U.S. Presidential Election Candidates and Budget Deficit

According to analysts at Danske Bank, both candidates for the upcoming U.S. presidential election are expected to widen the budget deficit.

Debate Highlights

• Kamala Harris was perceived as the winner in the first presidential debate against Donald Trump.
  • She emphasized progressive issues, including abortion, the rule of law, and foreign policy, specifically addressing conflicts in Ukraine and Gaza.
• Donald Trump primarily criticized the current administration but did not present specific plans or initiatives.

Market Reactions

Post-debate, Harris has taken the lead in prediction markets, now at 55% compared to Trump’s 45%. Polls also show her performing well, but swing states remain competitive.
– Harris holds a slight edge in Nevada and Wisconsin, while Trump is ahead in Arizona and North Carolina.
– The potential delegate count stands at Harris with 242 and Trump with 246, with 50 delegates still undecided in Michigan, Pennsylvania, and Georgia.

Key States Analysis

• Importance of Pennsylvania: Historically, Pennsylvania has voted for the winning candidate, which could influence Michigan and Wisconsin outcomes.

Economic Outlook

Analysts predict both candidates will exceed the Congressional Budget Office forecast of a $1.9 trillion deficit (-6.5% of GDP) by 2025.

Kamala Harris’s Economic Plan

• Plans to largely follow Biden’s FY2025 budget, including tax cuts for lower and middle-income families, enhanced tax credits, and healthcare subsidies, partly funded by increased corporate taxes.
• Reintroducing the Child Tax Credit could add an average of $133.5 billion to the deficit annually over the next four years, increasing GDP deficit percentage by 0.4 points.

Donald Trump’s Economic Proposals

• His plans include extending the 2017 Tax Cuts and Jobs Act, reducing corporate taxes, and eliminating income taxes on Social Security benefits, which may add an average of $260 billion annually to the deficit and raise the GDP deficit percentage by 0.8 points.

Public Perception

Despite Trump’s plans likely resulting in a larger deficit, 37% of post-debate poll respondents believe he is more likely to reduce debt, compared to 30% for Harris.

Political Landscape

The ability for either candidate to implement their policies is uncertain, with a possible political deadlock.

Republican Control

Republicans are currently expected to regain control of the Senate, which could bolster their chances in the upcoming elections.
– Prediction markets indicate a 28.5% chance for a Republican sweep versus a 21.5% chance for the Democrats, though this gap has narrowed post-Federal Reserve’s unexpected rate cut.