Former President Donald Trump wants to increase tariffs, while his Democratic opponent, Vice President Kamala Harris, wants to raise the corporate income tax rate. They say you need not worry about the consequences of these tax hikes because someone else will pay the tab.
Don't believe them. Both proposals would impair economic growth and impose substantial costs on ordinary Americans, extending far beyond the advertised targets.
Last year, Trump proposed a "universal baseline tariff" of 10 percent, more than four times the 2023 trade-weighted average. More recently, he has pitched a general rate as high as 20 percent. He thinks Chinese imports should be subject to an even steeper tariff: 60 percent, maybe more.
When Trump set off a disastrous trade war by raising tariffs during his first term, he claimed the cost was borne by exporters. "China is bearing the entire burden of the tariffs," his top trade adviser averred in 2019.
Although tariffs are designed to raise the prices of imported components and finished goods, Trump is still pretending they do not hurt American businesses and consumers. Analyses of Trump's tariffs tell a different story.
In 2020, for example, Pablo Fajgelbaum and three other economists reported that "U.S. consumers have borne the full incidence of U.S. tariffs," which was consistent with the results of another study published the same year. Fajgelbaum and his colleagues calculated a net U.S. economic loss of $16 billion a year, which rose to $25 billion when they considered the impact of retaliatory measures by other countries.
The Tax Foundation estimates that a 10 percent general tariff "would raise taxes on American consumers by more than $300 billion a year," "reduce the size of the U.S. economy by 0.7 percent," and "eliminate 505,000 full-time equivalent jobs." Retaliation could "further reduce U.S. GDP by 0.4 percent and eliminate another 322,000 full-time equivalent jobs."
Trump's proposed tariffs, including a 60 percent levy on Chinese goods, "would reduce after-tax incomes by about 3.5 percent for those in the bottom half of the income distribution," the Peterson Institute for International Economics estimates. They "would cost a typical household in the middle of the income distribution at least $1,700 in increased taxes each year."
Just as Trump ignores those costs, Harris wants voters to believe that raising the corporate income tax rate from 21 percent to 28 percent is simply a matter of "ensur[ing] the wealthiest Americans and the largest corporations pay their fair share." But that is true only if you overlook the broader economic impact of that change, which would hurt non-wealthy Americans as employees, consumers, and investors.
"Studies have shown that the corporate income tax is the most harmful tax for economic growth," the Tax Foundation warns. On the flip side, recent research indicates that the Trump-backed 2017 reduction in this tax rate, which moved the U.S. from the high end among industrialized countries to the middle of the pack, "significantly boosted domestic investment."
By raising the cost of doing business in the United States, a higher corporate tax rate inhibits investment, drives down wage and benefit growth, encourages offshoring of jobs, and reduces the return on retirement savings. "Under a 28 percent corporate rate," the Tax Foundation estimates, "GDP would fall by $1.84" for "every $1 of higher revenue."
It gets worse: "In the long run, when the economic effect of that higher rate fully phases in, we estimate an even steeper drop in GDP of $2.19 for every dollar raised." Although Harris promises that "no one earning less than $400,000 a year will pay more in taxes" under her fiscal plan, that does not mean people of relatively modest means will be spared the indirect costs of sticking it to "the wealthiest Americans and the largest corporations."
Like Trump, Harris wants voters to overlook the predictable results of her tax agenda. In both cases, Americans should be asking the questions that the candidates are keen to dodge.
© Copyright 2024 by Creators Syndicate Inc.
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