The Tax Policy Center’s seemingly fair analysis of Trump’s tax proposal left out something crucial that would significantly reduce the amount of deficit projected to $2.73 trillion, instead of $6.2 trillion, according to Richard Wagner’s projections using the same methodology.
So, let’s discuss the elephant in the room. What has been a cornerstone of Trump’s campaign since the very beginning? Why have I, a self-described “New Deal Democrat” and proud Obama supporter from 2008, been willing to endorse Donald Trump? One word – tariffs.
I read through the Tax Policy Center’s analysis, which projects that Trump’s tax plan would add $6.2 trillion to the US Budget deficit over 10 years. They carefully looked over Trump’s proposed changes to the marginal tax rates at all brackets, the corporate tax rate, his massive changes to itemized deductions and the “standard deduction”, as well as his plan to end the “carried interest” loophole. (I’ve criticized Bill Clinton in the past for re-introducing this loophole during his presidency.) Seems like a pretty fair analysis, and I think it was intended to be. And in their defense, Trump’s website didn’t include this under the section on his “tax reform”.
But as Trump does propose significant tariffs, and that is a tax that would clearly increase revenue, it’s only fair to include it in projections of Trump’s tax plan. This projection, like the Tax Policy Center’s analysis, only considers what Trump has proposed. It does not consider the likelihood of it passing through Congress.
How much revenue will tariffs raise?
The Tax Policy Center made it clear that their analyses do not factor in macroeconomic factors. That is, they do not consider how changes to tax rates will affect the economy. It isn’t perfect, but it’s probably the best we can do, as this is nearly impossible to predict to a figure. Therefore, I will use the same method and simply look at some of our imports, and consider the effects of a tariff assuming that imports remained the same. In order to do this annually, I’ll go with 2015 imports, based on the US Census Bureau, and I’ll round to the nearest billion, in US Dollars.
China – Trump proposes the most significant tariff on China, at 45% In 2015, our total imports from China were worth $483 billion. Therefore, using the Tax Policy Center’s methodology, a 45% tariff would raise $217 billion in 1 year. That’s $2.17 trillion in 10 years!
Mexico – According to a series of critical articles , Trump also proposes a 35% tariff on Mexico. If that is true, here is the projection. In 2015, the US imports from Mexico were worth $296 billion. Therefore, a 35% tariff raises $104 billion in 1 year. $1.04 trillion in 10 years.
Japan – Many of these same anti-Trump articles have cited a 45% proposed tariff on Japan. However, this is a little more unclear. I can’t find any evidence that Trump has said this, only articles making the claim. In Trump’s 2011 book, “Time to get tough!” he proposed a 20% tariff on all imports. So, to be conservative, I’ll go with the 20% figure. Imports from Japan in 2015 were worth $131 billion. At 20%, that is worth $26 billion per year. $260 billion for 10 years!
The $6.2 Trillion deficit, therefore, is way off
I’ve only considered three countries here, and I’m sure the projected revenue would be less for others. But if we assume that the Tax Policy Center’s $6.2 trillion figure is accurate before considering tariffs, we can deduct my above 10 year figures to get a more realistic projection of Trump’s whole plan. $6.2 trillion, minus $2.17, $1.04 in trillions, and $260 billion for Japan, brings us to $2.73 trillion added to the deficit over 10 years.
This is without even considering possible tariffs on other countries.
Putting this all in perspective
There’s plenty of debate over how this would affect the economy. First, considering what was analyzed by the Tax Policy Center. Virtually every part of Trump’s tax plan is a tax cut. Economists of nearly all stripes agree that tax cuts stimulate the economy, though they strongly disagree on exactly how much, and whether or not it is the most effective way to do so. But I’m sure those who conducted the projection at the Tax Policy Center would agree that once the stimulation to the economy (macroeconomics) is factored in, their $6.2 trillion figure be less, as a stronger economy means a larger tax base.
But what about those tariffs? Unlike most of the “experts”, I contend that tariffs will stimulate the real economy of the US. Wall Street will suffer, but Wall Street doesn’t pay the bills for the average American family. While on Wall Street, Trump’s tariffs would causing wailing and gnashing of teeth, the out of work former factory worker in Michigan just might see his job come back. Already, some companies are relocating back to the US to save on shipping costs. Add a 45% tariff, and more of them will find that the higher costs of American labor are worth it to avoid both shipping costs and the tariff. Plus, Trump’s corporate tax cut from 35% to 15% would make it much easier for companies to operate profitably in the US.
Don’t let the “experts” frighten you – tariffs will work for US
Tariffs can hurt an economy when trade is relatively balanced. It would be absurd, for example, to implement a large tariff on coffee from Columbia. Imagine the US trying to grow its own coffee! Hawaii is the only US state that is even capable, and needless to say, Hawaii cannot grow anywhere near enough Kona pods to satisfy a caffeine addicted America. However, there is no reason why we can’t manufacture our own tee shirts.
Tariffs help an economy when trade is out of balance. When we’re importing large quantities of manufactured goods that we can produce even more efficiently at home, just because labor is artificially cheap overseas, the only people who win are the CEOs, the stock investors, and the Chinese Communist Party. The workers of China are exploited, and the workers of America are unemployed or underemployed. Even if we have enough jobs, a factory job pays $19 an hour, compared to $10 an hour at Walmart.
Tariffs will hurt the bottom line of the multinational corporations and the stock market, but they will help everyone else. Furthermore, as wages go up, so too will tax revenue. Therefore, there is no way to calculate the exact amount, but Trump’s entire plan, if implemented, would likely reduce the deficit once it’s had time to take effect. I don’t think all those jobs would come back in the first year, but factory by factory, year by year, they’d start coming back.