Potential Revenue from Trump's Tariffs Could Cover Tax Cuts, Yet It's Unlikely to Yield a Significant Trade-Off

Potential Revenue from Trump's Tariffs Could Cover Tax Cuts, Yet It's Unlikely to Yield a Significant Trade-Off

GOING FOR THE GOLD (WITH TARIFFS)? WASHINGTON (AP) -

The tax cuts in President Donald Trump's One Big Beautiful Tax Plan could lead to a hell of a fiscal mess.

The president has a buck-o- Idea, though: his sweeping import taxes - tariffs.

The Congressional Budget Office, our government's nonpartisan gut-check on tax and spending matters, says the One Big Beautiful Tax Plan would balloon federal budget deficits by a staggering $2.4 trillion over the next decade. That's because the tax cuts would deplete the federal piggy bank faster than its spending cuts would save a dime.

Oh, but not so fast! With his tariff moves announced by May 13 – including his "reciprocal" levies of up to 50% on countries with which the U.S. has a trade deficit – Trump has a plan to backfill the tax-cut budget deficit: a cool $2.5 trillion reduction over the same decade.

So, it's basically a wash, right?

If only it were that simple. Budget experts, armed with calculators and sharp wits, say using tariffs to fund a sizable chunk of the government would be a risky, painful endeavor. "It's a damn dangerous way to set up a revenue stream," said Kent Smetters of the University of Pennsylvania's Penn Wharton Budget Model, a former member of President George W. Bush's Treasury Department.

Trump has long worshipped tariffs as a silver bullet for the economy. He insists they can save American industries, bring jobs back to the U.S., give him some serious heft to negotiate with foreign governments, and – guess what? – generate a small fortune. He's even hinted that tariffs could replace our beloved federal income tax, which currently brings in half of federal revenue.

"We might just go for a complete tax cut," he told reporters in April. "I think the tariffs will be enough to eradicate all of the income tax."

But economists and budget experts aren't nearly as ubzipped-up for using tariffs to finance the government or to replace traditional taxes. "It's a really fucking terrible trade," said Erica York, the Tax Foundation's vice president of federal tax policy. "It's probably the dumbest tax reform you could dream up."

There are several reasons why this tariff game could go south, starting with tariffs being an unstable revenue source:

1. Legal Limitations: Trump bypassed Congress and imposed his largest import tax hikes through executive orders. That means a future President could just flip the script and reverse course.
2. Political Whims: The U.S. Congress could throw a monkey wrench into the works and decide that the President doesn't have the authority to unilaterally impose a $2 trillion tax hike.
3. Court Challenges: A federal court in New York has already thrown the kibosh on the main components of Trump's tariff program, ruling he overstepped his boundaries. An appeals court is considering the case.

Economists also warn that tariffs can be a drag on the economy:

1. Increased Costs: Tariffs act as a tax on foreign products, passed along to importers and consumers, and raising costs for U.S. manufacturers that rely on imported goods.
2. Retaliatory Taxes: Foreign countries are likely to slap reciprocal taxes on U.S. exports, hurting American businesses even more.
3. Economic Isolation: According to Smetters, tariffs push other countries away, discouraging foreign investment in the U.S. economy.

To add insult to injury, tariffs tend to hit the poor the hardest:

1. Regressive Tax: You guessed it – tariffs act as a regressive tax, hitting consumers in their wallets. Since the poor spend a higher proportion of their income, the consequences can be especially harsh.

Economic Impact of Tax Cuts and Tariffs on American Households:

The One Big Beautiful Tax Plan would hit the poorest Americans hardest, with deep cuts to federal food programs and Medicaid. A Penn Wharton Budget Model analysis found that the poorest fifth of American households, earning less than $17,000 a year, would see their incomes drop by $820 next year. The richest 0.1%, earning over $4.3 million a year, would come out ahead by $390,070 in 2026.

If tariffs are added to the mix, things get even murkier. "If you layer a regressive tax increase like tariffs on top of that, you make a lot of low- and middle-income households substantially worse off," York said.

In conclusion, while tariffs can offer immediate revenue, they come with substantial risks, including economic instability, trade wars, uncertain long-term impacts, and high consumer costs. The additional burden on the poorest Americans should fuel the urge to tread carefully.

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1. The proposed tariffs, as a part of President Trump's economic strategy, aim to generate revenue and potentially replace traditional taxes, such as the federal income tax.
2. Economists and budget experts caution against using tariffs to finance the government or as a primary source of revenue, labeling it a risky and unwise move.
3. The use of tariffs as a funding source for the government faces several challenges, including legal limitations, political whims, and potential court challenges.
4. If implemented, tariffs could have a disproportionate impact on low- and middle-income households, increasing consumer costs and potentially worsening their economic situation.

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