Former President Donald Trump is an economic nationalist who favors tariffs — taxes on imports — as a way to spur domestic production of goods. During his presidency, he raised tariffs on select goods, setting off retaliatory tit for tats with China and Europe. This election cycle, he’s leaning into tariffs more aggressively, proposing, among other things, a 10% across-the-board tariff on all imported goods. Now, according to a head-spinning new report, he’s contemplating an unfathomably radical new tariff regime.
According to CNBC, citing sources who were present at a meeting with Republican lawmakers in Washington on Thursday, Trump floated the idea of “imposing an ‘all tariff policy’ that would ultimately enable the U.S. to get rid of the income tax.” That is, Trump reportedly discussed abolishing income taxes and making up for all the lost revenue purely through taxes on imported goods.
Such a policy would be catastrophic for the economy and ordinary Americans and a huge gift to the superrich.
Such a policy would be catastrophic for the economy and ordinary Americans and a huge gift to the superrich. It’s unclear how attached Trump is to this idea, and it certainly would be difficult to make it a reality. But the report that he sees it as appealing provides a window into how unserious he is about economic policy — except as a package to sell ostensibly populist ideas that would mostly just benefit the ultrawealthy.
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.
Such a system would cause economic inequality to skyrocket because the burden for taxes would shift dramatically away from the rich and toward ordinary Americans. The income tax system is progressive — you pay more taxes the more money you make. The bottom 40% of the income distribution pays either no federal income tax or receives a negative income tax through the earned income tax credit. Replacing the income tax with what amounts to a huge sales tax would hit lower earners extremely hard. Meanwhile, the wealthy would see a huge boost to their accounts. They’d go from paying the higher rates of those in the top income bracket to none at all, and, relative to the poor, they’d have a much smaller share of their income eaten up by the cost of goods. Brendan Duke, 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.
Moreover, the tariff proposal would send shockwaves through the global economic system, disrupting supply chains and sparking trade wars with our trading partners across the world.
Trump has displayed significant economic illiteracy in the past. He mainly thinks about global trade as a zero-sum game and tariffs as a means for producing “winners” and “losers.” While the strategic use of tariffs can serve as a tool for shielding certain domestic industries, Trump tends not to think strategically about such matters.
Trump may think it sounds like red meat for the base to free the people from Uncle Sam’s sticky fingers and instead pay for government business by punishing foreign workers. It’s possible that such messaging would appeal to some voters who don’t understand how the tax system or tariffs work. But in reality his proposal would destroy the wallet of the average American, throw the global economy into discord and provide a huge monetary boon to the wealthy. As is so often the case with Trump, he uses the language of populism to advance plutocracy.