This election marks a new low for fiscal fakery

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(Bloomberg Opinion) – Pandering for votes is standard practice in election campaigns. But the tax-policy proposals on offer during this presidential contest are setting new standards for shamelessness.

The purest example of this bipartisan trait is a plan to exempt tips from income tax. Donald Trump raised the idea in June, then Kamala Harris joined him when she entered the race. Both made their pitch in Nevada, a battleground state, where about 5% of workers get some income from tips (the national average is 2%). President Joe Biden won there by 34,000 votes in 2020, so winning over some of its 350,000 hospitality workers could make the difference.

Setting the electoral arithmetic aside, the idea makes no sense. Tipped workers are usually low-paid. Many would get little or no benefit because their earnings fall below IRS thresholds for tax liability.

At a time when some hospitality industry leaders are trying to move away from tips and toward more stable and regularized pay, this policy could actually decrease workers’ total pay. It would also create perverse incentives for workers and employers to relabel wages and salary as tips, potentially blowing a big hole in the federal budget.

The lost revenue would result in fewer services or higher taxes on other workers – or, most likely, more federal debt. Still, the expected cost – about $10 billion a year – pales in comparison to the candidates’ other tax promises.

Trump’s list of vaguely described tax cuts is almost boundless. Recently he’s talked about exempting Social Security and overtime pay, at a 10-year cost of somewhere in the trillions. That’s not to mention the roughly $4 trillion for fully extending the 2017 Tax Cuts and Jobs Act, as he says he will. Or the cost of reducing the corporate tax rate to 15% for companies that make products in the US.

Trump says the enormous revenue losses that would result from these giveaways will be accounted for by an import tariff of 20% and at least 60% on Chinese imports. Of course, foreigners will pay for it all. Where have we heard this before?

Tariffs mean trade wars, rising consumer prices and inflation for Americans, and likely economic contraction and job losses. It’s a recipe for disaster.

By comparison, Harris’ tax plans are a model of fiscal probity. But they’re problematic, too.

Harris says she plans to expand the child tax credit and other subsidies, offer down-payment support for first-time homebuyers, and extend the Tax Cuts and Jobs Act for households making less than $400,000 a year. She promises this largesse will be paid for not by foreigners but by the richest 3% of US households. Yet raising taxes on them – and raising the corporate tax rate to 28% from 21% and increasing capital gains taxes for incomes over $1 million, as she proposes – still leaves her trillions short of what’s needed to make up for the shortfall.

The US is already running a budget deficit of 7% of gross domestic product – with the economy at full employment and growing steadily. Bringing public debt back under control, assuring the solvency of Social Security and covering the costs of vital public investments would require both significant spending restraint and more broad-based tax increases than either campaign is willing to acknowledge.

Voters are entitled to honesty about these looming choices. Although they’re unlikely to get it, no one should be deceived about the true costs of their proposals.

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Michael R. Bloomberg is the founder and majority owner of Bloomberg LP, the parent company of Bloomberg News, UN Special Envoy on Climate Ambition and Solutions, and chair of the Defense Innovation Board.