Replace Income Tax with Tariffs on Imports?

[Sarkus]

Another doozy from the felon Donald Trump:

https://www.cnbc.com/2024/06/13/trump-all-tariff-policy-to-replace-income-tax.html

In his meetings with the GOP, the orange one proposed replacing income tax with tariffs on imports. That's right, the idea that workers pay zero income tax, and the US treasury gets its coffers replenished by setting higher tariffs on imports (in excess of 100%). Even the idea of using some increased tariffs to fund some income tax cuts is risky, as tariffs and income tax serve two distinct purposes: one to fund government spending, the other to protect markets.
Consensus by economists would seem to be that the felon's latest idea would entirely regressive, sending back economic policy to the 19th century, and hitting low and middle-income families significantly while benefitting the rich.

Hopefully this will get the coverage it deserves and send his poll-numbers suitably downward, but given the US media is either in the thrall of their cult-leader or far too lenient on highlighting and disapproving of his otherwise abhorrent behaviour, I doubt it.


And this policy is from someone, if I remember correctly, who seemed to think that tariffs were a form of free money, that the US could just raise tariffs on Chinese imports, for example, and it would be the Chinese pay the tariffs: https://www.forbes.com/sites/johnbrinkley/2019/08/12/trump-still-doesnt-know-who-pays-tariffs/
To those that aren't clear on such matters: it is the importer who pays the tariffs.
E.g. China business X sells goods to US company Y at 100. The US gov't slaps a 20% tariff on the goods. US Company Y has to pay 120, paying 100 to the Chinese business X, and 20 to the US gov't.
The US company Y, if merely an intermediary, would then need to sell the goods into the US market at the higher price so as to recover the additional 20 that it has paid out in tariffs. So the end-user - usually low- and middle-income Joe Public - ends up paying the bill.

 

[Seattle]

I remember when he first started talking about tariffs (and enacting them) when he was President. I though "Tariffs, WTF, are we going back to those?"

Yes, it's a stupid idea. Then again it's Trump although MSNBC probably doesn't understand tariffs either.

This is the same guy though that just said he is for Bitcoin (so far so good) because he wants Bitcoin to be made in America (?) and because it would make us energy independent (?)...

 

[exchemist]

I remember when he first started talking about tariffs (and enacting them) when he was President. I though "Tariffs, WTF, are we going back to those?"

Yes, it's a stupid idea. Then again it's Trump although MSNBC probably doesn't understand tariffs either.

This is the same guy though that just said he is for Bitcoin (so far so good) because he wants Bitcoin to be made in America (?) and because it would make us energy independent (?)...

He's a loony and talks out of his arse the whole time. Little of what he says about policy stays consistent for more than 24hrs. What we can be sure of is his intention to destroy what remains of the impartiality of the US legal system and to undermine US democracy, while visiting retribution on his numerous enemies, real and imagined. He wants to be a dictator, that's clear, and he's already exhibiting the paranoia that so often goes along with that.

 

[billvon]

In his meetings with the GOP, the orange one proposed replacing income tax with tariffs on imports. That's right, the idea that workers pay zero income tax, and the US treasury gets its coffers replenished by setting higher tariffs on imports (in excess of 100%).

Let's all think about what the government will do if you make their income dependent on foreign imports.

"We have a deficit and we can't afford any more F-35's! Quick, get rid of domestic steel manufacturing, so we can get a little more money!"

 

[Seattle]

Let's all think about what the government will do if you make their income dependent on foreign imports.

"We have a deficit and we can't afford any more F-35's! Quick, get rid of domestic steel manufacturing, so we can get a little more money!"

The whole Trump tariff plan is just irrational. However your example isn't a good one. F-35's aren't known for the amount of steel that they use. They have to fly afterall.

No one would stop using domestic steel anyway for that reason. We have no problem running deficits and monetizing them now so that's not likely to change under Trump either.

The whole concept with tariffs (a bad idea) is to reduce demand for imports so nothing about this scenario makes any sense.

 

[Jeeves]

He just liked the word at the time. He does that: learns a new biggish word and can't stop using it until he's used it all up. During his recent trial, the word-of-the-month was "conflicted". He seems to think it means having an undeclared conflict of interest.

