American campaign tactics will be mimicked. The presidential election is being fought on the internet. Both parties use
influencers. The Democrats have hired “the under 25s” to post on TikTok. Unobserved by half the country, our next election will be fought in cyberspace.
Ideas from America are adopted. Quantitative easing, the loopy idea that the Reserve Bank could print money without causing inflation, came from America.
Policies being advanced in the presidential campaign will be copied.
It is hard to decide which candidates’ economic policies are worse. In their debate neither candidate mentioned that the US annual deficit is US$2 trillion, the national debt is US$35t. During the next presidency, the deficit is on track to reach US$40t.
Stein’s Law says, “If something cannot go on forever, it will stop”. If the market loses confidence in US treasuries it will be catastrophic.
The candidates’ tax proposals do little to balance the budget.
Donald Trump is proposing a 10% tariff on all imports. Trump’s tariffs will cost the average household US$1700 a year. Lower competition will make US firms less efficient.
The Trump tariffs will be a huge blow to the World Trade Organisation and rules-based trade that New Zealand depends on. The Trump tariffs would almost certainly result in retaliatory tariffs. Nothing good will come from an international trade war.
The US president can impose tariffs under the Trade Expansion Act if imports threaten national security and under the Trade Act of 1974 to counter unfair trade practices. Trump claims both are happening.
Trump’s other ideas like no tax on tips or overtime would result in tax evasion and loss of revenue.
Kamala Harris’ proposals are also dangerous. The reason Donald Trump may win is because prior to Covid Americans were better off.
The Congressional Budget Office estimated that the Trump tax cuts would add US$1.5t to the National debt but the Treasury says that the Trump tax cuts added US$4.5t in economic activity raising almost as much revenue.
Harris’ proposal to let the Trump tax cuts expire will slow economic growth.
Harris also intends to increase capital gains taxes and to tax the unrealised capital gains made by individuals worth over US$100 million. New taxes never remain limited to just the wealthy. It is an envy tax that will raise little revenue but do great damage.
Read more: How Donald Trump and Kamala Harris differ on economic policy
I doubt TikTok influencers are explaining unrealised capital gains tax. Taxpayers must pay tax on the increased value of their assets. It would kill many startups that are often asset-rich but income-poor. Few small business owners could pay a capital gains tax on the increased value of assets without selling. Selling, often not possible, would destroy entrepreneurship.
Before you think that no New Zealand Government would tax unrealised capital gains the Government already does. Under the New Zealand Foreign Investment Funds – FIF, tax is assessed based on an increase in the value of certain foreign investments. It is one of the reasons why New Zealand has almost no multi-national global companies.
Americans must hope that the party that wins the presidency does not win both houses of Congress. Trump and Harris’ crazier ideas would not pass a hostile Congress. Their loopy ideas have more chance of being implemented in New Zealand where we have no such check.
A Harris victory will turbocharge the call for wealth taxes.
Critics point out New Zealand is one of the few countries that does not tax wealth but consider this:
Apart from Australia, New Zealand has the highest quality of living of any Southern Hemisphere country. New Zealand is the only First World nation whose principal exports are agricultural. How do we do it?
One reason is Australia and New Zealand respect the rule of law and property rights, prerequisites for capitalism, the great wealth creator.
In Australia’s case, the country has mining.
In New Zealand’s case, other Southern Hemisphere countries can grow grass.
Could the reason for New Zealand’s exceptionalism be because we do not tax wealth creation?
This explanation would explain why the US economy outperforms Europe. Capital gains taxes are much higher in Europe and some European countries tax unrealised value gains and have wealth taxes.
Tax is also an explanation for our relative decline. Historians like Geoffrey Blainey say that in 1900 New Zealand had the highest standard of living in the world. Tax was just 10 cents in the dollar.
With the election six weeks away the US presidential election has had two assassination attempts. I am glad I am not in politics today.
This is an American presidential election that no one, from our parliamentarians to those who post on TikTok, should seek to copy.
