Can Harris run as a deficit hawk?

Sep 10, 2024

Presented by Citi

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QUICK FIX

Vice President Kamala Harris has been hammering Donald Trump over how his agenda could drive up the cost of living and cause the economy to contract. Before she takes the debate stage tonight, her campaign has also been teeing up attacks to go after the former president over how his policies would add trillions to the national debt.

Recent estimates from the Penn Wharton Budget Model suggest that Harris’s policy plans would add considerably less to primary deficits over the next 10 years than what Trump has proposed. Her campaign has been playing up how Trump’s policies would create, in its words, a “debt explosion that would be put squarely on the backs of the middle class”

Polls taken by the Democratic polling firm Blueprint found evidence that a deficit hawk message could resonate with Republicans who supported former UN Ambassador Nikki Haley during the primary. Those voters are much more likely to blame Trump-era tax cuts for driving up the national debt.

Haley voters, in particular, “have a real problem with how Donald Trump managed government spending, and it drove their voter behavior in the Republican primaries,” Evan Roth Smith, a founding partner at the political consulting firm Slingshot Strategies and Blueprint’s lead pollster, told MM.

Democratic messaging for much of the presidential campaign sought to attract Haley voters by framing the case against Trump “on matters of character,” Smith said. “Being serious about fiscal responsibility and serious about responsible tax policy is actually really important to winning them over. And you're probably not going to win them over if you don't speak to them about one of the leading issues they have with Donald Trump.”

While most polls suggest inflation, or the overall state of the economy, remains the top concern for voters, a recent survey taken by the Peterson Foundation found considerable appetite for both Harris and Trump to offer more specifics on their plans to address the country’s $35 trillion debt load during the debate.

“President Trump's agenda, as he's laid it out, would put us further into the red,” Marc Goldwein, senior policy director at the Committee for a Responsible Federal Budget, told MM.

But there are still questions around whether the tax plans laid out in Harris’s stated policies would raise enough revenue to fund some of her other proposals, he said. “I'm not positive that actually Harris will end up better.”

The Biden and Trump administrations both added trillions of dollars to the national debt. Trump approved $8.8 trillion of gross new borrowing and $443 billion of deficit reduction while in office, according to CRFB estimates. President Joe Biden approved $6.2 trillion of new borrowing and $1.9 trillion of deficit reduction.

Harris will also have to weigh the risks of triangulating too far to the right in an effort to sway voters who — before Trump — would never consider supporting a Democrat for president. The Haley voters that Blueprint identified are conservative Republicans with “strong views on fiscal policy,” according to Smith. That’d be tough sledding for any Democrat, much less someone who cut their teeth in San Francisco city politics.

The challenge Harris has faced — and will continue to face on tonight’s debate stage — is to make an affirmative case for a policy agenda that could be palatable to a coalition that now includes both Rep. Alexandria Ocasio-Cortez (D-N.Y.) and former Vice President Dick Cheney. Any policy adjustment that Harris makes to placate moderate or hard-right Republicans could muddle her appeal to the party’s base.

To wit: David Stein, a fellow at the progressive think tank the Roosevelt Institute, published an analysis last week arguing that Democrats need to shed Clinton-era hawkishness if the party is to meaningfully address looming challenges related to cost-of-living and climate.

"The Democratic Party is holding so much because of the lack of any functioning Republican Party right now,” one former Biden administration official told MM. “I worry that it will tear apart if every policy decision becomes an attempt [to] balance this Jenga tower, issue by issue.”

IT’S TUESDAY — Be sure to visit POLITICO.com this evening as your host, and several of his talented colleagues, will be live blogging the debate. And if you’ve got thoughts on how Harris and Trump perform, send them my way to ssutton@politico.com.

A message from Citi:

How will digital currencies shape the future of finance? As blockchain technology advances, digital currencies are poised to disrupt traditional banking models and could redefine the global monetary landscape. Central banks are working across global stakeholders to help determine what future adoption might look like – presenting both challenges and opportunities for businesses. Explore in-depth analysis from Citi on the potential implications in the Citi GPS Report, Money, Tokens, and Games.

Driving the Day

SEC Chair Gary Gensler participates in a virtual discussion with the Peterson Institute for International Economics at 9:30 a.m. … Fed Vice Chair for Supervision Michael Barr will deliver remarks on the Basel III endgame at the Brookings Institution at 10 a.m. … House Financial Services holds a subcommittee hearing on decentralized finance at 10 a.m. … House Oversight holds a hearing on pandemic fraud at 10 a.m. … Rep. Andy Barr (R-Ky.) participates in a discussion on Basel III at 10 a.m. … Former National Economic Council Director Brian Deese participates in a virtual discussion with Washington Post Live at 11:30 a.m. … Fed Gov. Michelle Bowman will address the future of stress testing and the stress capital buffer framework at a Federal Bar Association event at 12:15 p.m. … House Financial Services holds a subcommittee hearing on ESG at 2 p.m.

