U.S. Elections: Trump vs Biden, two different roads to growth - Rabobank

FXStreet notes that while both President Trump and challenger Biden want to boost economic growth and reduce unemployment, their approaches are radically different. Economists at Rabobank try to assess the impact of their policy plans on a range of macroeconomic variables, such as GDP, real income, public debt and trade.

“The upward effect on GDP growth from additional Trump tax cuts would be offset by the cuts in government spending aimed at stabilizing the public debt to GDP ratio. The Biden plan would boost GDP growth, but also the trajectory of public debt to GDP. In the long run, we expect the US economy to be larger by 3.8% to 4.6% due to the Biden plan tapping into the endogenous growth potential of the economy. However, we expect public debt to arrive at somewhere between 164% and 170% of GDP, which is much higher than the 147% in our baseline scenario.”

“The tax relief in the Trump administration’s plans results in a rapid pickup of real personal disposable income in the aftermath of the corona crisis from $43,350 per capita by the end of this year to roughly $47,000 in 2025, which is $1,000 more than in our baseline.”

“As Biden imposes higher taxes, by 2025 we project real disposable personal income to barely touch $46,000 per capita, which is even slightly below our baseline. However, as the impact of tax policies starts to peter out, we expect a rapid pickup in income after 2025, which is directly related to productivity-enhancing policies which prop up economic growth. Ultimately, we expect real income to be 2.2% to 3.3% higher.”

“Unemployment and trade under Trump would roughly follow the same trajectory as in our baseline. US trade is expected to rise significantly under Biden.”

“In the short-term, Biden’s policy packages push unemployment below levels in our baseline, as positive employment effects of additional government spending outweighs the negative impact of a higher minimum wage. However, mid-decade unemployment is expected to rise above the baseline, partly related to higher corporate taxes and a pickup in labor-saving technological change.”