Overview of Fiscal Deficit Concerns in the Election Context
In the 1992 US presidential election, concerns about a growing federal budget deficit were so significant that an independent candidate, Ross Perot, secured nearly 20% of the popular vote by focusing his campaign on reducing the national debt. Perot’s approach was unique, using televised infomercials to educate Americans on the fiscal challenges facing the nation, which resonated deeply with the electorate.
Fast forward to 2024, and the situation appears remarkably different. Despite the federal government being on track for a deficit of 6.7% of GDP this year—up from 6.3% last year—there’s little discussion on the matter from the leading presidential candidates. The Congressional Budget Office (CBO) has projected that deficits will continue to hover around or exceed 5.5% of GDP annually through 2034, a level of sustained shortfall not seen since at least 1930.
The Shift in Focus: From Fiscal Prudence to Fiscal Generosity
Unlike in 1992, when both major candidates presented detailed plans to address the deficit, the 2024 contenders, Vice President Kamala Harris and former President Donald Trump, seem more focused on offering fiscal incentives rather than reducing the deficit. This shift reflects a broader change in voter priorities, where immediate economic relief often takes precedence over long-term fiscal sustainability.
For instance, Trump’s running mate, JD Vance, recently proposed a $5,000-per-child tax credit—significantly higher than the current credit and even more generous than the proposal from President Joe Biden. Meanwhile, Harris has endorsed a plan to exempt tipped wages from taxes, echoing one of Trump’s campaign promises. These proposals could carry substantial costs, with the child tax credit alone estimated to add $2 trillion to the deficit over the next decade.
The Cost of Inaction on Expiring Tax Cuts
Adding to the fiscal challenge is the looming expiration of the tax cuts from Trump’s 2017 tax law at the end of 2025. Extending these cuts would add an estimated $4.6 trillion to the federal deficit. Yet, this issue has received little attention in the current campaign, raising concerns among economists and fiscal watchdogs.
Erica York of the nonpartisan Tax Foundation notes that the conversation around fiscal policy is “really detached from reality,” with neither candidate addressing the “elephant in the room”—the significant impact that extending the 2017 tax cuts would have on the federal budget.
Broader Economic Implications
The lack of focus on fiscal responsibility in the 2024 election could have broader implications for the US economy. Historically, large deficits can lead to higher interest rates, increased inflation, and reduced investment in private sector growth. While the Federal Reserve’s aggressive monetary tightening in recent years has helped prevent a severe economic downturn, as noted in a recent Dallas Fed study, the long-term sustainability of current fiscal policies remains questionable.
The Fed’s efforts, coupled with a stronger banking system and higher quality mortgages post-2008, have so far kept the housing market resilient. However, as federal deficits continue to grow, the pressure on interest rates and inflation could challenge this stability. If the economy does not maintain its current trajectory of soft landings—where unemployment remains low despite a slowdown—there could be significant repercussions for both the housing market and broader economic growth.
Conclusion: The Road Ahead
As the US approaches the 2024 election, the stark contrast between today’s fiscal discourse and that of the early 1990s is evident. While voters and candidates alike appear less concerned with deficit reduction, the long-term economic impacts of sustained high deficits could present challenges that future administrations will need to address. For investors, this environment suggests a need to remain vigilant, particularly in sectors sensitive to fiscal and monetary policy changes, as the US navigates its ongoing fiscal challenges.
👉Explore AI-powered Automated Trading Today! Register for a free trial now!
✅Read about the automated trading software on Investing.com
