Former president Donald Trump just can’t let a bad idea go. On Thursday, while meeting with Republican lawmakers on Capitol Hill, Trump reportedly raised the idea of swapping higher taxes on imports for lower income taxes. It’s a tax scheme that makes little sense from virtually any perspective it is considered.
“President Trump says ‘this is an idea, but I’d love to raise tariffs’ and then he said, ‘and maybe even no income taxes on Americans.’ Everyone was clapping in the room,” explained GOP Rep. Marjorie Taylor Greene, according to Bloomberg. “I think that’s a fantastic idea.”
It is anything but.
For one, tariff revenues currently account for just 2% of federal revenues. Attempting to replace any significant revenue from income taxes by raising taxes on imports will result in massive and regressive increases on the costs of goods in America.
According to Bryan Riley at the National Taxpayers Union, “it would take a tariff rate of 71%” on all imported goods to match the level of revenue generated by income taxes.
That is, if one assumes that the federal government could just slap such a massive tax increase without unintended negative consequences.
Explains Riley, “a tariff rate of 71 percent would dramatically reduce the volume of imports. As a result, the revenue generated would be nowhere close to $2.2 trillion. Additionally, the revenue hit would be worsened by the massive economic disruption a 71 percent tariff would inflict on the economy, the resulting lost exports and global trade war, and the indirect impact of transitioning from a progressive individual income tax system to a regressive import tax system.”
In other words, what Trump pitched and what Rep. Greene considers “a fantastic idea” is not only impossible to achieve but would upend the global economy, to the detriment of American workers, taxpayers and consumers.
While it’s possible Trump was just thinking out loud, his latest idea is merely an extension of his proposal last August to impose a 10% across-the-board tax on imports.
According to an analysis by the Tax Foundation, “Trump’s proposal of a 10 percent trade tax matched with in-kind retaliation would shrink the U.S. economy by 1.1 percent and threaten more than 825,000 U.S. jobs.”
So, that doesn’t make sense either. And there’s a good reason for that: tariffs are bad policy because they are based on bad economic thinking. The belief that a nation can tax imports and net out ahead has been disproven time and time again.
Yet it’s an idea embraced by not only Trump, but by President Joe Biden, who has announced a 50% tariff on Chinese semiconductors and electric car batteries, as well as a 100% tariff on electric cars from China.
That the leaders of the two dominant parties in the United States are proud protectionists is a blow to economic freedom and prosperity here at home and around the world.
We cannot tax our way to a more prosperous future. It is a problem when the new face of the party of Ronald Reagan can’t think past the first step of an economic intervention.
It is imperative that members of both parties stand up for free trade and speak out against the senseless tide of protectionism.
