On Friday, Vice President Kamala Harris unveiled key elements of her economic agenda as part of her rapidly advancing 2024 presidential campaign. Her tax policy proposals largely continue President Biden’s tax strategies while expanding tax credits and incentives aimed at reducing costs for families.
Among her main tax initiatives, Harris plans to restore and enhance the expansion of the Child Tax Credit (CTC), increase the Earned Income Tax Credit (EITC), and introduce tax incentives for homebuyers. She has also expressed support for eliminating taxes on tips, similar to a proposal once advocated by Donald Trump. Additionally, Harris has proposed a range of regulatory changes, including price controls, although these are not included in our analysis.
However, Harris’s tax proposals present significant challenges for several reasons: they further embed social policy and spending within the tax code, they focus on subsidizing homebuyers without addressing supply constraints, and they lack sufficient offsets to fund these subsidies, exacerbating the nation’s already unsustainable debt trajectory.
Overview of Harris’s Tax and Regulatory Proposals
Harris’s plan includes reviving the CTC expansion from the 2021 American Rescue Plan Act (ARPA), which increased the credit from $2,000 to $3,000 for older children and $3,600 for younger children for the 2021 tax year only. The ARPA expansion also removed work and income requirements, allowing eligible individuals to claim the maximum credit regardless of their earnings.
In addition to this expansion, Harris proposes offering $6,000 for newborns during their first year of life. Under her plan, the CTC would provide $6,000 for children under one year old, $3,600 for children aged two to five, and $3,000 for children six and older.
According to estimates from the Tax Foundation, Harris’s CTC expansion would cost approximately $1.6 trillion over 10 years. This expansion would reduce long-term economic output by around 0.1%, as removing the credit’s phase-in and extending the phaseout would increase marginal tax rates for workers.
Economic, Revenue, and Debt Effects of Harris’s CTC Expansion Proposal:
- GDP (Long Run): -0.1%
- GNP (Long Run): -0.1%
- Total Capital Stock (Long Run): -0.1%
- Pre-Tax Wages (Long Run): Less than –0.05%
- Full-Time Equivalent Employment (Long Run): -113,000 jobs
- Conventional Revenue (2025-2034): -$1,589.2 billion
- Dynamic Revenue (2025-2034): -$1,698.7 billion
- Debt-to-GDP Ratio (2059, Dynamic): 189.3%, an 8.3 percentage point increase
Note: The debt-to-GDP ratio assumes the policy change is entirely deficit-financed, with the 2059 ratio reflecting the full long-run economic effects of the proposed policy change.
Harris also aims to extend or make permanent the health insurance premium tax credit (PTC) subsidies enacted under ARPA, which are set to expire at the end of 2025. Additionally, she seeks to expand the EITC for individuals and couples who do not claim children on their tax returns. If these proposals align with ARPA’s expansions, making the PTCs permanent could cost about $238 billion over a decade, while the EITC expansion could cost around $160 billion.
Though details are sparse, Harris has announced plans to eliminate taxes on tips for service and hospitality workers, with safeguards in place. However, even with such safeguards, this exemption would be poorly targeted, benefiting a small segment of the population. Moreover, it would add complexity to the tax code and could cost about $100 billion over a 10-year budget period, depending on its design.
Harris also proposes several new housing tax incentives and penalties. For example, she would expand the existing low-income housing tax credit, similar to a proposal in the FY 2025 Biden-Harris budget, which would cost $37 billion over a decade. She also suggests a new tax credit for constructing starter homes, while limiting deductions for interest and depreciation for large property investors.
Her housing plan includes a $25,000 down payment assistance program for first-time homebuyers. While the Biden-Harris administration had previously proposed a combination of credits and direct support for similar groups, Harris’s new proposal focuses solely on down payment assistance. This initiative would provide an average of $25,000 to all eligible first-time homebuyers, with additional support for first-generation homebuyers. Depending on the subsidy’s structure, it could cost around $100 billion over four years, targeting approximately 4 million first-time homebuyers.
Many of Harris’s housing policies are tax-related, but her plan also includes non-fiscal measures, such as regulatory streamlining to ease construction, a crackdown on certain pricing tools in rental management, and a new fund for public housing.
However, Harris’s emphasis on subsidies for supply-constrained housing could harm families economically, as it would mainly boost demand and drive up housing prices. While some policies, such as the expanded low-income housing tax credit and the starter home credit, target supply, these targeted tax breaks have historically been ineffective.
Subsidies for specific housing market segments are not an adequate substitute for broader tax reforms in housing investment. Multifamily housing construction has yet to recover to 1986 levels since the Tax Reform Act of 1986 reduced the deductibility of investment. Rather than reversing this trend, Harris’s proposal would further penalize rental housing construction by reducing depreciation and interest deductions for large property investors, weakening investment incentives. These penalties would compound the impact of a Biden-Harris administration proposal to cap rent increases by disallowing certain deductions for depreciation.
Harris also proposes economically detrimental price controls. For instance, she would cap insulin prices at $35, limit out-of-pocket prescription drug expenses to $2,000 for all households, expedite Medicare negotiations for prescription drug prices under the Inflation Reduction Act, and ban certain food and grocery price increases.
Price controls typically harm consumers by reducing incentives to produce the controlled goods. For example, controls on prescription drugs may deter new drug development, potentially resulting in 135 fewer drugs entering the market by 2039. Harris’s proposed grocery price controls address a non-existent issue, as grocery profit margins are generally lower than the average across industries.
Finally, Harris’s agenda lacks clarity on how her proposed tax subsidies and federal program expansions would be funded, raising concerns about worsening the national debt. The combined cost of her proposals could exceed $2 trillion over 10 years, potentially increasing inflation if deficit-financed and extending the Federal Reserve’s high-interest-rate stance.
Continued high interest rates would further strain the federal debt, which is already projected to reach an unprecedented 3.4% of GDP next year. This additional fiscal pressure would complicate efforts to protect taxpayers from economically harmful tax increases when the individual provisions of the Tax Cuts and Jobs Act (TCJA) expire at the end of 2025.
Harris may consider substantial tax hikes on high earners and corporations, similar to those proposed by President Biden, with most or all revenue directed toward new initiatives and resolving the TCJA expirations. However, this approach would weaken the economy and fail to address the primary driver of debt—the unsustainable growth rates in mandatory entitlement programs—keeping the debt trajectory on a perilous path.