Thursday, December 26, 2024
Avi-Yonah & Narotzki: The Tariffs Are Coming! The Tariffs Are Coming!
Reuven S. Avi-Yonah (Michigan; Google Scholar) & Doron Narotzki (Akron; Google Scholar), The Tariffs Are Coming! The Tariffs Are Coming!, 185 Tax Notes Fed. 1991 (Dec. 9, 2024):
In this installment of Reflections With Reuven Avi-Yonah, Avi-Yonah and Narotzki explain the use of tariffs and, in light of the new administration’s likelihood of maintaining current tariffs and adding new ones, suggest policies to make the best of the situation, including channeling economic tax benefits to middle- and low-income taxpayers.
Conclusion
The proposed steps are not intended to be a short-term “five-year plan.” It aims to be a comprehensive, long-term overhaul of existing tax policy, focusing on sustainable economic growth and equitable wealth distribution. Since the Tax Reform Act of 1986, U.S. tax policy has largely adhered to the principles of trickle-down economics, which emphasize reducing the tax burden on wealthy individuals and corporations. The core theory of this economic approach is that by stimulating economic growth at the top, the benefits would eventually “trickle down” to the broader population, fostering prosperity across all socioeconomic levels. However, as decades of data and analysis suggest, this approach has not worked as intended. Rather than fostering broad-based economic gains, it has contributed to a widening gap between the wealthiest taxpayers and the rest of society. Wealth has become increasingly concentrated among a small portion of the population, while middle- and low-income households have seen only modest income growth. This consolidation of wealth has led to deeper inequality, diminished economic mobility, and limited opportunities for many Americans.
The new policy reshapes the tax code within the realistic constraints of the current political atmosphere, focusing on equity and inclusive growth. By redirecting tax benefits toward middle- and low-income earners and promoting investments in public goods, education, and infrastructure, while also presenting some tax benefits to corporations, the policy seeks to create a more balanced and resilient economy. The approach would shift away from tax cuts primarily benefiting corporations and the wealthy, instead providing tangible economic opportunities and stability for a larger share of the population.
Lastly, though we acknowledge the political reality that makes the use of tariffs highly probable in the coming years, we would again recommend that the use of this economic tool be as refined and accurate as possible, because a misuse of tariffs can not only lead to retaliation from our trade partners and affect the global trade system but also directly damage the U.S. economy by negatively affecting U.S. manufactures and workers — those that tariffs are supposed to protect.
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