GOP

Tell Me Like I’m Five

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The inflationary ride of the past four years has been wild and while it’s better than it was, for a lot of people it seems that everything is more expensive than it was. While the reality seems to be different, when we look at the speed with which our bank accounts dry up, we want to blame inflation for the lack of funds available. If we’re to be honest here, though, inflation at the moment isn’t as bad as it was four years ago. Take a look. Here are the latest findings from the Bureau of Labor Statistics (BLS) published June 12:

Look at those numbers and compare them to what you see on your grocery receipt and in your checkbook. Eating out is really costing us! That’s where the biggest cost increase remains. Everything else is below or close to the two-percent inflation rate the Federal Reserve expects. That is the number that primarily decides whether the Fed will raise interest rates. Furthermore, BLS also revealed last week that grocery prices are finally going down, a whopping 0.2 percent. That may not sound like much, but depending on what you buy, you could start getting more for your dollar at the store. Personally, I’m still waiting for the meats, poultry, fish, and eggs category to come wayyyy down, but a lot of that depends on how you vote.

Yes, the prices we see in the stores are a direct reflection of the policies set by the President and Congress, both of which are subject to your vote. Since this is an election year, we all have to become economists to a certain extent in order to understand exactly what presidential nominees are talking about and whether or not they’re lying.

Hint: they don’t have a fucking clue what they’re talking about. Someone hands them a piece of paper with a bunch of numbers on it and they assume that those numbers are correct. Most of the time, however, regardless of which politician is behind the podium, the numbers are, at best, incomplete and frequently fictional.

This is currently important because last Thursday, while speaking with Republican members of Congress, the Orange Felon said that, should he become president again, he would raise tariffs by 10% and reduce taxes. He later said that he might eliminate the income tax and replace it with tariffs. A lot of ears perked up when this statement was made public. Every responsible economist in the country responded with, “There’s no way that works!” In theory, that should have been the end of the discussion.

Of course, the official GOP line is to support their nominee. SO, RNC spokesperson Anna Kelly said “The notion that tariffs are a tax on US consumers is a lie pushed by outsourcers and the Chinese Communist Party.”

If that’s the case, then every economist in the United States is affiliated with the Chinese Communist Party? We’re gonna call bullshit on that and on Anna Kelly who, like every other political affiliate, doesn’t have a fucking clue what she’s talking about.

In response, European Central Bank President Christine Lagarde said in recent days that the world risks a new “geopolitical divide” and urged governments to respect international trade rules, which are designed to keep tariffs low.

If you and I are to make intelligent decisions when we vote, (which, admittedly, isn’t easy), then we need to understand how this all works. Let’s start with tariffs.

What Are Tariffs

To answer this question responsibly, let’s look at how tariffs are defined by the Council on Foreign Relations:

A tariff is a tax imposed on foreign-made goods, paid by the importing business to its home country’s government. The most common kind of tariffs are ad valorem, which are levied as a fixed percentage of the value of the imports. There are also “specific tariffs,” which are charged as a fixed amount on each imported good (for example, $2 per shirt), and “tariff-rate quotas,” which are tariffs that kick in or rise significantly after a certain amount of imports is reached (e.g., fifty thousand tons of sugar).

Tariffs can serve several goals. Like all taxes, they provide a modest source of government revenue. Several countries have also used tariffs to help fledgling industries at home, hoping to shelter those local firms from foreign competitors. Some tariffs are also meant to address unfair practices that other countries have used to make their exports artificially cheap.

Almost every country imposes some tariffs. In general, wealthy countries maintain low tariffs compared to developing countries. There are several reasons why: developing countries might have more fragile industries that they wish to protect, or they might have fewer sources of government revenue. The United States, for instance, maintained high tariffs for decades, until income taxes supplanted tariffs as the most important source of revenue. After World War II, tariffs continued to decline as the United States emphasized trade expansion as a central plank of its global strategy.

Tariff Rates Vary by Income Level

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The Constitution grants Congress the power “to regulate commerce with foreign nations, and among the several states,” which it used for more than a century to impose tariffs. Perhaps most infamous, Congress raised close to nine hundred separate tariffs with the 1930 Smoot-Hawley Tariff Act, which many economists say worsened the Great Depression. But over the past ninety years, Congress has delegated more and more trade authority to the executive branch, in part a response to its mistakes in Smoot-Hawley.

Several pieces of legislation underline this trend. The Reciprocal Trade Agreements Act of 1934 gave President Franklin D. Roosevelt the power to negotiate tariff-cutting trade deals with other countries. This was followed by the Trade Expansion Act of 1962, which granted the president authority to negotiate tariff reductions of up to 80 percent. The Trade Act of 1974 [PDF] allowed the executive branch to strike trade deals—with negotiating objectives set by Congress—that were then subject to an unamendable up-or-down vote, known as fast-tracking. Both Democratic and Republican presidents have used this authority to lower tariffs and enter into a range of trade deals, including the agreement establishing the World Trade Organization (WTO). 

