Tariffs are Loaded with Unreported Benefits

A properly applied tariff is loaded with benefits. First, a tariff is both a flat tax and, as consumption tax, like the Fair Tax, tariffs lead to employment and higher wages. These, in turn, reduce the safety-net burden on other taxpayers while increasing tax revenue from all other tax structures.

The tariff is, first of all, a consumption tax, and as Fair Tax proponent Mike Huckabee notes, even the drug dealers pay this tax.

Secondly, a tariff is a flat tax, and, as a flat tax, it is simple and direct. None of the benefits of a tariff are diverted to an insidious, invasive, and pervasive bureaucracy such as the IRS. Furthermore, flat taxes are known to be the most just forms of taxation. Paradoxically, the flatter the tax, the more progressive it is. That is, the rich pay more of the total percentage of a tax when the tax is flat.

A properly applied tariff is a superior form of taxation. The founding fathers knew this when they made the tariff the sole tax available to the young republic. For more than one hundred years, by the tariff alone, America grew economically until the United States was the premier economic force of the twentieth century.

However, a properly applied tariff has tax benefits in modern America beyond its nature. The 2018 story of United States Steel is a case in point. In March it announced that it would call back 500 employees to work at its Granite City Illinois plant. This is it did in direct response to President Trump’s announced tariffs on imported steel.

“Our Granite City Works facility and employees, as well as the surrounding community, have suffered too long from the unending waves of unfairly traded steel products that have flooded U.S. markets,” U.S. Steel President and Chief Executive Officer David B. Burritt said in a statement released Wednesday.

Obviously, a second embedded tax benefit results from a classically employed tariff: the newly employed steel workers in Indiana will no longer be a safety-net burden on other tax payers. They will no longer be on the brink of seeking food stamps, subsidized housing, or receiving tax refunds based on low income tax credits.

Equally apparent to everyone but bought and paid for politicians is that the effective use of the tariff increases tax revenue via the income tax. The Indiana steel workers will earn more income and, hence, pay more income taxes.

The tariff is a superior form of taxation and, while it should be judiciously, it is to be preferred over all other forms of taxation in the United States of America. Tariffs should be abandoned only for the best international trade agreements, agreements we haven’t seen since, well, the institution of the income tax and the rise of the Federal Reserve Bank.

Comparing a Trump Turbo-Charged Economy with the Reagan Recovery

Trump’s economists are far too conservative in estimating the effect of Trump’s Reaganesque policies economic policies. Why shouldn’t Reagan-like policies yield Reagan-like results of 5%, 6% or even 9% growth?

From Donald Trump’s own website comes: “The Trump campaign’s economist estimates that the plan would conservareagantively boost growth to 3.5 percent per year on average, well above the 2 percent currently projected by government forecasters, with the potential to reach a 4% growth rate.” This may well be a far too conservative an estimate. While Donald Trump is an eternal optimist, he is also a conservative businessman. Trump’s motto is, “under budget—ahead of schedule.”

 

But consider the Reagan Recovery. Much of Trump’s plan is what Reagan accomplished. Reagan lowered tax rates across the board. Reagan reduced regulations and employed a sound money Federal Reserve policy. As a result, two years into his administration the amazing 92 month Reagan Recovery began. To quoting Peter Ferrara:trump

 During this seven-year recovery, the economy grew by almost one-third, the equivalent of adding the entire economy of West Germany, the third-largest in the world at the time, to the U.S. economy.  In 1984 alone real economic growth boomed by 6.8%, the highest in 50 years.  Nearly 20 million new jobs were created during the recovery, increasing U.S. civilian employment by almost 20%.

Three percent was the lowest quarterly growth rate under Reagan. Growth rates hit 9% in Reagan’s second quarter and typically ranged real-gdp-growth-recoveryabove 5%.

A Trump turbo-charged economy has advantages that Reagan did not. First of all, Reagan began with double digit interest rates. Today, the United States interest rates are at historic lows. Because of these low interest rates, a business friendly administration may see real investment soar within his first 100 days. The Reagan recovery, on the other hand, took two years to get started.

Secondly, America is in the process of a fundamental energy transformation. New clean technologies in coal and in fossil fuel extraction has the potential to make the United States no only energy independent but an net exporter of energy. This combined with an America first trade policy could easily foster even more investment in U.S. manufacturing.

Third, assuming there is some relationship between the unemployment numbers and reality, American workers are in more demand than they were during the Reagan’s years. When Reagan first took office obama-vs-reagan-jobs1unemployment was at 7.5%, and before his policies took hold the unemployment rate rose to 10.8%. All of these factors speak to a quick increase in net household income for every American. This net increase in household income will, in turn, increase economic demand and spur further domestic growth.

Finally, thanks to the Reagan Revolution, the cold war is over. Yes, Trump is committed to increasing the strength of the U.S. military, but America does not face a challenge similar to that of Reagan’s. The war on terrorism will take common sense and vigilance, but it will demand international cooperation rather than demanding the projection of a world-wide American military presence.

If the Reagan Recovery hit 9% and ranged well above 4%, why shouldn’t a turbo charged Trump economy accomplish similar results.cvuyjw5umaal6yf

There is one more reason to be optimistic about a Trump economic explosion— the repeal of Obamacare. By some estimates the economic growth in 2014 would have been ten times greater without the burden of Obamacare. While it is true that Trump has not specified cuts in domestic spending similar to Reagan’s, simply repealing the Affordable Care Act in itself will achieve a very similar result.

A projected growth of 3% to 4% over ten years is far too conservative. Instead, we can expect an economy at least as robust as the Reagan years and that will be reason enough to celebrate a Trump victory for generations