President Trump is on a roll with tax cutting ideas. First, he proposed no tax on tips, then no tax on overtime for hourly workers, and now, and now he indicates that all income tax can be eliminated and unlike Kamala Harris, he lays out where the money will come from. Harris promises rainbows and unicorns and if you ask her how she plans to deliver them she tosses out a word salad without dressing.
Earlier this week, President Trump stopped by a Bronx barbershop with Fox News personality Lawrence Jones. He talked to them about inflation and taxes. Then one of the people there asked:
“Do you believe that at some point and time, once the country’s back on its feet, and getting enough revenue, and paying off our debt, do you think it’s possible to find a way to eliminate federal taxes?”
Trump replied:
“There is a way! There is a way! You know, in the old days, when we were smart, a smart country—in the 1890s, our country was relatively the richest it ever was. It had all tariffs; it didn’t have an income tax.”
“Now we have income taxes, and people, they are dying! They have taxes and don’t have money to pay their taxes. You know, in the old days, 1890 and 1880, we had so much money, they had to set up committees, blue ribbon committees—how to spend our wealth!”
VISIT OUR YOUTUBE CHANNEL“We had no idea how to spend it; it was so much money!” he exclaimed. “Then we went to the income tax system, and the rest is sort of history,” Trump said, adding, “But no, there is a way——If what I’m planning comes out—“That’s a great question, by the way. You’re a pretty sophisticated cat!”
The barbershop customer who asked the question responded, telling President Trump, “Everyone could attaint the American dream if it wasn’t for the burden of high taxes. And we tax it every step of the way, when we make it, and when we spend it!” Trump interrupted, “And regulations!” adding, “So, I cut more regulations in four years than any other president!”
Watch:
Is it possible to replace the federal taxes with tariffs?
Tax Notes contributing editors Robert Goulder and Joseph J. Thorndike recently explored former President Donald Trump’s tariff proposals.
Here is the transcript from their discussion on Forbes:
Robert Goulder: Everyone acknowledges that tax reform is hard. Lawmakers have always wanted to lower people’s taxes. But at the same time, they don’t want to blow a hole in the federal budget deficit. It’s already big enough. Well, wouldn’t it be great if there was some utopian revenue source that we could draw from to get a little bit of extra revenue to pay for our precious tax cuts without the consequential political pain?
Some people think that they’ve stumbled upon such a pot of gold, and it’s been there right in front of us since the earliest days of our republic. We’re talking about tariffs.
I’m Bob Goulder, contributing editor with Tax Notes. Together with my colleague, historian Joe Thorndike, we’re going to try to make sense of these recent calls to use tariff revenues to reduce our income tax burden.
Joe, now, we’ve got to be honest here: This is President Trump’s idea. He is the major proponent of this, and I won’t try to conceal the fact that it strikes me as a little bit outside the norm. So let me ask you this: Should we take Trump seriously when he suggests we can use tariffs to pay for income tax cuts?
Joseph J. Thorndike: Well, yeah, basically, I think we should. Trump, he’s revived this idea — against all logic and available evidence — that tariffs, they could be the foundation of federal finance, just like they were in the 19th century. But, you know, that was a long time ago. Different time, different economy. Still hasn’t stopped Trump from saying he wants to use revenue from those higher tariffs to pay for cuts in other taxes, like the corporate income tax; maybe others, too. And I think we should take that seriously.
Robert Goulder: Now, correct me if I’m wrong, but aren’t tariffs regressive? So they’re akin to a federal consumption tax, except narrowly focused on a selected pool of imported goods. So if you think this through, would it not be the case that using tariffs to finance income tax cuts really boils down to using a regressive tax source to finance a big reduction in a progressive income tax? Or am I missing something?
Joseph J. Thorndike: No. I think, Bob, that you’ve got that exactly right. Tariffs are very regressive. Erica York, who’s at the Tax Foundation, which is not exactly a liberal outfit, she pointed out that when Trump was president, he imposed about $80 billion worth of tariffs. It was one of the largest tax hikes in decades, and consumers paid for most of it in the form of higher prices at the cash register.
So by extension, another round of tariffs — and Trump wants bigger ones — would mean even more taxes pushed onto consumers. And if we use those tariff revenues to further cut the corporate income tax, which is paid mostly by the owners of capital, well then, yeah, we’ve traded a progressive tax for a regressive one, by and large.
Robert Goulder: So the most outlandish proposal here is to actually repeal the income tax altogether. Eliminate it. No more income taxes as we know it. Get rid of them all and pay for that hole in the budget with revenues from tariffs, as if it were 1824 instead of 2024. Is that even possible, mathematically?
Joseph J. Thorndike: All right, so here are some inconvenient facts for Donald Trump: The contribution of tariffs to total federal revenue hasn’t exceeded 90 percent since the Civil War, which was a while ago. The tariff contribution has also been declining steadily since about 1890. And President William McKinley, who Trump talks about all the time and he loves because McKinley raised tariffs, he was unable to stop that slide, despite getting some laws passed that tried to do that. So as you said here, the math is really just impossible when it comes to replacing income taxes with tariffs.
There are additional ways to plug the holes in the budget. We could eliminate worthless expendaturessuch the funding for PBS and NPR. They are just 24 hours a day advertising for the Democrats. Let the DNC pay for it or let it go bankrupt. We can also eliminate worthless programs such as the Department of Education, Consumer Financial Protection Bureau, and the corrupt FBI. Also, we need to quit subsidizing illegal aliens. If they know they won’t have the taxpayer money to pay for housing, food, clothes, education and healthcare they will quit coming.
