Trump’s Lousy Idea
Donald Trump floated a huge change to the tax code last week. It’s a bad idea. During a private meeting, Trump suggested possibly replacing the federal income tax with higher tariffs on imported goods. It sounds nice, as many people hate federal income taxes and filing tax returns, but despite the flaws with the tax code, Trump’s proposal is worse. Trump’s the same guy who ran to the left of his Republican primary opponents on taxes earlier this year. Trump hit Ron DeSantis for supporting the FairTax—a national sales tax—instead of various taxes, including the federal income tax. Trump’s campaign branded the Florida governor as Ron DeSalesTax.
The old Trump from earlier this year was right. About half the country pays no federal income tax, while nearly everyone is a consumer of foreign goods; food, technology, automobiles, trinkets, gasoline, etc. Changing the tax code undoubtedly raises taxes on that half of the country, plus many other low- and middle-income earners. Consumption taxes are regressive because those who make less pay a higher percentage of their income compared to the wealthy.
The federal income tax code is far too complex. It has bizarre tax deductions that benefit the elite, like making racehorse depreciation tax deductible and identifying as a P.O. Box in the Cayman Islands a viable way to avoid paying federal income tax. The country should eliminate inefficient tax deductions and credits and, on the corporate side, tax deductions that encourage outsourcing.
It’s not all bad. Some tax deductions incentivize and reward good behavior. Without a federal income tax, those deductions no longer exist. The best provision of the Tax Cuts and Jobs Act of 2017 made life more affordable for millions of American families by increasing the child tax credit from $1000 per child to $2000. If a family has two kids, that’s up to $2000 per year less in tax liability (from that bill alone), plus the income tax rate cuts. Couple that with how the tax code helps families with a stay-at-home mother, and the tax code makes life more affordable for families.
If a single man makes $100,000 in a year, he pays $14,261 in federal income taxes before deductions, according to smartasset; if that same man files a joint tax return with a stay-at-home wife, he pays $8236 in federal income tax, before credits and deductions. Two kids provide a tax credit worth $4000—meaning those two pieces of the tax code alone reduce many families’ federal income tax burden by over $10,000. That $10,000 tax break goes away if the country abandons its income tax in favor of high tariffs.
The federal income tax code also subsidizes the high costs of adoption, providing children with safe homes. The country offers a $15,950 adoption tax credit that people may carry against their tax liability for up to five years. Infant adoption costs between $20,000 and $45,000 per child, meaning tax credits often cover a substantial portion of the initial financial burden. Without that credit, adopting a child becomes less feasible for many families. The tax code is pro-child, pro-marriage, and pro-adoption. Tariffs make life more expensive for families, making family formation more difficult. Remember when the country had a baby formula shortage two years ago? One of the solutions was a temporary removal of tariffs on foreign baby formula imports—because global trade benefits consumers.
Tariffs also discourage consumption, and consumption benefits the economy. Businesses sell and ship goods in the United States, including imported goods, providing jobs. Plenty of reasons exist to justify protectionism, including workers’ rights and environmental and national security concerns, though, in our country, it’s not a significant revenue source. When countries raise tariffs, prices increase, and when the costs of consumer goods increase, so does the inflation rate.
Joe Biden has a low approval rating in large part due to high inflation, making life more expensive for Americans. Trump should run as the low-inflation candidate—not as tariff man. Let Biden be the guy people vote for if they want to make life worse for most Americans.