Posted on 06/20/2024 4:07:34 PM PDT by karpov
Donald Trump rocked Washington last week with his proposal to fund the federal government solely from tariffs. Until roughly a century ago, tariffs composed the vast majority of national revenue, but today income and business taxes make up the lion’s share. Can Uncle Sam go back?
Taxing imports to pay Washington’s bills has a certain political appeal. Domestic taxes, often progressive in nature, are unpopular. Better to tax foreigners if we can.
The problem with this thinking, however, is that non-Americans largely don’t pay for tariffs in the end; U.S. households and businesses do, in the form of higher prices and reduced trade. The former president is relying on one of the oldest fallacies of “folk economics.” Supply and demand, not statutes or executive orders, determine who really pays a tax.
Yet, there’s an even bigger flaw in Trump’s plan. Government spending as a share of GDP is approximately 22 percent. Import spending as a share of GDP is 14 percent. To fully cover federal outlays, we would need to find a way to generate tariff revenue in excess of 150 percent of what we spend on all imports. Even if we wanted to cover current receipts only—remember, we run perpetual deficits—we would still have to squeeze an additional 100 percent of revenue out of current imports. There’s no way to make the numbers work.
The figures look even starker in dollar terms. In fiscal year 2024, the national government has taken in $3.29 trillion. Tariffs account for 1.5 percent of that, at $49 billion, meaning that we would need to scale up customs duties by a factor of nearly 70.
The commentariat has already recognized several of these difficulties. Even so, they understate the problem.
(Excerpt) Read more at city-journal.org ...
Maybe it would be a good idea to limit government spending to government revenue!
Whatever exists now ain’t penciling out either given the trillion dollar deficits.
“Trump’s Tariff Trap. Replacing income taxes with tariffs doesn’t pencil out.”
I agree, but if it gets him votes, then what’s the difference?
(hint: The answer is nothing - that’s how the Democrats play, and if the Republicans had a brain, that’s how they would play also)
Yeah was never going to happen either way.
The whole article is a lie. America went from a fringe settlement on the edge of a continental wilderness to a world manufacturing power thanks to tariffs. Tariffs can be used to onshore manufacturing, strengthen America, and enrich the citizens at the expense of our execrable Marxist overlords.
They want to be able to literally put their hands in our pockets. Tariffs won’t do that.
Keynesian economics doesn’t pencil out because it uses crayons.
“Maybe it would be a good idea to limit government spending to government revenue!”
I’m good with that, as long as they don’t limit spending on the programs that I benefit from.
Besides, it doesn’t have to be all tariffs—lower the taxes to cover what the increased tariffs don’t cover and also reduce government spending exponentially.
By golly, I think your on to something there..!
“Penciling Out” has not worked out in the slightest measure in case you didn’t notice?
Our wealth and national security depend on not just getting our manufacturing and resources out of China, but back home again. That is the big opportunity and imperative in shifting taxes from federal income to tariffs.
No we don’t need to put 150% tariff we need to slash the budget down to the core. Look what Milei is doing in Argentina. He’s cutting out all redundant agencies, slashing the government (I think half of all federal agencies were abolished), slashing the budget and the economy is starting to stabilize (inflation is coming down, bonds are going up in price meaning more confidence in the country by investors). He’s only been President a few months. We could get rid of agencies that are duplicative - For example states that have their own EPA can be left to enforce their own, and the federal EPA can close those offices.
The other side of this coin is that if tariffs will be driving up the cost of imports, which will spur economic investment in domestic production because it will be more competitive to make it here.
Of course, once that happens, funding the government through tariff might be even more complicated. I liked Herman Cain’s 9-9-9 idea. It may not have been perfect but it was simple to understand and everyone could comply and reduce costs of accounting and compliance. Also, everyone would pay, so tax and spend policies would be front and center for everyone in this country be they rich, middle or poor; citizen or not.
cut the government, cut the spending! Rinse, repeat!
This is classic Trump. He floats something huge and mind boggling. It gets people talking and they meet in the middle with something that works.
Yep.
5.56mm
The author is an economic illiterate.
Since 99% of all congress critters illegally receive foreign “campaign contributions”, they will never go for this.
It will have challenges, much like taxes from cigarettes decreased with less cigarettes. The same with tariffs if we import less. I’m sure our taxing politicians can figure it out. Maybe they start with cutting spending?!
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