Tariffs and the Tax Cut
More than a few conservative intellectuals have warmed to Donald Trump’s trade protectionism because it supposedly helps blue-collar Americans. But what if his tariffs do the opposite?
Erica York at the Tax Foundation crunched some numbers recently showing that Mr. Trump’s proposal for a 25% tariff on imported cars, trucks and parts could eliminate half of the income gains from tax reform for millions of Americans. Those in the lowest income quintile could lose 49% of their tax gains. Say for ease of calculation that these folks received a $100 after-tax bonus from changes like the doubled standard deduction. After auto tariffs that would be whittled down to $51, Ms. York notes.
The tariffs shave gains in all income brackets, but no one is hurt more than the poor and middle class. Take the fourth income quintile, or a household making at most about $70,000 a year in adjusted gross income. The Tax Foundation says auto tariffs could erase nearly 30% of that family’s after-tax income bump. Ditto for the third quintile, or a family earning no more than $43,000 a year.
Tariffs are inherently regressive because low-income Americans spend more of their income on household goods. Commerce Secretary Wilbur Ross has argued that no one will notice price increases—what’s a few cents more for a can of soup? But people in Mr. Ross’s income strata are not the Trump base.
The Commerce Department is still looking at whether a muffler is a national security threat under Section 232 of the Trade Expansion Act of 1962. President Trump should abandon the idea lest Americans wonder if they really benefitted from that tax cut.