Former President Donald Trump’s idea of replacing income tax with tariffs could potentially cost the average American family an additional $5,000, according to an economist from the Center for American Progress Action Fund. This claim was made by Brendan Duke, who served as a senior policy adviser at the White House National Economic Council and a volunteer on the Biden-Harris transition team. (source)
Trump’s proposal, which he reportedly floated during a private meeting with Republican lawmakers, involves introducing an “all-tariff policy” that would allow the federal government to eliminate income tax. However, several economists were quick to question the viability of this approach. Duke, for instance, pointed out that there is no tariff that could replace revenue from $2T of income taxes by taxing $3T of imports. He further noted that if such a plan were somehow implemented, it would result in a significant tax increase for the bottom 90% of earners and a tax cut for the wealthy.
Another economist, Nobel Prize winner Paul Krugman, also raised questions about the tariff policy, estimating that it would require an average tariff rate of 133 percent. He argued that tariffs would raise the cost of imports to consumers, leading to reduced imports and necessitating a higher tariff rate. This cycle would continue, potentially leading to a tariff rate of 133 percent or higher.
While Trump has long advocated using tariffs as a foreign policy tool, this proposal underscores the potential dangers of such an approach. It serves as a stark reminder of the importance of understanding the implications of tax policies and the potential consequences for average citizens. As always, it is crucial to remember that tax evasion or manipulation can lead to severe penalties and social repercussions. It is our responsibility as informed citizens to understand these issues and make financial decisions that contribute to the well-being of our communities.