As the candidates clash over their economic plans, the deficit, currently estimated at roughly 6-7 percent of GDP, occupies the minds of economists as the two candidates present their contrasting economic policies.

President Donald Trump’s fiscal strategy, which includes extending the Tax Cuts and Jobs Act from 2017 is expected to potentially add $4.1 trillion to the U.S. deficit, according to Penn Wharton Budget Model.

His strategy focused on cutting corporate taxes and easing regulations, a formula designed to boost business growth and restore market confidence. But experts, including 23 recent Nobel laureates, warn that these tactics could fuel inflation and deepen the deficit crisis.

In the opposite corner, Vice President Kamala Harris advocates higher taxes on the wealthy and corporations to fund social initiatives. This approach could add about $2 trillion to the deficit nonpartisan, research-based initiative said.

But while Harris' proposals aim to create a fairer tax landscape, analysts are skeptical of her ability to push those plans through Congress, especially if Democrats fail to secure a majority in the Senate.

In a recent episode of Relative Return Unplugged, Shane Oliver emphasized the seriousness of the situation.

"If you go back in history over the last 30 years, the typical case is that Republican administrations blow up the budget deficit and Democrats then bring it back under control. You think Reagan, Bush, and then the deficit got better under Clinton, and then Bush was followed by Obama. To some extent, however, Democrats generally benefit from the tax cuts and stimulus policies that Republicans pursue. But this time it didn't happen,” he said.

“We should have seen a much bigger improvement in the budget deficit. It should not be 6-7 percent of GDP. And I think Biden made some mistakes. And one of his big things was that one of the first things he did was something like a $2 trillion stimulus package in early February 2021. The economy was already recovering and they're pumping out all this money."

As the election nears, Oliver believes there will be an increase in the deficit regardless of who wins.

“Trump's policies are likely to add potentially 3 percentage points to the budget deficit. Kamala Harris policies, maybe 1 or 2 percent, but obviously Trump is probably more threatening to the deficit, but obviously a lot depends on what they can get through Congress,” he said.

“But it can obviously have a big impact. And I think the markets are starting to worry about that to some extent. The huge budget deficit is worried that it could get worse if Trump wins, and that's why you're seeing that buffer in bond yields, or part of the reason you're seeing that buffer in bond yields that we've seen over the last couple of years for weeks.”

He also pointed to the potential impact on interest rates, noting that a significant increase in the deficit could push interest rates higher, affecting investment and consumer spending. Ultimately, Oliver stressed, the need for a credible plan to address the deficit is more critical than ever.

To hear more from Shane Oliver, tune into our podcast here.