Modeling the economic impact of a Democratic sweep | Beyond the Headlines

Hello. My name is Bernard Yaros. I’m a Lead Economist on the US Macro team here at Oxford Economics. The outcome of the presidential and congressional elections this November will be pivotal for the outlook in 2025 and beyond. In past research briefings, we have modeled the impact of a second Donald Trump presidency, accompanied by a Republican Congress. We’ve also assessed the implications of a divided government.

This week, we continue our series of US election analysis with a research briefing that models the impact if Democrats sweep the White House and Congress. We acknowledge that the odds of a Democratic controlled government are low, but we still consider its impact to cover the full range of possible election outcomes. Under a Democratic led government there would be greater fiscal support for families, as well as new investments in education and health care.

Democrats would also extend some of the expiring Trump tax cuts for individuals. Finally, Democratic lawmakers would raise taxes on corporations and high income households. But these tax cuts would likely not be enough to fully pay for an expansion of social benefits and a partial extension of the Trump tax cuts. Therefore, deficits would still end up higher over the next decade.

Based on our modeling, these policies – on net – would lead to a larger economy both in the short and long term. The policies that deliver the biggest boost are those that expand government support for families. These include a one time expansion of the child tax credit, subsidized childcare and paid leave. In the short run, a temporary expansion of the child tax credit delivers a major cash infusion for families.

But in the long run, it’s the investments in childcare that matter the most. By lowering the cost of work, subsidized childcare encourages more parents, especially mothers with young children, to work and the labor force participation rate ends up higher as a result. These policies do lead to higher inflation in the medium term, but longer term inflation is no higher than would otherwise be the case.

Greater fiscal support for families not only raises labor participation, but also the nation’s potential growth rate, or the rate at which the economy can grow without creating excess inflation. There’s a lot more script to be written in the current election cycle, so stay tuned for further election analysis from Oxford Economics in the coming months.