What Harris’ Presidency Could Mean for Her LIFT Bill

“Building the middle class will be a defining goal of my presidency,” Vice President Kamala Harris said at a political event in West Allis, Wisconsin, on Tuesday — one of her first speeches since becoming the front-runner to replace President Joe Biden as the Democratic presidential nominee.

As Harris’ campaign takes shape, addressing wealth inequality is already at the forefront of her concerns.

“When our middle class is strong, America is strong,” she said Tuesday.

This sentiment revisits an idea she previously defended.

More information on personal finance:
What a Kamala Harris Administration Could Mean for You
What Kamala Harris Could Stand on Tax Policy, According to Experts
JD Vance Once Called on GOP to Fight Student Loan Cancellation

One of Harris’ signature proposals as senator — known as the LIFT the Middle Class Act, or Livable Incomes for Families Today — would have provided an annual tax credit of up to $3,000 per person (or $6,000 per couple) for low- and middle-income workers, on top of the benefits they already receive.

According to the Committee for a Responsible Federal Budget, the amount of the credit would have represented a “significant tax break.”

The Harris campaign did not immediately respond to CNBC’s request for comment.

In the current climate, the LIFT Act could financially benefit renters, since many of them fall into the income category targeted by the tax credit, according to Francesco D’Acunto, an associate professor of finance at Georgetown University.

D’Acunto and other experts suggest that the LIFT Act may be an even better help for renters than the 5% rent cap proposal Biden unveiled on July 16. That proposal calls on Congress to cap rent increases for landlords with 50 or more existing units at 5% or lose federal tax breaks.

While rent caps may lead consumers to believe that prices won’t rise significantly, they could have negative side effects, such as landlords taking their properties off the rental market, said Karl Widerquist, an economist and philosophy professor at Georgetown University.

Additionally, landlords who lose these federal tax breaks will still be able to raise rents, said Jacob Channel, senior economist at LendingTree.

The advantage of the LIFT tax credit, D’Acunto said, is that it doesn’t create the same market distortions that rent caps do. “But instead, we’re now helping tenants offset the effects of rent inflation,” he said.

Widerquist adds: “We very often give tax breaks to all homeowners under the guise of making homeownership more affordable, but we don’t give a similar tax break to people who pay rent. Those are the people who have a hard time becoming homeowners.”

Since the LIFT Act was first proposed in 2018, the cost of living has only increased, hitting working-class Americans hardest.

For these households, “real incomes have declined or remained flat due to inflation,” said Tomas Philipson, former chairman of the White House Council of Economic Advisers. That’s left many workers feeling less confident about their financial situation and less satisfied with Biden’s handling of the economy.

At the same time, the rise of artificial intelligence has fueled fears about long-term job security.

In this context, “there is a good case” for reinstating a tax credit for those earning below a certain income threshold, according to Laura Veldkamp, ​​professor of finance and economics at Columbia University Business School.

“A lot of people are asking the question, ‘Is AI going to take my job?’ There are people whose hard-earned skills could be obsolete,” she said. “One way to address that would be to have better social security.”

But a tax credit like LIFT would also be extremely costly, according to 2018 and 2019 estimates from the Tax Policy Center.

To help cover the bill for the additional financial support, Harris at the time proposed to repeal provisions of the Tax Cuts and Jobs Act for taxpayers earning more than $100,000.

But financing such a tax credit could prove difficult amid growing concerns about the federal budget deficit. Harris will also have to address trillions of dollars in tax cuts that are set to expire before 2025, signed into law by former President Donald Trump.

The LIFT plan was first proposed years before Congress temporarily extended the child tax credit during the Covid-19 pandemic, which may now be a bigger priority, experts say.

The American Rescue Plan increased the child tax credit from $2,000 to $3,000, with an additional $600 for children under 6 for 2021, and families received up to half up front via monthly payments.

The child poverty rate fell to a record low of 5.2% in 2021, largely due to the expansion, according to a Columbia University analysis. Then, in 2022, the rate more than doubled to 12.4% after pandemic aid expired, according to the U.S. Census Bureau.

“While the last administration gave tax cuts to billionaires, we gave tax cuts to families through the child tax credit, which cut child poverty in half in America,” Harris said at a political event in North Carolina last week, before the president dropped out of the race.

Biden’s 2025 budget aimed to restore the 2021 child tax credit increase, and House lawmakers passed a bipartisan tax plan in January that included an expansion of the child tax credit. However, the bill has stalled in the Senate.

“Enhanced tax relief is a top priority for Democrats,” said Garrett Watson, senior policy analyst and head of modeling at the Tax Foundation.

However, it is unclear whether Harris will renew her calls for LIFT or focus on the child tax credit, which has a different design but a similar goal, he said.

“It’s very difficult to say whether they would revisit specific policy options from so long ago,” said Brett House, an economics professor at Columbia Business School.

For now, “other cultural and political issues will dominate.”