Trump's tariffs will be used to pay for his tax cuts: the most foolish tax reform

The tax cuts in President Trump's Beautiful Bill may dig a big hole in the federal budget. But he also has an emergency measure: his comprehensive import tax - tariffs. The Congressional Budget Office is a non partisan tax and spending arbitration body in the government. The agency stated that the "Beautiful Big Bill" passed by the House of Representatives last month is now under review by the Senate, which will increase the federal budget deficit by $2.4 trillion over the next decade. On the other hand, the tariffs announced by Trump (including so-called reciprocal taxes of up to 50% on countries with trade deficits with the United States) will bring revenue to the Treasury Department, offsetting the impact of the tax cuts on the budget and reducing the deficit by $2.5 trillion over the next decade.

For a long time, Trump has advocated using tariffs as an economic panacea. He said that tariffs can protect American industry, bring factories back to the United States, give him leverage to win concessions from foreign governments, and raise a large amount of funds. He even hinted that tariffs could replace federal income tax, which currently accounts for about half of federal revenue. He told reporters in April that they may implement a comprehensive tax reduction, and he believes that tariffs will be enough to cut all income taxes.

Economists and budget analysts do not agree with the President's enthusiasm for using tariffs to finance the government or replace other taxes. Firstly, Trump's tariffs are an unstable source of income. He bypassed Congress and implemented his largest import tax hike through an executive order. This means that future presidents can simply revoke these measures. A federal court in New York has revoked the core content of his tariff plan, which was the reciprocity and other taxes he announced on April 2, Liberation Day, stating that he exceeded his authority. Erika York, Vice President of Federal Tax Policy at the Tax Foundation, called this a bad trade and criticized it as the dumbest tax reform Trump could design.

Trump's tariffs have started to harm the economy. Tariffs are taxes levied on foreign products, paid by American importers, who typically pass them on to their customers at higher prices. These tariffs have increased the costs for American manufacturers who rely on imported raw materials, components, and equipment, making them less competitive than foreign competitors who do not have to pay Trump tariffs. Last Wednesday, Trump signed an executive order to increase tariffs on imported steel and aluminum from 25% to 50%. This has sparked strong opposition from US trading partners, with the EU threatening to take "countermeasures" against Trump's unexpected move to raise foreign steel and aluminum tariffs to 50%. This will not only make the United States feel the impact of taxes on its own economy, but also the impact of foreign taxes on US exports.

Tariffs also have the most severe impact on the poor. They will eventually become a tax on consumers, and the poor will have to spend more income compared to the rich. Even without tariffs, the "Big Bill of Beauty" hit the poorest people because it drastically reduced the federal food program and Medicaid, which provides health care for low-income Americans.

Overall, tariffs are a very unreliable source of income for legal, political and economic reasons. They are a very inefficient way of generating fiscal revenue. If tariffs increase fiscal revenue by one dollar, it will cause much greater economic losses than any other way of increasing fiscal revenue.