Donald Trump has promised to cut taxes on a lot of different things, from tips to Social Security income. But so far, he only has one big idea for how to raise money for the federal government: tariffs.
The former president and current Republican presidential nominee thinks that taxing companies that bring goods into the United States from other countries will lead to a revival of industry in the United States. But we don’t know what the long-term effects will be because no country in modern times has put in place a 20% universal tariff like Trump wants to.
Two new studies released on Monday try to figure out how big of an effect the policy would have. Both of them say that it would likely bring in trillions of new tax dollars, which would hurt the middle class and poor Americans the most but also help the budget.
When it comes to trade policy, targeted tariffs can be helpful, but economists all agree that tariffs, especially broad-based tariffs, make the prices of goods and services that people and businesses buy go up. This was written in a report on Monday by Steve Wamhoff, who is the federal policy director at the Institute on Taxation and Economic Policy.
Trump’s suggested tariffs are much higher than any that are already in place. This would mean that prices would go up for all American consumers, no matter how much money they have, he said. “This would have a big effect on the budgets of low- and middle-income families because they have to spend a bigger chunk of their income to make ends meet.”
When asked for a response, the Trump campaign didn’t answer right away.
A 20% tax on all imported goods and a 60% tariff on imports from China, according to Wamhoff, would cost the poorest 20% of Americans an extra $930 per year. Families making between $55,100 and $94,100 per year would have to pay an extra $3,370 per year.
A family in the top 1% would lose $42,050 because of the tariffs, but Trump’s plans to lower income and business taxes would more than make up for that.
The ITEP study says that Trump’s general plan would give big tax cuts to the richest Americans while making things more expensive for everyone else.
It’s also possible that Trump’s taxes hurt the U.S. economy so much that they don’t bring in much money.
The Committee for a Responsible Federal Budget released an estimate on Monday that said Trump’s tariff policy could cost the government $2 trillion over 10 years in the worst case. The group thought they could raise $4.3 trillion in the best case, but in the worst case, they thought they could only raise $2.7 trillion over ten years.
The most expensive option takes into account the policy’s possible “dynamic effects.” For example, other countries are likely to respond with tariffs of their own, and consumers will have less money to spend, which will lead to lower wages and less business investment.
The CFRB wrote that a big change in trade policy could have economic and global effects that are bigger than what a normal tax model would predict. “It’s hard to say what the real economic effects will be because this policy is so new.”
