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March 23, 2016

Trump's New Taxes

 

Typically, in any given election, it’s the Democrat who is more likely to be calling for new or higher taxes, not the Republican. In fact, opposition to new or higher taxes has been the cornerstone of Republican electoral politics for decades. But, as we all know by now, this election is different.

The leading Republican candidate, Donald Trump, is gleefully proclaiming at almost every opportunity his plan to raise taxes on American consumers. And these aren’t small tax increases—35 percent increases here, 45 percent increases there. Trump’s new taxes will be borne by American consumers, and there will be no break for low-income earners—in fact, low-income consumers would be hurt most.

You see, tariffs are taxes. Income taxes are taxes on Americans’ incomes, sales taxes are taxes on Americans’ purchases, and tariffs are hidden taxes on Americans’ purchase of imported products. Tariffs are paid by consumers in the form of much higher prices than they otherwise would have paid.

Trump’s tariffs are intended to help Americans whose job prospects have been dimmed by global competition, but that’s a relatively small number of workers. On the other hand, everyone who buys a tariffed product has to pay the higher price. Since Adam Smith economists have recognized tariffs’ negative impact on consumers, and ever since the Reagan years there has been a consistent movement away from protectionist tariffs and toward free trade.

And that has been the right policy. Contrary to common assertion, in the seven years after NAFTA was passed, the US unemployment rate continued to drop, and the US labor force participation rate reached it’s all-time high in 2000, six years after NAFTA came into effect. We can only wish our labor market was as healthy today as it was after NAFTA.

The solution to American workers who have been displaced by international competition is to make our domestic job market much more dynamic by cutting corporate taxes, reducing regulation on employers, and eliminating onerous anti-hiring provisions in Obamacare. Not by punishing American consumers with much higher prices.

Tariffs on foreign goods lead to worse rather than better relationships with our trading partners. There’s never a good time to throw your international trading partners under the bus, and nations that trade together are less likely to go to war with each other. But Trump’s tariff threat is of a piece with his general adversarial disposition toward the very countries with whom we should be trying to improve relations.

Remember, tariffs are taxes. And the only Republican candidate promising to raise taxes on American consumers is Donald Trump.


 

  • TaxBytes-New

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