How Is the Economy Impacting the Election?

By most measures, the United States economy is booming. But most Americans aren’t convinced — they rate the economy as poor and inflation as one of their top political concerns. To work out how the economy is impacting the 2024 election, it’s helpful to look at the state of the economy, how Americans are experiencing it, and what each candidate says about economic issues. Read on to learn more.

The Current State of the Economy

The country entered a recession when the COVID-19 pandemic hit in early 2020. The unemployment rate shot up as millions of workers were laid off and businesses shut their doors – temporarily or permanently. Real Gross Domestic Product (GDP) contracted as production and spending slowed. Financial markets plummeted. The economic recession lasted for less than one quarter, but its effects have been felt far beyond that.

When the economy began to recover, the inflation rate began to grow rapidly. The cost of goods climbed higher and peaked in June 2022. Inflation has now dropped close to pre-pandemic levels, but prices are much higher than they were.

By many measures, the economy is going strong after quickly bouncing back from the pandemic. Average wages lagged at first but then rose rapidly, narrowly outpacing inflation. The labor market has rebounded with an unemployment rate near historic lows. Consumer spending continues to drive strong economic growth, though it has slowed from the immediate post-pandemic rebound.

Poverty rates went down in 2020 and 2021, likely thanks to government assistance during the pandemic. Under both Presidents Trump and Biden, Congress approved stimulus packages that gave financial aid to most Americans, extended unemployment benefits, and offered emergency business loans.

The Biden-Harris administration also approved an increase to the maximum child tax credit from $2,000 to $3,600 per child. It expired at the end of 2021 despite the administration’s efforts to extend it.

Then, 2022 brought the largest one-year increase in poverty ever recorded for the United States. The national rate is now 12.4%, close to what it was in 2019. This could be explained by the loss of government assistance and the rising costs of food and housing. A national housing shortage began decades ago and worsened after the COVID-19 pandemic.

Interest rates have soared higher since 2022, driving up mortgage rates for new homeowners. In 2020, the Federal Reserve announced interest rate cuts to help households and businesses spend during the pandemic. “The Fed” steadily raised the federal funds rate once the economy started to recover. The federal funds rate has stayed elevated through mid-2024 to help bring down inflation. Federal Reserve Chair Jerome Powell has said a rate cut is coming soon.

Biden’s Record on the Economy

President Joe Biden, a Democrat, worked with Congress to pass the Inflation Reduction Act (IRA) of 2022. The IRA created or extended a variety of green energy tax credits for purchases like electric cars, home solar panels, low-energy appliances, energy-efficient home upgrades, and more. It also included tax incentives for companies with clean energy projects.

Another provision of the IRA lowered Medicare drug prices, capping the out-of-pocket cost of insulin at $35 per month and the total out-of-pocket prescription drug costs at $2,000 per year, beginning in 2024. It also allowed Medicare to negotiate directly with drug companies on prices.

Biden has also undertaken several student loan forgiveness efforts, canceling close to $170 billion of debt for nearly 4.8 million people. One of Biden’s plans was stopped by the Supreme Court, which said he did not have the legal authority to implement the program. This year, the Biden-Harris administration proposed another plan for student loan forgiveness through a different process.

Biden has also waged a campaign against “junk fees” – hidden or unexpected fees that businesses charge their customers. The Biden-Harris administration called for cutting credit card late fees to $8, but the proposal has been held up by court challenges. In April 2024, the Department of Transportation announced a new rule requiring airlines to tell consumers about certain fees upfront.

Donald Trump and the Economy

Former President Donald Trump, a Republican, has proposed:

• Enacting a 10% to 20% tariff on imported goods, along with a 60% tariff specifically on imports from China. Economists say this is likely to raise consumer prices, but Trump argues it will boost American jobs and wages. Currently, these tariffs are about 19% for China and 3% for the rest of the world.
• Ending Biden’s student loan forgiveness programs and increasing funding for career and technical education.
• Increasing production of fossil fuels and nuclear energy in an effort to lower energy costs. He also promises to end many of Biden’s environmental regulations and incentives, including tax credits for electric car purchases.

Tax Policy

In 2017, Donald Trump signed the Tax Cuts and Jobs Act (TCJA), which made substantial changes to the federal tax code, including:

• Lowering the corporate tax rate from 35% to 21%
• Lowering individual income tax rates through 2025
• Raising the maximum child tax credit from $1,000 to $2,000 through 2025

He has said he wants to extend the temporary provisions in the TCJA and lower the corporate tax rate again to 20% or even 15%. Trump’s running mate for vice president, J.D. Vance, recently proposed raising the maximum child tax credit from $2,000 to $5,000.

Trump, like Harris, has also proposed getting rid of taxes on tip income.

How Will Kamala Harris Address the Economy?

Vice President Kamala Harris, a Democrat, laid out several economic proposals in a recent campaign stop this August. She has called for:

• Banning price gouging for food and groceries. State-level price gouging bans typically focus on crisis situations like natural disasters. It is unclear how a broad federal ban would work.
• Canceling medical debt for millions of Americans.
• Extending the caps of $35 per month for insulin and $2,000 per year on out-of-pocket prescription drug costs to all Americans, not just seniors with Medicare.
• Giving $25,000 in down payment assistance to first-time homebuyers.
• Offering tax incentives for builders who construct starter homes.

Tax Policy

Harris has said she would fund some of these proposals by raising the corporate tax rate from 21% to 28% and increasing taxes on the rich. This aligns with Biden’s proposed tax plan, which she supports. Biden and Harris have promised not to raise taxes for those making under $400,000, which signals that they want to renew some of the individual tax cuts in the TCJA.

Harris has proposed permanently raising the child tax credit to $3,600. She has also proposed a $6,000 tax credit to families with newborn children in the first year of a baby’s life.

Harris, like Trump, has also proposed getting rid of taxes on tip income.

Conversely, How Do Election Outcomes Impact Markets?

The stock market usually shows slightly worse performance in the 12 months leading up to a presidential election, but it tends to recover within 12 months afterward.

Financial markets tend to be more volatile in the two months before election day and return to normal within two months after. This pattern occurs regardless of which party’s candidate wins the presidency. 

Certain sectors may be affected by the candidates’ policy positions. For instance, energy companies might be impacted by climate regulations. However, policy doesn’t always have a predictable effect on stocks. During the Trump presidency, clean energy outperformed traditional energy stocks, and the reverse has been true while Biden is president.

How Will Economic Issues Impact the Election?

When economic conditions are good, this tends to favor the incumbent party in an election. The challenging party gets an advantage during a recession when the economy is shrinking.

How is the economy impacting the election in 2024, then? Many U.S. economic indicators are positive. Yet most Americans’ view of the economy is not. Only 23% of American adults say the economy is in excellent or good shape, and 62% say inflation is a very big problem for the United States.

Why is this? Wages have largely risen with inflation, but this rise did not necessarily happen equally. Neither did inflation itself. Food and groceries have seen some of the biggest price increases. Along with food prices, high housing costs are a pain point for many Americans.

Americans’ views of the economy may negatively affect Harris, then, even though the country is seeing economic growth and a strong labor market. What will matter most is whether voters believe the economy is helping them financially.

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