Dave:
There is one persistent question that almost every investor and honestly just friends of mine keep asking me, what is going to happen to the economy if Vice President Harris wins versus what happens if former President Trump retakes the White House? Will investors see more tax benefits? Will first time home buyers see down payment assistance or more inventory? Today we’re diving into the economic proposals of the presidential candidates. Hey everyone, it’s Dave and welcome to Bigger News. Today we have a highly, highly requested show about what happens to the macro economy and the housing market if Trump or Harris wins the election. And before we jump into today’s episode, I do want to just give a quick political disclaimer. BiggerPockets or me myself are not taking sides on who we think is going to win the election or making judgment calls on a specific candidate’s policies or belief.

Dave:
This show is meant to just give you a look into the policies of each candidate and how they may impact the US economy at large. And in order to do that, I’m bringing on a guest who knows way more about these issues than I do. And my questions to our guest whose name is Joel, he’s the president of Narro Economics, are designed to fully understand the issues and policies as deeply as possible and then you all can inform your own opinions. In the episode, we’re going to discuss with Joel what happens to the economy in general during an election cycle. Just looking back at history, if there’s anything we can learn about this particular cycle. We’ll talk about the macro economy and the word we can’t get away from this year inflation. We’ll talk about specific policies that former President Trump and Vice President Harris have put on the table so far and what those policies may potentially mean for the housing market and the economy. And we’ll talk a lot about taxes. So let’s get into it with Joel ov. Joel, thank you so much for joining us today.

Joel:
Thank you, Dave for having me.

Dave:
Before we get into the specifics of this year’s election, I’m curious if there are any trends that you’re aware of and can share with us that happen in presidential election years, economically speaking.

Joel:
Well, we’ve had some really, really strange periods over the last few elections. When we came out of the Trump administration, we were in the midst of Covid, so there’s nothing that you can say about what happened after that. That’s typical of the current situation. When we came out of the Obama administration into the Trump administration, it was a fairly straightforward transition. The economy had been growing for about six and a half, seven years at a moderate pace. It was a sustainable pace, and that continued through the first few years of the Trump administration until of course we got to Covid and going back one more administration, the end of the W Bush administration, we had the financial crisis. So you can’t really make any assumptions about the transition from one to another. When you’re in the middle of a situation with a world’s financial sector, it almost completely collapsed. So it’s hard to say what the current situation will be though it’s probably going to be closer to the transition from Obama to Trump than the previous ones.

Dave:
Well, let’s hope so. I like the sound of that one the most where it’s just hopefully economic growth and no financial crisis and no pandemic. That sounds like the best one. So let’s dig into that. Let’s just start with Vice President Harris and how her economic plan that she’s proposed so far in the campaign compares to President Biden’s. Can you tell us anything about that?

Joel:
Well, I think they come basically from the same starting point, and that’s essentially looking at what the middle class is concerned about at this point, I think more so on the Harris than it would’ve been in the Biden case. I think she has latched on to the trouble spot as far as the economy is concerned, and that’s that middle income households who actually did reasonably well over the last three and a half years of the Biden administration are concerned about one very, very specific issue and that’s inflation. And most importantly on the inflation side, it’s the food side, but it also is on the real estate side. We’ve had some significant increases in prices and we have interest rates that they look high. Now, lemme give you something in perspective. I bought my first house in August of 1981. I walked into the closing and they said my mortgage rate was 18%, and I said to them, but you told me yesterday it was 17.5%. And they said, okay, we’ll make it 17.5%. So you’re talking to somebody whose first house was bought when interest rates were really high.

Dave:
I totally appreciate the fact that we are actually relatively close to the historical average in terms of mortgage rates right now. But I think the argument, or at least the experience of a lot of people trying to buy houses today is not necessarily mortgage rates in isolation, but total affordability because housing prices as they relate to income are way, way, way higher than they were previously. And we’re actually at a similar level of affordability. When you factor in all those things, wages, prices and interest rates we’re sort of at the same point as we were in the early eighties. So I do think objectively there is low affordability in the housing market.

Joel:
There is, there’s no question about it. As you said, as I mentioned as well, the whole idea is on the price side, we’ve had consistent increases in prices at levels that we really hadn’t seen except for the housing bubble days.

Dave:
I’d like to just get back to some things that you said earlier that Vice President Harris is targeting food inflation and housing unaffordability. Can you just tell us what specific policies have been proposed?

