Kamala Harris wants to invest and cut the cost of living, says Bharat Ramamurti

AMERICA IS experiencingGDP GDPOECD GDP the world’s strongest post-pandemic economic recovery. Under the Biden-Harris administration, , the unemployment rate has plunged, the stockmarket has , Americans have started new businesses at a historic clip, and the typical family has gained wealth and income even accounting for the global post-covid surge in inflation. Yet serious challenges remain, most notably with the tax code and the cost of living for the middle class. On both fronts, Vice-President Kamala Harris’s agenda would build on recent progress and boost the growth and dynamism of the American economy.America’s tax code no longer keeps up with the needs of its people. In 2000, the federal government raised roughly 20% of in revenue annually. If the country still had its 2000-era tax code today, its national debt would be declining. But large under Republican Presidents George W. Bush and Donald Trump slashed revenue to below 17% of , a difference of nearly a trillion dollars a year. That has been a windfall for the wealthy, whose effective tax rates have fallen sharply in the last 25 years even as tax rates for the middle class have stayed roughly the same. But it has been a drag on the economy, as the erosion in revenue has cramped the government’s ability to make needed investments and forced it into more borrowing.The next president will have a golden opportunity to reverse this trend. The Trump tax law of 2017 made certain permanent changes to the tax code, like cutting the corporate income tax rate from 35% to 21%, but also made several short-term changes to the individual income tax code that expire at the end of 2025. If these provisions expire on schedule, taxes on middle-class families will go up a little, taxes on the wealthy will go up a lot and the government will bring in significantly more revenue. If, instead, these expiring provisions are extended—as Mr Trump has advocated—the wealthy would pocket yet another large tax cut and the government would lose more than $4.5trn in revenue over the next ten years.The Harris plan is a reasonable middle ground. She promises to extend the lower tax rates and larger deductions that benefit families making under $400,000 a year, while allowing the elements that benefit the wealthy to expire. She would pair that with a modest increase in the corporate tax rate to 28%, and additional taxes targeted at the wealthy. The net result would be lower taxes for 100m working-class Americans, higher taxes for the rich and big corporations, and more revenue for the government.That is a recipe for faster and more inclusive growth. The Harris plan puts more money in the hands of working-class families, who are ultimately the engine of the economy. As we have seen in the last few years, more income in the hands of average American consumers stimulates job growth, business investment and productivity. And given that America ranks 31st out of the 36 countries in total taxes paid as a percentage of , it has room to bring in more revenue while remaining internationally competitive.Simultaneously, the Harris plan would give the government more fiscal space to make investments to help address cost-of-living issues for America’s middle class. For the past few decades, the cost of basics like housing, child care, and higher education have grown far faster than average incomes. Families with middle-class incomes have found it harder to have a traditional middle-class lifestyle—one where they can buy a home, put away money for a dignified retirement, and still cover the cost of raising children. And this cost crunch has been a drain on the economy, as housing costs have made it harder for people to move to areas with better-paying and higher-productivity jobs, child-care costs have kept parents out of the workforce, and higher-education costs have saddled two generations with big student loan debts.The vice-president’s agenda targets each of these areas. Her plan calls for larger tax credits for affordable-housing development that would spur production of 3m new housing units, alongside federal incentives to pare back local zoning regulations that can needlessly drive up the cost of new construction. More housing supply will drive down costs over time.She also promises an expanded tax benefit for new parents to help with the high cost of child care in the first years of life, and investments in the supply of affordable child care. And on higher education, she has called for targeted student debt relief and more pathways to financial security for people without college degrees, so that Americans have a chance to earn a decent living without taking on student debt in the first place.The Harris economic agenda strikes the right balance between sticking with what has worked over the last four years to produce America’s strong recovery while introducing new ideas to address thorny challenges that remain. The question now is less whether the vice-president has the right diagnosis for America’s economic problems, but whether American voters will give her a chance to fix them.