Please consider an amazing statement by White House Press Secretary Karoline Leavitt.
PolitiFact reports Karoline Leavitt says tariffs are ‘a tax cut.’
When Associated Press reporter Josh Boak asked about tariffs in the White House press briefing March 11, the exchange with White House Press Secretary Karoline Leavitt quickly became testy.
It also produced a sentence that left economists’ heads spinning: “Tariffs are a tax cut for the American people,” Leavitt said.
After Leavitt said that, Boak responded, “I’m sorry, have you ever paid a tariff? Because I have. They don’t get charged on foreign companies. They get charged on the importers.”
Leavitt pushed back, calling his question “insulting.”
We asked the White House to explain Leavitt’s assertion, but its response didn’t directly answer our question.
This story came out a week ago, but I was unaware of it until today.
To make sure it was not out of context, here is a YouYube video.
AP: Trump is proposing tax hikes in the form or tariffs.
Karoline Leavitt: Not true. He’s actually not implementing tax hikes. Tariffs are a tax hike on foreign countries, that again have been ripping us off. Tariffs are a tax cut for the American people. And the President is a staunch advocate for tax cuts.
Mercy. You learn something new every day.
Economists’ Comments
- “The statement that tariffs are a tax cut is nonsensical,” independent libertarian economist Daniel Mitchell told us.
- “I cannot think of any direct way in which a higher tariff is a tax cut,” said Steve Fazzari, an economist at Washington University in St. Louis. “Tariffs are taxes. Higher tariffs are higher taxes.”
- “I simply think there is a fundamental misunderstanding about who pays the tariff that is perpetuated by the White House,” said Ross Burkhart, a Boise State University political scientist who studies international trade. “It is the importing company who imports the goods from the targeted country that pays the tariff and then passes the cost of that tariff down to the consumer, who pays the raised price for the product, and any sales tax associated with that product.”
- “Honestly, it sounds like everything is being put on its head,” said Tara Sinclair, a George Washington University economist. “Economists don’t agree on much, but we agree tariffs are taxes on consumers.”
Tariffs Are a Tax But Who Pays It?
- The consumer
- The importer
- Tariff avoidance
- Strong Dollar Mitigation
Those are the only things that can happen.
Under Trump’s first term it was a combination of 1, 3, and 4, but mostly 3 and 4.
Tariff Avoidance
There was a huge amount of tariff avoidance as goods from China were masked as goods from Vietnam or Mexico.
Trump aims to kill #3 and probably will.
Strong Dollar Mitigation
From 2018 to 2020 the US dollar index rose from 88.25 to 102.99. That’s a 16.7 percent rise.
The US dollar index peaked at 114.78 in 2022 and is now 103.28. If the dollar weakens, there will be no such relief this time.
Importantly, Trump wants a weak dollar and for the Fed to cut interest rates to achieve that. A weak dollar is obviously inflationary.
The Importer Pays the Tax
That’s possible, to an extent. And it’s highly likely Trump pressures businesses to eat the cost.
But that would be a tax on US businesses instead of US consumers.
Many small businesses will be heavily impacted, unable to eat the cost or pass it on. They will go out of business.
For discussion, please see How One Small Business Owner Is Coping With Trump’s Tariffs
Fifty-four percent of small businesses polled said that tariffs would negatively affect their companies, while just 11 percent said they would benefit.
Please read the above post and multiply it by tens of thousands of small businesses.
The Consumer Pays
In the current setup the consumer is the most likely to foot the bill.
However, importers will not be immune. There will also be a loss of jobs, and businesses.
Lutnick Says Tariffs Can Eliminate the IRS and Balance the Budget
On March 12, I commented Lutnick Says Tariffs Can Eliminate the IRS and Balance the Budget
Lutnick: “We’re going to make the External Revenue Service replace the Internal Revenue Service.”
I ran the math on that ludicrous idea. Team Trump only needs to bring in $7 trillion in tariffs on $3.3 trillion in total imports.
Then we need to faithfully collect 200 percent tariffs on everything with of no trade frictions, no retaliations, and full compliance.
See above link for detailed analysis.
Trump Wants a Weak Dollar But Needs a Strong One
On March 16, I commented Trump Wants a Weak Dollar But Needs a Strong One
Trump wants the Fed to cut interest rates to weaken the dollar and boost exports. But that’s not what helped him get elected.
Trumperland Economics
Welcome to Trumperland economics where tariffs are a tax cut.
Trump simultaneously promotes a strong and weak dollar, and proposes we collect huge tariffs while reducing imports.
We will allegedly balance the budget by running huge deficits while having a Detox recession and not having recession.
In Trumperland, contradictions have no meaning, so this is entirely possible.
No one in the administration is willing to challenge this nonsense.
And in case you missed it, please see Cheese Was a “Key Achievement” of Trump’s USMCA Trade Agreement
Trump is complaining about Canada’s cheese tariffs. In 2018, he was bragging about cheese.