OTOH... The US is one of the few nations in the world with the territory, resources, infrastructure and competent work-force for economic independence. So, how about relieving the lowest 20% of earners of income tax and putting that burden on corporations that operate in countries with cheap labour? Give them a little incentive to bring jobs home and make America liveable again. (Of course, it would take a good deal of co-ordination between business and government agencies, which cannot possibly happen.)

 

[Seattle]

He just liked the word at the time. He does that: learns a new biggish word and can't stop using it until he's used it all up. During his recent trial, the word-of-the-month was "conflicted". He seems to think it means having an undeclared conflict of interest.

OTOH... The US is one of the few nations in the world with the territory, resources, infrastructure and competent work-force for economic independence. So, how about relieving the lowest 20% of earners of income tax and putting that burden on corporations that operate in countries with cheap labour? Give them a little incentive to bring jobs home and make America liveable again. (Of course, it would take a good deal of co-ordination between business and government agencies, which cannot possibly happen.)

The bottom 20% already don't pay federal income tax.

Punished corporations doesn't help anyone nor does increasing their costs. When wages are high there are just certain products that aren't going to be profitable to make in higher wages countries. You can't just wish that wasn't the case.

 

[Jeeves]

The bottom 20% already don't pay federal income tax.

I should have made that clearer: the bottom 20% of workers who do currently pay income tax.

Punished corporations doesn't help anyone nor does increasing their costs.

Not punished; taxed. While we're at it, stick a hefty exit fee on funds sent abroad. I realize they're more used to subsidies and bailouts, but they'd get the hang of it eventually. If they do not wish to increase their costs, they might consider cutting down on the waste. So might the consumer. Once you factor in the filthy packaging and shipping of everything back and forth around the world, there may not be such a big increase in costs. And if they were also taxed on the yachts and private jets, they might stop using those pollution devices. They can save even more on campaign contributions, if the government decided to govern instead of serving them. Or, they can simply opt to dissolve the corporation and break it down into the independent smaller enterprises they gobbled up in the first place. Lots of options.

When wages are high there are just certain products that aren't going to be profitable to make in higher wages countries.

So? Don't make so much crap! Make things people actually need that are good for them.

You can't just wish that wasn't the case.

No, but a government with a spine could try to.
It would require investing in better education and retraining programs. Might also help to make grants or low interest loans available to companies starting, re-tooling or upgrading to methods that waste and pollute less; products that are reusable and efforts at environmental reclamation.
Of-bloody course IT Cannot BE Done!

 

[Seattle]

Corporations are "incorporated", It is just a form of limited liability. It doesn't mean it is a large company;

Governments trying to make business decisions doesn't work.

 

[Jeeves]

Corporations are "incorporated", It is just a form of limited liability

I know that. The little ones - say a contractor with three helpers - don't shovel bucketloads of money to numbered bank accounts in tax shelters, or close a factory in a small US town that depends entirely on it for employment and move it to Somalia. They pay their levied taxes and would not be affected.

Governments trying to make business decisions doesn't work.

Not business decisions; taxation and international commerce decisions. That's government's job.

 

[Seattle]

It's not about making crap. We need T-shirts and towels. We just don't need them to be made here. If we spend more on education, as you suggest, it won't be to be able to make for towels.

 

[Jeeves]

It's not about making crap. We need T-shirts and towels. We just don't need them to be made here. If we spend more on education, as you suggest, it won't be to be able to make for towels.

You don't need so many towels and rude teeshirts - or washing machines or cellphones or plastic toys or cars or guns or shoes. And, obviously, you don't need to make them for yourselves. It would just save an awful lot of fuel and pollution not to have to ship all that raw material and finished product all around the world, cut down on shipping accidents and ensure a little more economic stability for American communities.
If you spent more on education, it would not just be for towels - though someone might design better towels - it would also be to make more durable products with less harmful fallout, eliminate waste, supply clean energy more efficiency, design safer transportation systems, better food and better health.

 

[billvon]

The whole Trump tariff plan is just irrational. However your example isn't a good one. F-35's aren't known for the amount of steel that they use.

Has nothing to do with how much steel they use.

If you give government an incentive to supress US manufacturing, they will. Politicians love money more than anything else.

 

[Seattle]

Has nothing to do with how much steel they use.

If you give government an incentive to supress US manufacturing, they will. Politicians love money more than anything else.

Tariffs don't suppress US manufacturing.

 

[Jeeves]

If you give government an incentive to supress US manufacturing, they will.