Joel:
She’s kind of early on in her policy development stage. If you go to the Harris Walls website and I’ve done that, you’re not going to see a whole lot of detail. I think it’s more the issue of targeting inflation and the question is, can a president really target inflation? Was Biden at fault for the inflation issues? We can discuss that at some point, but I think my point is that she’s recognizing that inflation is a problem for the middle income households as well as the lower income households in this country. And she’s talking about that. I think basically what she’s going to say is that the inflation reduction act that was enacted under the Biden administration is working, whether it was due to that act, how much was due to that act and how much was the fact that the causes of inflation, especially things such as the supply chain problems, the war in Ukraine that triggered the surge in gasoline prices that got us to the ultra high inflation rates. Those things are unwinding and have unwound, and so inflation is moving slowly and steadily back to the fed’s target on the factors that have been at work for an extended period of time. I don’t think there’s a whole lot of president can do to affect the inflation rate at this particular point.

Dave:
We have to take a quick break to hear a word from our sponsors. If you like tracking macroeconomic content like the stuff we’re talking about here today, make sure to check out the BiggerPockets blog at biggerpockets.com/blog where every week we post content, much like the show. Welcome back to bigger news. We’re here with Joel Narro talking about the policies that would impact the economy if Trump or Harris is elected. I’ve heard that Vice President Harris is focusing specifically on affordable housing. I think for our audience, this is a particularly interesting topic. I think there is a push to build 3 million affordable housing units. Do you know anything about that plan that you can share with us?

Joel:
We have not seen a presidential candidate or a president or a Congress say, we need to build these numbers of middle income households, housing units, and the idea is how do we set up incentives to have that done? Clearly, the market tends to want to build more higher priced housing, bigger housing lately, of course, they’re saying that you’ve got the affordability issue. Downsizing, downsizing, the in size as well as the size of the units are becoming critical. I think the focus on the part of government policy is the next step is what incentives are you going to provide to the industry to do that? Because if they follow the marketplace, they may build a little bit more because that’s where the demand really is at this particular point, but the affordability’s not there. I think that that’s what they’ll probably have to come up with right now. They haven’t come up with something like that, and we haven’t seen it out of the Trump policymaking group on targeting housing at all. So I think that’s the difference

Dave:
At this point of the campaign, vice President Harris has signaled her intention to try and create policy that would improve or increase the number of affordable housing units being built. We don’t know exactly how that would be done. That’s about all we know it sounds like.

Joel:
Yeah. Let me back up a second. They did make one major statement that they would be willing to supply upwards of $25,000 towards a down payment. That’s the one thing I think that we can say she at least started off with. It sounds great, given the cost of middle income housing, it’s not going to cover a down payment, but it’ll help a lot of middle income households come up with it if that’s needed. So there is at least one policy that she’s announced as far as trying to help along those lines.

Dave:
I saw that as well and wanted to ask you, you’re an economist, what do you make of that? Because when I see that, I think, okay, that’s a good idea to help boost affordability. I also think it’s a case where it could induce demand and could push up prices. So it might help people in the short run afford homes, but it might make homes more expensive in the long run. Or am I off on that?

Joel:
No, you’re not off on that at all. But the issue in the housing market right now is not on the demand side. People want to buy the houses. The issue is on the supply side, both on the construction and new construction and on the existing home side. So you’ve got to look at it really, if you’re going to target policies, how do we get the supply side up at this particular point to the extent that it will be helping the demand? That’s good.

Dave:
Okay. Yeah, sort of thinking the same thing because creating demand without creating supply could create more housing appreciation, which I think our audience would be interested in. Last question on Vice President Harris’s campaign, then we’ll move over to Trump’s side of things. Vice President Harris has said that she plans to tax corporations and high income earners at a higher rate. How do you think that may affect the broader economy?

Joel:
What she’s talking about is rolling back some of the tax cuts that were made in the 2017 Trump tax cut in Jobs Act. I don’t think there is a whole lot of economists out there that think that the massive reduction in the corporate income tax, the top level from 35, actually it was over 38 to 21, created the kind of investment activity that was expected. It was a much larger reduction that most economists were calling for. Initially Harris had called for moving back to 35. Now she’s probably looking closer to the 28, which was the number that if you asked me, if you asked most economists where we should have gotten to in 17 20 17, that’s what we probably should have been at. So I don’t think that that’s going to affect corporations because the huge reduction in the tax rate didn’t create any special growth in 2018 or 2019.

