Terminate the Income Tax? Trump’s Tariffs Are Truly Terrible
You can add increasing tariffs to eliminate the income tax to the master list of terrible ideas put forward by ex-president Donald Trump.
Redoing the tax structure of the United States along these lines —assuming Congress would sign off on it— would fundamentally change the economy for the worse, substantially raise the cost of living, and necessitate dismantling of the federal government.
Of course, the people who’d be most enthusiastic about this sort of upheaval are the ones who are insulated from everyday life. The IRS has cracked down on higher income tax cheats after years of Republican-led underfunding. It estimates enhanced enforcement will generate $800 billion over the next decade.
Let’s start with a little history of tariffs, which should be seen as a two sided sword rather than a cudgel
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Ninety four years ago today (June 17), President Herbert Hoover signed the Smoot-Hawley act, adding roughly 20% to the United States' already high import duties on foreign agricultural products and manufactured goods. The Fordney-McCumber Act of 1922 previously raised the average import tax on foreign goods to about 40%.
The goal of these increases was protection of American farming interests. The bottom had fallen out of the domestic markets due to efficient and faster shipping from Europe, whose products were cheaper.
The US economy (and its culture) was originally built upon agricultural production. Even though some parts of the economy boomed during the 1920s, a substantial portion of the populace was left behind, including farmers. The collapse of the banking system wiped out the life savings of many people and broke the cycle of borrowing farmers depended on.
I learned about this because my grandfather Porter was a dairy farmer in Vermont who never forgave FDR and the Democrats for undoing Hooverism.
The pointy-headed intellectuals of the day knew Smoot-Hartley was a bad idea. More than 1000 economists circulated a petition urging the President to veto the measure. The more Congress debated on the legislation, the more items got added to the tariffs list. US trading partners saw what was coming and raised their own tariffs, grinding international commerce to a standstill.
The US Senate's official history refers to the act as among the most catastrophic actions in US history. The Great Depression deepened as a consequence, with farms and factories going under because they could no longer afford the tools they needed.
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At last week’s lovefest with Republican lawmakers, former president Donald Trump floated the idea of “imposing an ‘all tariff policy’ that would ultimately enable the U.S. to get rid of the income tax.”
This is the sort of thinking that could only come from the economist-minded losers like Larry Kudlow and/or Peter Navarro. It’s one of those ideas, like flat-tax libertarians loved decades back, that falls apart upon examination.
Needless to say, such a policy would be a huge gift to the super rich.
Via MSNBC:
Adam Hersh, a senior economist with Economic Policy Institute Action, likened the tariff idea “to dropping a nuclear bomb on a hurricane.” It makes no sense and it would be incredibly destructive.
As Hersh explained, to make up for the roughly $4.2 trillion in revenue generated through income taxes, the across-the-board tariffs would have to be somewhere around 120% or 130% on incoming goods. In other words, consumers would effectively have to pay an additional sales tax of up to 130% on any imported item. And that’s assuming that demand for imports remains constant. In reality, demand for imported goods would decline, meaning tariffs would need to be even higher to offset the elimination of the income tax.
Hersh also noted that the presumed elimination of the payroll tax would likely throw fundamental parts of the U.S. social safety net — Social Security and Medicare — into jeopardy.
A former senior policy adviser at the White House National Economic Council, estimated that Trump’s reported idea would raise taxes by $5,000 for a typical family while cutting taxes for the average family in the top 0.1% by $1.5 million. Think of tariffs like sales taxes, which are regressive by their nature.
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Trump’s proposal regarding all-tariff revenue harkens back to the 19th century, when the federal government was funded primarily through tariffs. There are good reasons why governments in industrialized countries (world average is now 2% of revenues) aren’t funded this way anymore, namely that creating revenues needed to sustain even minimal functions damages the overall economy (less demand) while reducing the quality of life for all but the wealthiest citizens.
As is true with anything coming out of the former president’s mouth, practical constraints and Trump’s avoidance of managing details on things not personally beneficial, make an all-tariffs approach unlikely.