Just to add a wee bit of perspective, remember that Stamp Tax that prompted the Boston Tea Party? That was a tariff. Our founding fathers tended to care about them a great deal more than you and I do. The sad fact is that very few American citizens know what a tariff is nor the degree to which it affects almost everything they buy. Even items that are labeled as “made in America” may have components from another country that were subject to tariffs. We pay higher prices because of tariffs and never realize it because the tariff is built into the final cost.

So yes, tariffs are definitely a tax that you and I pay, and for that reason, we should pay attention to when and where tariffs are levied by anyone in our government.

What about income taxes?

Income taxes have technically been around since the Civil War. President Abraham Lincoln instituted the first income tax in 1861 to help pay for that bloody war. Since then, there have been a number of changes. Here’s the timeline of significant tax events:

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Every time income taxes come up, there are always some zealots who pop up saying that income taxes are illegal. Those silly people are wrong. The 16th Amendment provides all the authorization the government needs to impose and raise taxes. Read it for yourself:

The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

That’s one broad, sweeping authorization! Whether we like it or not, it’s law. Today, income tax is responsible for over $3 trillion in federal revenue and factors significantly into whether the federal government is able to balance the budget and pay its debts. This creates a problem when we start talking about changing the income tax rates. The 2024 federal budget requires revenue of $6.5 trillion. Some of the difference is made up of corporate and other taxes, and $30 billion in new tariff revenue. However, there are still not enough taxes to balance the budget. We are looking at a $348 billion deficit just for this year, according to the Bipartisan Policy Center.

Trying To Make The Numbers Work

Now that we have some understanding of tariffs and income tax, let’s try putting together the numbers according to the Orange Felon’s proposal and see if it works. First, he wants to add 10% in tariffs across the board. The Office of Management and Budget reports that in the last “Fiscal Year” — October 2023 to September 2024 — CBP officers collected over $80 billion in tariff money, nearly as much as their Treasury colleagues got from all the taxes on inheritances, gasoline, liquor, and tobacco put together. Add the $30 billion in new tariff revenue and we have $110 billion. Next, we add the proposed ten percent. That gives us $121 billion.

Okay, children, which number is larger: $3 trillion or $121 billion? Can $121 billion replace the $3 trillion without increasing the federal debt substantially? No, it cannot. The numbers don’t add up. We have a problem, and it doesn’t involve Chinese communists even a little bit.

Granted, we can’t exactly expect a felon convicted on fraud charges to be especially good at math, or logic for that matter. Again, he’s most likely basing his random vocalizations on numbers he’s heard during briefings he mostly slept through. Still, we, as voters, need to understand the dangers of proposals such as the ones he’s spouting because ridiculous ideas like this have a way of becoming law.

First, we have to realize that levied tariffs don’t exist in a vacuum. When a tariff is levied against a country, that country almost always, especially in today’s competitive environment, responds with a similar tariff on US export goods. According to Forbes:

For example, if a broad 25% tariff on all imported goods is placed, the cost of every imported good will go up by at least 25%. Retailers and manufacturers will pass that added expense on to consumers, and prices will necessarily go up on any imported goods or goods that contain imported materials. This will cause consumers to choose domestically-produced lower cost goods, to the extent they are available.

As demand shifts to American made goods, in the absence of a matching level of increased production in every sector of the economy all at once, there will be more demand for domestic goods than supply. Prices will skyrocket just as they did during past supply chain crunches.

In essence, tariffs act as a regressive tax. They were broadly eliminated in favor of an income tax in the late 19th century for just that reason. Their regressive nature means that lower and middle-income consumers would bear the brunt of the cost of financing the public fisc—effectively experiencing an immediate and substantial increase in their cost of living.

Forbes estimates that it would take something close to an 85% increase in tariffs to replace revenue generated by the income tax. Even that number is probably much too low. A more realistic number is well over 100% and at that point, things start getting very scary for the US economy.

Let’s consider the calculations of an expert: Paul Krugman, Nobel laureate in Economics. Taking to the X platform, he laid the math out for everyone to see.

133%! Consider that, according to the American Center for Progress, the ten percent increase in tariffs would cost Americans, on average, $1,500 per year, then, assuming straight across-the-board equivalencies, a 133% percent increase would cost Americans several thousands of dollars more, possibly well in excess of $10,000 per household!

I don’t think that’s quite the tax cut the Orange Felon thinks it is. Of course, what would we expect from someone who cheats on every financial deal he’s ever encountered? Oh, and the financial break would look something like $1.5 million for the 1% of Americans currently hoarding way too much money. That’s just a blip on the radar for Elon Musk, perhaps, but that always means more coming out of the pockets of people like you and me.

So, know that if you go ahead and vote for the Orange Felon, whatever your misguided reasons may be, the end result is going to cost you a lot more money than you’re paying now. Thousands more.

In my opinion, he’s not worth it. No one is.