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“Trump’s latest notion is both economically and fiscally illiterate”

Summary:
July 31, 1789, the U.S. Congress passed the last of three acts providing for administering customs tariffs and collecting duties. On the nation’s birthday, the Tariff Act of July 4, 1789, had been passed by Congress followed by the Duties on Tonnage statute on July 20. Mainly, they provided operating revenue for the government. From 1816 they were designed with the additional goal of protecting manufacturing enterprises from low-priced imports. In 1791, Congress approved a new, federal tax on spirits and the stills that produced them. What it did lead too was the whiskey rebellion. Direct tariffs are not necessarily good. It is better to find ways to stimulate manufacturing so it grows and labor is paid well. Comments welcome to this

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July 31, 1789, the U.S. Congress passed the last of three acts providing for administering customs tariffs and collecting duties. On the nation’s birthday, the Tariff Act of July 4, 1789, had been passed by Congress followed by the Duties on Tonnage statute on July 20.

Mainly, they provided operating revenue for the government. From 1816 they were designed with the additional goal of protecting manufacturing enterprises from low-priced imports.

In 1791, Congress approved a new, federal tax on spirits and the stills that produced them. What it did lead too was the whiskey rebellion.

Direct tariffs are not necessarily good. It is better to find ways to stimulate manufacturing so it grows and labor is paid well. Comments welcome to this article.

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The Flimsiness of Trumponomics

by Charles Sykes

The Atlantic

Trump’s latest reported idea fantasy would result in massive tax cuts for the ultrarich—at the expense of other Americans.

Economists are warning that Trump’s reported idea to eliminate the income tax and replace it with massive tariffs on imports would cripple the economy, explode the cost of living, and likely set off a trade war. And because the math doesn’t come close to working, it would also tremendously increase the national debt.

In other words, Trump’s latest notion is both economically and fiscally illiterate.

“If a 20 yo interviewing for a House internship suggested replacing the income tax with a massive tariff, they’d be laughed out of the interview,”

Brian Riedl, a conservative budget expert, wrote on X.

The politics of Trump’s latest scheme are perhaps even worse, because this plan exposes the hypocrisy of his faux populism. Indeed, what’s striking about the idea is just how regressive and non-populist it is. Replacing the income tax with tariffs would result in massive tax cuts for the ultrarich, at the expense of middle and lower-class Americans. Brendan Duke and Ryan Mulholland of the left-leaning Center for American Progress estimate that Trump’s proposal would raise taxes by $8,300 for the middle 20 percent of households, if American consumers end up bearing the full brunt of tariffs on imports.

Working Americans would be hit first by the higher tariffs and then by the inevitable economic fallout as businesses that rely on imports are crushed. Those same workers would also see the downstream effects of the inevitable retaliation from America’s former trading partners, which would likely result in a global trade war.

Even a more modest version of Trumponomics—imposing a 10 percent tax on all imports and a 60 percent tax on all imports from China. Without trying to replace the income tax altogether, it could result in a $2,500 annual tax increase for the typical family. Duke and Mulholland estimate this plan would slap a $260 tax on the typical family’s electronics purchases, a $160 tax on its clothing purchases, and a $120 tax on its pharmaceutical-drug purchases.

Middle-class families would pay more for gas and oil, along with toys and food. That’s because, as any economist will tell you, a large portion of increased tariffs are ultimately paid by consumers, not by the companies importing the goods. Republicans used to understand this concept, but now they seem desperate to deny it: Anna Kelly, a Republican National Committee spokesperson, recently insisted,

“The notion that tariffs are a tax on U.S. consumers is a lie pushed by outsourcers and the Chinese Communist Party.”

This is economic bunkum.

But then, so is Trump’s whole bizarre scheme, which relies on fabulist math. Abolishing income taxes would create a multitrillion-dollar hole in the federal budget. As The Washington Post’s Catherine Rampell points out,

“The entire value of all the goods we import each year is itself about $3 trillion. Not the tariffs, mind you, but the goods themselves.”

In order to make up for the lost income-tax revenue, Trump would have to impose a tax of 100 percent on the value of everything we import. In other words, the cost of everything we import from abroad would more than double.

In the real world, this huge new tax would suppress demand for imports, which would in turn drive down the revenue from the Trump tariffs. The result: massive deficits as revenue falls short, even-higher taxes on the remaining imports, and draconian cuts in spending, including the entitlement programs, such as Social Security and Medicare, that Trump has promised (if somewhat inconsistently) to protect.

And then there is the Ghost of Smoot-Hawley. Historians and economists regard the 1930 Smoot-Hawley Tariff Act—which dramatically boosted tariffs on imports—as a disastrous miscalculation that deepened the Great Depression. Trump’s tariff tax is Smoot-Hawley with its hair on fire.

All of this might explain the skepticism of the otherwise friendly CEOs who talked to Trump at a recent meeting of the Business Roundtable. “Trump doesn’t know what he’s talking about,” one CEO reportedly said; the CEO reportedly added that Trump failed to explain how he planned to implement his policies. Some of the executives apparently seemed surprised by the realization that the former president’s economic ideas were nonsense.

Maybe they should start paying closer attention. But so should Trump’s base. Despite Trump’s insistence that he is the tribune of the forgotten common man, the former president’s economic incoherence could prove devastating to the very voters he claims to champion.

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