Joel:
Of course, in 2020 we had Covid in terms of the upper income. It’s the same kind of situation. The upper income households are going to be able to afford the highest price housing out there, whether the tax rate is higher or where it is right now, the rise in the taxes are not going to change housing demand as far as that income group is concerned. And the key to this, which people aren’t focusing on, but they have to, is those kinds of taxes were sunsetted in the bill that was passed in 2017. So we’re going to be facing that issue in 2025 because at the end of 2025, a lot of those tax reductions disappear and it’s going to create the need to have another major tax bill because I don’t think anybody wants to go back all the way to where we were pre 2017.

Dave:
So the bill is expiring one way or another, and thus far, vice President Harris has indicated that she will in some way allow the tax rates for corporations and higher income earners to creep back up. When we say higher income earners, Joel, what does that mean? Is there a number?

Joel:
Yes. She uses $400,000 a year as the cutoff point. So if you’re making more than $400,000 a year, you are high income earner. That’s her number at this particular point.

Dave:
All right. And this issue seems like a good way to transition to former President Trump’s campaign. I have heard that his intention is just to extend the tax cuts that were passed in 2017 for basically everyone. Is that right?

Joel:
That’s correct. I think if he wins, and especially if the Republicans retain the house and gain the Senate, then it’s likely most if not all of those sunset setting tax reductions will simply be renewed.

Dave:
Got it. Okay. So that seems like a key difference here between the two candidates is what they would do with these expiring tax cuts. Again, vice President Harris saying she would allow some of them to expire, former President Trump has indicated that he would renew all of them. Another issue Trump has been making news on in terms of taxes is about tariffs on imported goods. We don’t talk about tariffs, a lot of the show. Can you just tell us what tariffs are?

Joel:
Tariffs are essentially fees placed on imported goods paid by the importers. That’s something that has to be understood before a few import from China, a car where he wants to put, for example, a hundred percent tariff on it, the importer has to come up with the money equal to the cost of the car. Using that as an example.

Dave:
So if a car costs, let’s, in this example, if a car costs $20,000 on a hundred percent tariff would mean that the car company has to pay $20,000 just to get it into the United States so that they could sell it for $20,000. Is that right?

Joel:
That’s the simplest way of describing it, yes.

Dave:
Yeah, I got to keep this one simple.

Joel:
Who actually pays? It depends upon the size of the tariff and the kind of good and so on. It’s the demand curve situation. But for the most part, significant portions of the tariffs typically get passed through because the producer, if they have to pay the tariff, then that cuts into their margin. So if you’re talking about 25% that kind of wipes out their margin, let alone a hundred percent, if you’re talking about the importer, then they have to pass that along to the retailer who has to pass that along to the consumer. So under those circumstances, typically what happens is a significant portion, if not most, if all depending on the good winds up being paid by the consumer. And that’s how a tariff works, and that’s why economists make the argument that tariffs essentially raise prices to the households. That’s where it winds up in.

Dave:
If former President Trump is considering this, what is he hoping to achieve?

Joel:
Well, I think his goal is to price out foreign goods from US markets, and therefore those goods would have to be made up by either domestic production or production in other countries. So we have NAFTA kinds, we have Mexico and Canada. Production could be shifted there, not necessarily to the us, but I think the concept is to protect US producers. So by having competitors be priced out of the marketplace itself and therefore expand production in the us, that’s ultimately the goal.

Dave:
I see. So to make American companies more competitive relative to foreign imports that would have tariffs. We do have to take one final break, but stay with us. Joel has some very interesting thoughts to round out our conversation. Welcome back to the BiggerPockets podcast. Let’s jump back in. Moving on to another Trump economic policy. He’s looking at cutting taxes on social security benefits. And I have to admit, I don’t really fully understand this issue. So right now, if you’re taking Social Security, that income that comes from the government is partially taxed?

Joel:
That’s correct. If you get a social security check, it goes on and you’ve got pensions and you’ve got other incomes, you’ve got interest, you’ve got dividends, you’re selling stock, whatever you’re getting your money from, it just goes on top of all the other income and you pay a tax on it. Social security is income, period. So the difference would be that anybody who gets social security wouldn’t have to pay taxes on it.

Dave:
So cutting taxes on social security would presumably increase the income and spending power on older Americans who are currently drawing Social security.

Joel:
That’s right. And it helps the full range. In other words, whether you you’re getting all of your income from Social security or just a small portion of your income from Social Security, the thing about a proposal like that is that it is in means tested in the respect that anybody, regardless of their income, gets the tax benefit. So there are high income households who are paying the upper, the highest tax rates. They get the benefit of that as well.

