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Revenue Thoughts
February 21, 2025
Last week we began discussing the import tariffs President Trump has been threatening. Most (China is the exception) have not taken effect yet. It’s possible they will never happen or will be quickly modified or rescinded as happened in Trump’s first term.
Real or not, the fact these tariffs might happen affects business and consumer confidence, which in turn affects the economy in broader ways. I showed last week how uncertainty surrounding growth and inflation was already high. Adding possible tariffs to the outlook is a further complication—and, in my view, an unnecessary one.
BUT… my view, like yours, is restricted. None of us outside Trump’s inner circle know what the real goals are. What looks like needless chaos might lead to benefits that outweigh the costs.
One potential benefit is revenue. Could the tariffs produce significant tax revenue that would help reduce the federal debt? The president seems to think so. He’s said it many times, often referring to the McKinley era when tariffs represented almost all the government’s tax revenue.
In the current situation, we obviously need all the revenue we can get. But every kind of tax has side effects. The goal should be to create a fair system that produces the necessary revenue at the lowest possible cost for the economy.
Could import tariffs be part of a new system that better accomplishes these goals? I would have once called this unthinkable. But we’ve reached a point with deficits and national debt where we must...
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