Major changes coming — Michael Stratford reports that Michael Barr, the Fed’s top regulatory official, this morning plans to lay out how regulators plan to scale back and change their proposal to increase capital requirements on big banks in the face of more than a year of pushback from the industry and Republicans on Capitol Hill. In a major speech at the Brookings Institution, Barr will detail the major revisions that regulators have agreed to make to the Basel III endgame proposal, which are expected to be circulated for another round of public comment.

The new movement on the plan comes after the Fed, the OCC and the FDIC have been at odds for months over how to proceed. And the proposal, first unveiled in July 2023, is now running headlong into the November election, the outcome of which will likely determine how, if at all, the plan is finalized.

— Bloomberg’s Katanga Johnson reports that banks will face a 9 percent increase in capital requirements under the revamped proposal, less than half of the original’s 19 percent hike.

— The rhetoric around the re-proposal is likely to be intense. An open letter from Americans for Financial Reform, the Institute for Agriculture and Trade Policy and the Revolving Door Project is calling on Fed Chair Jerome Powell to recuse himself from consideration of the Basel III Endgame regulatory capital rule. The progressive groups argue that a closed-door meeting that Bloomberg reported Powell held with big bank CEOs on the proposal was improper. Text seen by your MM host ahead of publication said Powell should “avoid the appearance of impropriety that would undermine public perception of the central bank’s independence and impartiality.”

— The banks appear to be trying to duplicate their success on Basel III in a new campaign against the Fed’s new debit interchange rule. The American Bankers Association plans to run an ad during tonight’s debate saying that the rule — which lowers the cap debit card swipe fees — calls on regulators to “stop the corporate megastore bailout.”

First in MM: Andy Barr to introduce global governance bill – Eleanor Mueller reports that Rep. Andy Barr this morning will introduce legislation that would boost scrutiny of the U.S.' engagement with financial global governance groups.

The Kentucky Republican's bill would empower Congress to proactively veto financial agencies' involvement with groups like the Bank for International Settlements and the agencies' implementation of any related policies. The Fed board would have the same power over Fed banks.

House Financial Services will hold a hearing at 10 a.m. on the groups. Barr on Friday slammed BIS and others for declining to appear in front of the committee.

— Barr also appears on the Banking with Interest podcast where he offered his thoughts on next steps for Basel III, fair access and Consumer Financial Protection Bureau.

Trump warms to cannabis banking — Jasper Goodman reports that Trump is signaling support for legislation that would allow the cannabis industry to access financial services. Trump posted on his social media site late Sunday night that he hopes to "work with Congress to pass common sense laws, including safe banking for state authorized companies." His support for the cannabis banking effort could provide a big boost to the long-stalled SAFER Banking Act, which seeks to extend financial services to the marijuana sector so it is less reliant on cash.

Trump also wrote that it is time to "end needless arrests and incarcerations of adults for small amounts of marijuana for personal use" and said he will vote for a Florida ballot initiative seeking to legalize adult use of the drug.

A message from Citi:

The Economy

Pain points — Americans are starting to fall behind on their student loan payments again, according to Bloomberg’s Alexandre Tanzi. Those missed payments will soon result in lower credit scores.

— Meanwhile, Citigroup CFO Mark Mason told investors at a conference hosted by Barclays on Monday that the bank’s card data shows that US consumer spending is shifting toward basic needs, Bloomberg’s Todd Gillespie reports.

At the regulators

Playing U2’s “One” — Former European Central Bank President Mario Draghi’s report on EU market competitiveness argues that the bloc should have a single regulator of its securities markets, a single clearinghouse and a single central securities depository, our Kathryn Carlson reports.

— And don’t worry, there’s a Basel III angle here too. The report says the EU should “assess whether current prudential regulation … is adequate to have a strong and international competitive banking system in the EU.”

The Left sank — The civil and criminal charges filed against Citron Research founder Andrew Left have “unnerved other activist short sellers,” The NYT’s Matthew Goldstein reports. Given how the charges take issue with practices that are common among short sellers, some have said they’re in the process of changing their disclosures.

To the moon! — The crypto market’s resurgence in 2023 coincided with a spike in digital asset-related scams. Those frauds led to an estimated $5.6 billion in losses last year, according to FBI statistics released on Monday. Per our own Declan Harty, that’s a 45 percent jump from the previous year.

Dispatch from the Google trial — Our very own Josh Sisco is on hand at the Google antitrust trial. DOJ lawyer Julia Tarver Wood said Google is using the standard “monopolist playbook” to exert control over display ads that pop up on web pages. Google attorney Karen Dunn — who is also helping to prep Harris for her debate — argued that the government’s case against the online behemoth is “like a time capsule.”

A message from Citi:

How will digital currencies shape the future of finance?

As blockchain technology advances, digital currencies are poised to disrupt traditional banking models and could redefine the global monetary landscape – presenting both challenges and opportunities for businesses.

Blockchain-based products can make a significant impact in terms of wide consumer adoption in digital currency, especially central bank digital currency (CBDCs), gaming, and social. Momentum on adoption has positively shifted as governments, large institutions, and corporations have moved from investigating the benefits of tokenization to trials and proofs of concept.

Explore in-depth analysis from Citi on the potential implications in the Citi GPS Report, Money, Tokens, and Games.