Kent Smetters, faculty director of the Penn Wharton Budget Model, is challenging the narrative that tariffs are a tool for protecting domestic industry. In a recent interview with Fortune, Smetters held forth on what he said was his long-held view that broad-based tariffs are a “dirty VAT” (value-added tax)—a policy he believes is significantly more damaging to the U.S. economy than traditional tax increases.
While economists generally view a broad-based, flat VAT as an efficient method for raising government revenue, Smetters distinguishes tariffs as a “dirty” variation because they are far less uniform. A standard VAT applies broadly, distorting decisions primarily between spending now versus saving for later. Tariffs, however, target specific goods, causing consumers and businesses to shift behavior in inefficient ways to avoid the tax.