Dave:
So essentially anyone receiving social security would benefit from this tax cut. Is there any downside to this proposal?

Joel:
The downside is that it increases the budget deficit significantly

Dave:
Because the government would collect less revenue.

Joel:
That’s right. Because they’re not taxing social security income.

Dave:
I see. Okay.

Joel:
Social security is income. Don’t think of it as social security. Think of it as income. If you think of it, it as income. If that income is not taxed, then the government doesn’t get the tax revenues from that income. That’s the whole thing. And that’s the way you need to think of things. Think of it as income.

Dave:
So the trade-off is essentially providing Americans with more money spending power and hoping that would help them out and perhaps spur some more economic growth versus government collecting less tax revenue.

Joel:
Yes, and that is the standard argument when it comes to tax cuts.

Dave:
All right. Well, I have one last tax question for you, Joel. We’re talking a lot about taxes. It does seem like this is one of the key differentiations between the two candidates, economic policies or platforms. At least at this point, Trump has been proposing eliminating taxes on tips. I think Vice President Harris has now followed suit and also supported this idea. Can you just tell us more about this idea? I’m curious to hear if you think it would have an impact.

Joel:
What we’re into is what I call the Oprah portion of the election campaign. It’s you get a tax cut and you get a tax cut, and you get a tax cut. And how many people can I propose giving tax cuts to? And that’s the thing. When it comes to tips as well, it’s not a huge number of people. And the problem with that as well as the problem with the social security taxes is that it’s not income rated. In other words, first of all, it’s been estimated, I think the Yale Budget Lab estimated that something like 37% of the people getting tips don’t pay taxes, income taxes anyway, because their income levels are so low that the standard deduction is greater than the income. So when you think about that, the people who are the poorest don’t benefit from that. And that’s similar to the social security side.

Joel:
That would be similar to the people who only survive on social security because for the most part, they’re probably not paying any or much taxes on the income that they get. Whereas if A CEO who has large amounts of income in retirement, also getting social security, which they’re eligible for, and they usually do take ’em, they get benefit, and there really is no impact on the economy of them not paying taxes on the social security portion of the income they get. So the tips thing, just like the social security portion of it to me is presidential candidates running wild on the Oprah approach to taxes. Let’s pick the most popular taxes with lots of people who may get affected. Let’s offer them no tax reduction of their taxes, and that’s the way they go. And the cost just mounts up as far as the deficit is concerned.

Joel:
So what you have, the interesting aspect of it is what I always like to say is Democrats tend to spend more claim that they’re going to pay for it through taxing higher income households, but they wind up not doing it or it doesn’t pass Congress and the deficit widens and Republicans say that they’ll pay for their tax cuts because the tax cuts pay for themselves. And as we all economists know, the next tax cut that pays for himself will be the first tax cut that pays for itself, so they don’t pay for it either. Basically, all these things lead to wider budget deficits. Neither of them are fiscally responsible. So the biggest cost is on the budget deficits, and that just is the issue that we have to deal with.

Dave:
So it seems to you, Joel, that regardless of which candidate wins, Americans are going to be looking at more debt and a bigger budget deficit?

Joel:
Yes. I think the simple answer is yes.

Dave:
And curious, do you think the same thing is true of inflation? You said something earlier. I wanted to circle back to that you didn’t know if a president could really impact inflation. Do you think regardless of which candidate wins inflation will continue on its current slowly downward trajectory?

Joel:
I think that especially in the next couple of years, it takes a while to get things. Remember, it took Trump almost a year. It wasn’t until December of 2017 before that tax cut actually got passed. Tax changes won’t take effect for a while. The feds still at a level that’s relatively high. Many of the factors that created the inflation have largely dissipated on their own. So we’re going to have a reduction inflation, a deceleration in the rate of inflation, regardless of who gets elected.

Dave:
All right, Joel, well, thank you so much for joining us. I really appreciate you shedding some light on the economic policies and potential implications of the two presidential candidates. Right now, anyone wants to follow Joel and his work. We will of course put his contact information in the show notes below. Thanks again, Joel.

Joel:
My pleasure. Thanks for having me

Dave:
On. The market was created by me, Dave Meyer and Kaylin Bennett. The show is produced by Kaylin Bennett, with editing by Exodus Media. Copywriting is by Calico content, and we want to extend a big thank you to everyone at BiggerPockets for making this show possible.