cover image: Assessing Trump’s New Tariff Ideas

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Assessing Trump’s New Tariff Ideas

22 Sep 2024

This past summer, Republican presidential nominee and ex-president Donald Trump floated the idea of replacing the federal personal income tax with import tariffs. The idea has since been memory-holed; somebody must have told him it was utterly impossible. Current revenues from import tariffs represent 1.6 percent of federal revenues, while the individual income tax comprises 49 percent. A first calculation suggests that tariff revenues, currently at $72 billion, would have to increase some 2,900 percent to cover the lost income tax revenue. However, a commensurate tariff rate increase would not produce an equivalent effect on revenues because of the Laffer effect of any tax: As tariffs increase, the volume of imports decreases, eventually pushing down their total value and the resulting tax revenue. Because of the Laffer effect, economists Kimberly Clausing and Maurice Obstfeld estimate that tariff revenues are probably capped at $780 billion (Clausing and Obstfeld 2024).

Authors

Pierre Lemieux

Pages
6
Published in
United States of America

Table of Contents