with a grain of salt.”
Chris Edwards, another Cato economist, says Trump “has an edge over Biden” on the economy because Biden has used “trade rules, narrow tax breaks, corporate subsidies, regulations, antitrust, labor union rules” and other measures to “centrally plan” manufacturing, tech and other industries that should be left to free markets.
Moody’s study assumes a Biden administration would be dealing with a Democratic-majority House and Republican Senate as party control of the two chambers flips, while Trump would enjoy a Republican House and Senate, based on models that predict the likeliest election scenarios.
The estimates aren’t an exact science, and changes in the proposals would modify the economic impact. But they’re crunched by computer models that are based on similar policies over the past 75 years.
Here’s a breakdown of how their plans are projected to affect the economy.
Tariffs
Trump’s plan
Trump has signaled he would double down on the trade war he waged in his first term. Then, he imposed tariffs on one-tenth of U.S. imports, but they were limited to products such as steel, washing machines and solar panels, as well as many goods from China. Over the long term, a study by the Tax Foundation found, the $80 billion in tariffs would cut the nation’s gross domestic product, or output, by 0.21% and reduce employment by 166,000 jobs.
Trump is now saying he would impose a 10% tariff on all U.S. imports in an effort to protect U.S. manufacturing workers and narrow the nation’s trade gap.
Biden ‘s plan
Biden has kept most of Trump’s initial tariffs in place and recently imposed targeted tariff increases, such as a 100% levy on Chinese electric vehicles and solar panels. He probably would continue to use such tailored tariffs to help U.S. companies compete with government-subsidized Chinese companies, Moody’s says.
Impact
The effects of Biden’s tariffs on the broader economy would be minimal, Zandi says.
But as businesses pass their higher costs to consumers, Trump’s sweeping tariffs would increase annual inflation, now at 3.3%, by nearly three-quarters of a percentage point next year and a half point in 2026, the Moody’s estimate shows. The new costs would weigh on households as well as thousands of U.S. manufacturers that rely on imports of parts and raw materials to make their products.
Yet the levies won’t notably cut the U.S. trade deficit as intended, Moody’s says. By reducing imports and triggering higher inflation and interest rates, the tariffs would strengthen the U.S. dollar, which makes the nation’s exports less attractive to companies overseas. That would hurt U.S. manufacturers and workers and widen the trade gap.
“I think it would be bad for workers and bad for consumers,” says Michael Strain, director of economic policy studies at the American Enterprise Institute, a conservative think tank.
By 2028, the policy would translate to 2.1 million fewer U.S. jobs and a 1.7% smaller economy, according to the Moody’s estimates. That doesn’t include the probability that other countries would retaliate and set their own tariffs on U.S. exports, further damaging the U.S. economy and payrolls.
Taxes
Trump’s plan
Trump probably would work with a Republican Congress to extend his signature Tax Cut and Jobs Act (TCJA) for lower- and higher-income households – whose reduced tax rates are both set to expire in 2025 − as well as for corporations. Trump also has discussed reducing the corporate tax rate – which the act permanently slashed from 35% to 21% − to as low as 15%. Extending the legislation also would allow companies to continue to deduct new investments from their taxes immediately rather than over many years.
Lower taxes would be only partly offset by the higher tariffs and so would add to the $34 trillion national debt, nudging up long-term interest rates, such as for mortgages, over time, the Moody’s study says. Extending all expiring provisions of TCJA would cost $5.2 trillion through 2035, according to the Committee for a Responsible Federal Budget.
Biden’s plan
Biden would extend the lower personal income tax rates only for individuals earning less than $400,000 a year, trimming the deficit and curtailing inflation, Zandi says. Lower-earning households also are more likely to spend, rather than sock away, their tax savings, more efficiently goosing the economy.
Biden separately wants to raise the corporate tax rate from 21% to 28% but probably would not have the votes in Congress, Zandi says.
Impact
Economic studies disagree about whether the tax cuts have spurred more business investment as intended. But while extending the cuts would lead to more capital spending and economic growth, the benefits would be limited because the economy is already at full employment and it’s still tough for companies to find workers, Zandi says. As a result, the tax cuts would further push up still-high inflation that the Federal Reserve is trying to tame.
That would force the Fed to raise interest rates again or leave them higher for longer, increasing corporate borrowing costs and at least partly offsetting the benefits companies would derive from lower taxes.
A bigger deficit and higher interest rates would spook financial markets, and so the lower taxes overall would crimp economic growth despite the new business spending they generate, Moody’s say. But by sparking more investment and fattening corporate profit margins, they eventually should lead to more hiring and fewer layoffs.