Where is the financial incentive - particularly to government - in suppressing US manufacturing?
Not a facetious question: I would really like to know the rationale.

 

[billvon]

Tariffs don't suppress US manufacturing.

Correct. But tariffs make money for the government. Money is a very strong incentive. And politicians like making money; they can then brag that they cut the deficit and gave lots of cheese to their constituents.

And if they close that steel plant in Pittsburgh, then construction companies will need to import more steel. And those politicians will see more money.

 

[billvon]

Where is the financial incentive - particularly to government - in suppressing US manufacturing?
Not a facetious question: I would really like to know the rationale.

OK let's use an example.

You run the roads in a town, including one big toll road. Part of those tolls pay your salary. But to a much larger degree, the tolls go to local schools, and you are considered a hero for funding great schools without having the town go into debt.

Then a new road opens parallel to your road. Your toll income goes down. The town starts going into debt. You become unpopular.

Then the new road develops some fairly bad potholes. Tolls go up slightly, and people think that you might not be so bad after all.

What are you going to spend your maintenance budget on? The new road, or the toll road that funds the schools (and pays your salary?)

 

[Seattle]

Correct. But tariffs make money for the government. Money is a very strong incentive. And politicians like making money; they can then brag that they cut the deficit and gave lots of cheese to their constituents.

And if they close that steel plant in Pittsburgh, then construction companies will need to import more steel. And those politicians will see more money.

That's not the history with tariffs. They are used to limit imports to encourage domestic industries. All it really does is just raise domestic prices. The foreign company just quits exporting to the US and the foreign country just enacts their own tariffs. Neither tariffs raise much money.

 

[Sarkus]

Correct. But tariffs make money for the government. Money is a very strong incentive. And politicians like making money; they can then brag that they cut the deficit and gave lots of cheese to their constituents.

And if they close that steel plant in Pittsburgh, then construction companies will need to import more steel. And those politicians will see more money.

And the consumer will see inflation wipe out any benefit of not paying income-tax and be worse off as a result.
Further you'd have greater unemployment, and so greater government spending required in the form of welfare, defeating the purpose of closing the industry in the first place.

Needing/wanting more money, government would close other industries, to generate more tariffs but would forever be chasing their tail.

Taken to an extreme, there would be zero manufacturing in the US, and tarrifs supporting everyone on welfare, so that they could buy the heavily increase priced imoorts. Government wouldn't be able to generate enough from tarrifs, fewer imports would be sold due to welfare not covering the costs, and so less income from tarrifs. (There would be a "sweet spot" on the Laffer curve, I'm sure, but its almost certain that that wouldn't generate anywhere near sufficient revenue for government.)
All in all not a particularly good incentive for politicians to close industry to generate tarrifs. But, to be fair, they would have shown their stupidity and ineptitude by moving the government funding to tarrifs in the first place. So all bets would be off as to what they may then do. Which I guess would be to wait until Trump's next country-ruining brain-fart.

Or maybe his plan is to destroy the US economy and thereby make it ripe for a Chinese take-over???

 

[Seattle]

And the consumer will see inflation wipe out any benefit of not paying income-tax and be worse off as a result.
Further you'd have greater unemployment, and so greater government spending required in the form of welfare, defeating the purpose of closing the industry in the first place.

Needing/wanting more money, government would close other industries, to generate more tariffs but would forever be chasing their tail.

Taken to an extreme, there would be zero manufacturing in the US, and tarrifs supporting everyone on welfare, so that they could buy the heavily increase priced imoorts. Government wouldn't be able to generate enough from tarrifs, fewer imports would be sold due to welfare not covering the costs, and so less income from tarrifs. (There would be a "sweet spot" on the Laffer curve, I'm sure, but its almost certain that that wouldn't generate anywhere near sufficient revenue for government.)
All in all not a particularly good incentive for politicians to close industry to generate tarrifs. But, to be fair, they would have shown their stupidity and ineptitude by moving the government funding to tarrifs in the first place. So all bets would be off as to what they may then do. Which I guess would be to wait until Trump's next country-ruining brain-fart.

Or maybe his plan is to destroy the US economy and thereby make it ripe for a Chinese take-over???

The government isn't going to be "closing industries" in any event. Tariffs encourage domestic industry. Tariffs (as you mention) increase the cost to the consumer but no one is going to buy those goods.

The whole concept is crazy.