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What will the US presidential election mean for the economy?

Goldman SachsKevin Hassett, Jared Bernstein, Allison Nathan
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  • Inheritance conditions for the next administration are projected to vary between a solid macroeconomic expansion with inflation near target and low unemployment versus a recession signal identified around August, with job gains over the past three months averaging 186,000.
  • Economic challenges requiring attention include unfinished housing and childcare markets, extreme weather events, and ongoing trade and geopolitical issues.
  • Labor market conditions are expected to see continued growth in real wages and incomes, though the sustainability of momentum versus recession signals remains an open question.
  • Trade policy discussions involve the Reciprocal Tariff Act, which could trigger a game-theoretic contest with U.S. tariffs around six percent or counterpart tariffs of three percent, alongside a universal tariff minimum and significant room for adjustment where India's bound tariff could reach 50 percent.
  • Potential sweeping tariffs are viewed as likely to act as a national sales tax hurting consumers and domestic producers via intermediate goods, whereas targeted tariffs are considered useful for protecting against unfair trade practices, particularly regarding China.
  • Corporate tax proposals include a bid to increase the rate to 28 percent, representing a 7 percent increase that some argue is the largest in the developed world in 50 years and could yield robust investment and revenue, while others project economic models would "blow up" with no growth.
  • Tax policy on capital gains includes a proposal for a prepayment tax on unrealized gains above $100 million to address single-digit effective tax rates for the wealthy, while wealth taxes such as a 3 percent levy are warned to act as near 100 percent taxes on capital income.
  • Expansion of child and earned income tax credits is forecasted to reduce child poverty from approximately 12 or 13 percent to six percent, with expected economic returns as children reach their potential.
  • Fiscal sustainability concerns include high debt and deficit-to-GDP ratios, with the debt limit anticipated to be hit by next March or extended to June, potentially triggering a budget showdown next year.
  • Future fiscal paths face a high discount rate from lawmakers regarding sustainability, with a hope to avoid forcing events despite a history of such issues being addressed through crises.