By 2028, Trump’s tax cuts should mean about 450,000 more jobs than the Biden plan, Moody’s estimates. The inflation impact from the tax changes would be higher under Trump in 2025 and 2026 but modestly lower the next two years as stronger investment lifts productivity and curbs price pressures.
Cato’s Lincicome favors Trump’s plan, saying a tax cut is the most effective way to incentivize business investment that can increase productivity and prod companies to locate in the U.S. rather than overseas. But he agrees the move would spark higher inflation without similar-sized spending reductions.
Immigration
Trump’s plan
Trump has pledged to deport millions of undocumented immigrants, the largest such effort in U.S. history. He also would reinstate his “remain in Mexico” program that forces non-Mexican asylum seekers trying to enter the U.S. at the southern border to wait in Mexico for their cases to be resolved.
And Trump would restore the COVID-19-era Title 42 policy, which allowed U.S. border authorities to quickly return immigrants to Mexico without the chance to claim asylum, he told Time magazine in an interview.
Trump could take these steps through executive actions without congressional approval, Moody’s says.
Biden has been criticized for a surge in illegal immigration that has created a crisis at the southern border. There have been 8 million encounters at the U.S.-Mexico border since 2021 compared with 2.3 million during Trump’s term, the Moody’s study says.
Biden’s plan
Biden also would significantly toughen border enforcement. Early this month, he issued an executive action barring migrants who cross the border illegally from receiving asylum when the border is overwhelmed. Trump assailed the policy and said he would reverse it even though it mirrors Trump-era policies.
For the longer term, Biden is seeking funding from Congress for more border patrol agents, immigration judges and asylum officers to handle higher volumes of undocumented immigrants and asylum seekers.
At the same time, Biden’s proposed budget would increase the number of refugees admitted to the U.S. to as much as 125,000, double the 2023 level, according to Moody’s. And on Tuesday, he announced a new policy protecting the undocumented spouses of U.S. citizens from deportation.
Impact
Trump’s policies would reduce net immigration to the U.S. from about 3.3 million last year to just a few hundred thousand annually, compared with about 1 million – the historical average – under Biden’s plan, according to Moody’s.
Immigrants, both legal and undocumented, have powered labor force growth that has eased pandemic-induced workers shortages the past couple of years. That, in turn, has slowed wage growth that had helped fuel inflation. Undocumented immigrants alone accounted for about a third of U.S. employment gains last year – or about 1 million jobs, RBC Capital Markets estimates.
Severely constraining immigration, as Trump is proposing, would reverse those gains, especially in industries that rely heavily on foreign born labor, such as agriculture, construction, restaurants, hotels and retail, Moody’s says.
That would dampen economic growth as companies rely on fewer workers to make products and services. It also would reignite inflation as wages climb, forcing the Fed to raise interest rates again or wait longer before cutting rates.
Inflation would be about 0.3 percentage points higher next year than under Biden’s plan, according to Moody’s. By 2028, there would be 1.5 million fewer jobs and the nation’s economy would be 0.8 percentage point smaller.
“We need more workers,” Cato’s Lincicome says. With baby boomers retiring in droves, “we don’t have a strongly growing native-born workforce anymore.”
The Inflation Reduction Act
Trump’s plan
Biden has spearheaded several new laws to spur chip production in the U.S., repair the nation’s frayed infrastructure and pave the way for more clean energy to deal with climate change.
Moody’s figures Trump would mainly seek to roll back the clean energy provisions of the Inflation Reduction Act, which provides grants and subsidies to promote wind and solar powered electricity, electric vehicles and other renewable energy projects.
Impact
Scuttling the $369 billion clean energy plan would do little to trim the budget deficit because it’s paid for by stricter IRS tax enforcement, various corporate tax increases and prescription drug price reform, according to Moody’s and a summary by Senate Democrats.
Lincicome and Edwards of Cato favor doing away with the clean energy measures, which they say distort private markets that wouldn’t be viable without federal subsidies. Instead, they support tax breaks to spur green energy production.
Scrapping the blueprint would mean more than a half-point drop in economic growth and about 450,000 fewer jobs in 2026, Moody’s estimates.
Social service policies
Biden’s plan
Biden is proposing a laundry list of new social programs to make child care more affordable, provide free college tuition, cancel more student loan debt, expand parts of the Affordable Care Act and lower drug prices, among other proposals.
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Impact
Because his initiatives would be more than offset by new or higher taxes on the wealthy and corporations, his plan would trim the deficit and would be virtually a wash for the economy, Moody’s estimates. The proposals also have little chance of being approved by a divided Congress, Moody’s says.
Contributing: Reuters
