What a Harris presidency might mean for her LIFT proposal

“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 the wealth gap has already become a top concern.

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

These feelings revisit an idea that I had previously championed.

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

The size of the credit would be equivalent to “significant tax relief,” according to the Committee for a Responsible Federal Budget.

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

In the current climate, the LIFT Act could financially benefit renters, many of whom are part of the income bracket targeted by the tax credit, according to Francesco D'Acunto, an associate professor of finance at Georgetown University.

DaConto and other experts suggest that the LIFT Act could be a better help for renters than the 5% rent cap proposal that President Biden unveiled on July 16. That proposal calls on Congress to cap rent increases by landlords with 50 or more existing units by 5% or risk losing federal tax credits.

While imposing a rent cap might lead consumers to believe that prices won't rise much, it could have negative side effects, such as landlords pulling their properties out of the rental market, said Karl Widerquist, an economist and professor of philosophy at Georgetown University.

In addition, landlords who lose out on those federal tax breaks will still be able to raise rents, said Jacob Channell, senior economist at LendingTree.

The advantage of the Lyft tax credit, DaConto said, is that it doesn't create the same market distortions that a rent cap might: “But instead now we're on the side of tenants, and we're actually helping them very directly cover the effects of rent inflation.”

“We often give tax breaks to all homeowners in the name of making it easier for people to become homeowners, and we don’t give a similar tax break to people who pay rent. These are the people who are struggling to become homeowners,” Widerquist adds.

Since the LIFT Act was first proposed in 2018, the cost of living has risen dramatically, hitting working-class Americans particularly hard.

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

Meanwhile, the rise of artificial intelligence has raised concerns about long-term job security.

In this context, “there is a good case” for refloating the tax credit for those with incomes below a certain threshold, according to Laura Feldkamp, ​​a professor of finance and economics at Columbia Business School.

“A lot of people are wondering, ‘Is AI going to take my job?’ There are people whose hard-earned skills may become obsolete. One way to deal with that is to increase social security,” she said.

But a tax credit like LIFT would also be very expensive, according to the Tax Policy Center's 2018 and 2019 estimates.

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

But financing such a tax break now could be difficult amid growing concerns about the federal budget deficit. Harris will also need to address trillions in expiring tax cuts passed by former President Donald Trump before 2025.

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

The American Rescue Plan boosted the child tax credit from $2,000 to $3,000, with an additional $600 for children under age 6 for 2021, with families receiving up to half of it upfront in monthly payments.

A Columbia University analysis found that the child poverty rate fell to a historic low of 5.2% in 2021, largely due to the expansion. Then in 2022, the rate doubled to more than 12.4% after pandemic relief ended, 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 America in half,” Harris said at a political event in North Carolina last week, before Biden left the race.

Biden’s fiscal 2025 budget goal was to restore the 2021 child tax credit increase, and House lawmakers passed a bipartisan tax package in January that included expanding the child tax credit. However, the bill has been stuck in the Senate.

“Enhanced tax cuts are a big priority for Democrats,” said Garrett Watson, senior policy analyst and director of modeling at the Tax Foundation.

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

“It's very hard to say whether they will revisit specific policy choices from the distant past,” said Brett House, an economics professor at Columbia Business School.

At the moment, there are “other cultural and political issues that will dominate.”

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