His earlier, supposedly more down-to-earth taxation proposal is also a loser, as the Peterson Institute (no friend of liberals) says:
He proposes extending expiring tax cuts from 2017 and has also suggested possible new rounds of tax cuts. At the same time, he has proposed a ten percent "across-the-board" tariff and a 60 percent or more tariff on imports from China. Together, these policy steps would amount to regressive tax cuts, only partially paid for by regressive tax increases. The tariffs would reduce after-tax incomes by 3.5 percent for those in the bottom half of the income distribution and cost a typical household in the middle of the income distribution about $1,700 in increased taxes each year.
By now I’m hoping Americans not in the cult of MAGA have realized that the one essential part of any Trump policy is the part that benefits him personally. One of Trump’s first moves — one that doesn't require Congress action — would cost your family.
Second, the Washington Post reported that, in addition to renewing the Trump tax cuts that expire at the end of next year, his advisers are considering even lower rates and more breaks for the wealthy and corporations.
To pay for these tax cuts, Republicans plan to cut Social Security and Medicare and repeal the Affordable Care Act.
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The former president met with the Business Roundtable, a titans of industry forum, this past week, and some of his more optimistic advisors were even hoping for a “wink, wink” endorsement.
Things didn’t go well, even though Biden administration actions on antitrust and financial regulation were undoing all the post January 6 corporate pledges about not funding Republicans. All Trump had to do was stay on topic and appear sensible.
Matt Stoller, who writes about monopolies at a newsletter called BIG, took a look at Trump's recent campaigning and noticed that the anti-big business monopolism from his 2016 speeches is gone, with “too big” changing into “too woke.”
In other words, Trump sounds like he is the coalition leader of the Republican establishment. He’s still funny, and he’s still weird, and still iconoclastic in terms of his personality. But in terms of what he promises, he’s mostly stopped challenging big corporations, except in cultural terms acceptable to Wall Street. At the Business Roundtable and elsewhere, for instance, Trump offered a cut to corporate income taxes and a rollback of rules on corporations, especially the oil industry.
These arguments seem to be working, as he’s leading in the polls. Support for Trump in Silicon Valley and Wall Street is up, with the candidate getting about 50% more in donations from securities and finance than Biden, a stark reversal from 2016. Business lobbyist Kathy Wylde noted that Republican billionaires have told her “the threat to capitalism from the Democrats is more concerning than the threat to democracy from Trump.” And for what it’s worth, the public no longer sees Trump as an economic populist.
What Stoller missed was the subjective reaction to Trump’s appearance at the Roundtable, namely that some executives went to the news media complaining about the behavior of the man. The gist of those stories was that the former president didn’t seem together, that he wasn’t focused.
Their greed will keep them from opposing Trump. Every single one of these business leaders will end up voting for him - despite what they have witnessed in the past four years and what they saw on Thursday..
Anybody who’s sat through clips of Trump rallies knows these shortcomings. These execs (maybe) were surprised. It’s doubtful that there will be a big movement away from Trump support among them just because he’s a loon at times.
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There are people preparing for the worst case scenario, namely that Trump wins the election.
From the New York Times:
Opponents of Donald J. Trump are drafting potential lawsuits in case he is elected in November and carries out mass deportations, as he has vowed. One group has hired a new auditor to withstand any attempt by a second Trump administration to unleash the Internal Revenue Service against them. Democratic-run state governments are even stockpiling abortion medication.
A sprawling network of Democratic officials, progressive activists, watchdog groups and ex-Republicans has been taking extraordinary steps to prepare for a potential second Trump presidency, drawn together by the fear that Mr. Trump’s return to power would pose a grave threat not just to their agenda but to American democracy itself.
“Trump has made clear that he’ll disregard the law and test the limits of our system,” said Joanna Lydgate, the chief executive of States United Democracy Center, a nonpartisan democracy watchdog organization that works with state officials in both parties. “What we’re staring down is extremely dark.”
I’m all for preparedness, but flipping Trump’s messaging on the economy in a meaningful way is a critical part of defeating him, given that voters say the economy is their top concern. Democrats can do both things, of course, but they can’t just fix the systemic rot at the top by waving a magic wand.