TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Thursday, July 12, 2018

Trump's Tariffs Will Erase His Tax Cut

Wall Street Journal op-ed:  Trump Plots to Erase His Tax Cut, by Karl Rove:

President Trump is justifiably proud of passing tax reform last December, telling audiences “because of our tax cuts, you can keep more of your hard-earned money.” He’s right: American taxpayers will save $75 billion this year and $189 billion next year, according to the Joint Committee on Taxation.

Yet the president’s tariffs on imports could negate much of the tax relief he’s been bragging about. These levies are not paid by foreign countries or companies. They are passed on to American consumers in the form of higher prices for either foreign or U.S.-made goods. ...

All these actions add up to $19 billion a year in new tariffs already levied or pending, and potentially up to $125 billion a year more from additional tariffs the administration has threatened. Most of this money will come from Americans’ family budgets, erasing a large share of their savings from the tax cut.

Some of the price will also be paid in job losses. ...

Mr. Trump chose a politically popular and economically productive path by embracing pro-growth tax reform. But the wave of tariffs he’s imposed or threatened could erase the progress he’s made—not only for family budgets but for his political fortunes.

TaxVox, President Trump Opposed The Border Adjustable Tax But Loves Tariffs. Here's Why:

While the BAT and tariffs both tax imports, their goals could not be more different. The BAT was intended to reduce business tax avoidance by linking U.S. tax to where a product is sold rather than the residence of the business or the source of its profits. It was not intended to discriminate against specific goods and services or specific countries. Crucially, there would be no presidential discretion when it comes to deciding what is taxed and what is not.

In contrast, tariffs are explicitly designed to protect selected industries in the U.S. by reducing imports from targeted countries. And, especially as imposed by the current Administration, they give the president enormous power to pick winners and losers.

While tariffs normally are approved by Congress, President Trump has proposed these on his own, based on weak claims of national security. And he has not been shy about using import taxes for domestic political purposes or to achieve non-economic geopolitical goals.

While the BAT was intended to increase the tax efficiency of trade, tariffs make trade less efficient. Rather, Trump sees them as a weapon to win economic or political battles. Trade wars, the president tells us, “are easy to win.” ...

President Trump, who rejected a tax reform that was intended to be trade-neutral, has gone all-in on tariffs. This may give him a tool to reward friends and punish enemies but it will neither improve the U.S. tax code nor strengthen its economy.

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