Tariff May Have Just Revealed Trump's Plan for Income Tax... and It's Massive
For many conservatives, the president’s decision last week to impose a 25 percent tariff on imported steel and 10 percent on imported aluminum was where they decided to get off the Trump train.
One of those departures was House Speaker Paul Ryan. “We are extremely worried about the consequences of a trade war and are urging the White House to not advance with this plan,” Ryan’s spokeswoman, AshLee Strong, told reporters on Monday.
“The new tax reform law has boosted the economy and we certainly don’t want to jeopardize those gains.”
Ryan was far from the only conservative up in arms over the plan. Two GOP aides told CNN that legislative action was being considered by senior Republicans in Congress if the president didn’t back off the initiative.
Lauren Aronson, spokeswoman for House Ways and Means Committee Chairman Kevin Brady, said Brady believed the executive and legislative branches “must work together on trade policies that build off the momentum of the president’s tax cuts, which is why any tariffs should be narrow, targeted, and focused on addressing unfairly traded products, without disrupting the flow of fairly traded products for American businesses and consumers.”
And the National Review — which, while conservative, isn’t necessarily pro-Trump — published an article on the tariffs titled “Donald Trump: Dumb Like a Fox, or Just Dumb?”
The reason is obvious. Free trade is generally good for America, provided it isn’t unfair. And if President Trump thinks it’s unfair now, just wait until a trade war starts.
However, there is an alternative theory that’s beginning to make the rounds: What if President Trump’s tariff policies have more to do with taxes than with trade?
Don’t follow? In his 1888 book “The Tariff History of the United States,” noted economist Frank William Taussig says that American steel tariffs as high 90 percent (or over) on British steel in the wake of the Civil War allowed the American steel industry to flourish while simultaneously (this is a key point here; you may want to write it down for the test later on) helping pay the nation’s bills.
“By 1877 the average price of steel rails in England was only a little over $31 per ton; and since 1877 the English price not on the average has been so high as $28 per ton,” Taussig wrote. “The duty of $28, which this country imposed, therefore became equivalent to more than one hundred per cent on the foreign price.”
Taussig noted that this was “an enormous gain to the producers of its steel rails in the United States.” While part of this had to do with the fact that the patents for the new Bessemer process of producing steel inexpensively were held in American hands, the tariff came during a point in time during which the economy was picking up and construction was rebounding, which meant businesses were willing to pay the tariff — thus putting money in the national coffers.
So, where do taxes come in? Before the 16th Amendment was passed into law back in 1913, making the federal income tax a permanent feature, up to 95 percent of the money our government collected was from tariffs. Even then, they continued to be a consistent form of revenue until 1940s. That’s when the government started focusing on tariffs as a matter of trade more than a matter of revenue collection.
Make no mistake: tariffs on steel and aluminum will likely make certain things more expensive. However, given how much of our revenue stream comes from income taxes, relying more on tariffs could mean that the president could reduce taxes even further without affecting the deficit. For most Americans, this would mean a massive cash infusion into both the economy and their own personal bank accounts. It would be the biggest American paradigm shift in terms of national revenue in over a century.
It would also be an exceptionally daring — and potentially dangerous — experiment for a president to try. This isn’t 1913. Our knowledge of economics and of the complexities of global trade have increased greatly, and the general consensus on the conservative side of the aisle is that the benefits of free trade generally outweigh the benefits from protectionism and tariff revenue.
And keep in mind, this is mere speculation. For his part, President Trump insists that the move is based off of a desire to compensate for unfair agreements and force two of our biggest trading partners to the table.
“We have large trade deficits with Mexico and Canada. NAFTA, which is under renegotiation right now, has been a bad deal for U.S.A. Massive relocation of companies & jobs,” Trump tweeted just an hour after Speaker Ryan’s statement of concern on Monday. “Tariffs on Steel and Aluminum will only come off if new & fair NAFTA agreement is signed. Also, Canada must treat our farmers much better. Highly restrictive. Mexico must do much more on stopping drugs from pouring into the U.S. They have not done what needs to be done. Millions of people addicted and dying.”
We have large trade deficits with Mexico and Canada. NAFTA, which is under renegotiation right now, has been a bad deal for U.S.A. Massive relocation of companies & jobs. Tariffs on Steel and Aluminum will only come off if new & fair NAFTA agreement is signed. Also, Canada must..
— Donald J. Trump (@realDonaldTrump) March 5, 2018
…treat our farmers much better. Highly restrictive. Mexico must do much more on stopping drugs from pouring into the U.S. They have not done what needs to be done. Millions of people addicted and dying.
— Donald J. Trump (@realDonaldTrump) March 5, 2018
Whatever his intentions may be seems that whatever the reaction from conservatives, Trump isn’t backing down. It’s difficult to properly ascribe intent to a president who is anything but predictable.
Yes, we agree that the prospect of an economy and a presidency bogged down in trade wars is not a good thing. If there isn’t a grander scheme behind this to lower taxes even further and it doesn’t force Mexico and Canada to sit down and offer better terms on NAFTA, this ought to be a worrying moment for conservatives.
However, given how often Trump’s unpredictability is often a sign of thinking outside of the Beltway box, we urge members of the right to not to necessarily get off the Trump train on this one just yet.
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