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Tit-For-Tat, Tariffs-for-Taxes

Tit-For-Tat, Tariffs-for-Taxes

The dangers of economics driven by ignorant soundbites rather than rational policies

Einar Tangen's avatar
Einar Tangen
May 07, 2025
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Cross-post from Asia Narratives
Einar Tangen is perhaps the finest commentator on China's current affairs. That's why he is a regular guest on dozens of TV shows a week including Bloomberg, BBC, CGTN, CNA, TRT and a host more... -
Dr. Digby James Wren

President Trump has suggested using tariff to replace or significantly reduce income taxes for Americans, particularly those earning under $200,000.

  • Reducing Income Taxes: Trump has said that increased tariff revenue could allow for substantial reductions, or even the elimination, of income taxes for many Americans.

  • Targeting Lower and Middle Incomes: He specifically mentioned focusing on reducing or eliminating income taxes for individuals earning less than $200,000 per year.

  • Using Tariffs for Revenue: Trump has expressed the belief that tariff revenue could potentially be large enough to replace the income tax, or at least a significant portion of it.

The notion that tariffs could effectively supplant income tax, an idea often floated with the casual confidence of someone rearranging deck chairs on the Titanic, reveals a fundamental misunderstanding of both economic reality and fiscal policy, but it proves decisively that the 11 year old child inhabiting the brain of this 78 year old man has no idea about economics.

The assertion hinges on a simplistic equivalency: both are taxes, therefore they are interchangeable. However, income tax, theoretically, operates on a progressive scale. The more you earn, the greater your contribution to the public coffers. Yet, as Warren Buffett pointed out, because he paid less taxes than his secretary, in the face of complex loopholes and preferential treatment, creating a system where the wealthy can, and do, pay a proportionally smaller share than their middle-class counterparts. This is a stark illustration of the gap between theory and practice, which undermines the very foundation of fairness in taxation.

Tariffs, on the other hand, are inherently regressive. They act as a tax on imported goods, primarily impacting essential items like food, clothing, shoes, furniture, and energy. Thus, the burden of tariffs falls disproportionately on those least able to bear it, exacerbating existing economic inequalities. Imagine a single parent struggling to afford food, clothing, shoes, for their children; a tariff on imported food, clothing and footwear adds a significant, and in these times increasingly insurmountable, hurdle.

The fatal flaw in this logic, however, lies in its self-defeating nature. If the goal is to generate revenue, tariffs achieve the opposite. As consumers, faced with inflated prices, inevitably reduce their consumption of imported goods, the very source of tariff revenue dries up. The logic is a snake eating its own tail.

The economic consequences extend beyond individual households. Industries reliant on imported materials would face increased costs, potentially leading to job losses and further economic contraction. This is not a rational fiscal strategy; it's a recipe for economic self immolation.

A recipe that also ignores the downstream consequences of this leap of irrationality. Schools, hospitals, infrastructure, and social safety nets all rely on the revenue generated by income tax. Tariffs, even in their most optimistic projections, could not generate the necessary funds to sustain these critical services. The suggestion that they could is akin to proposing that a leaky bucket can effectively replace a reservoir.

The argument that tariffs can replace income tax is a ludicrous, simplistic and ultimately destructive fallacy. It ignores the regressive nature of tariffs, the self-defeating logic of diminishing revenue, and the fundamental role of income tax in funding public services. It is a plan that sounds good in a soundbite, but falls flat under the slightest scrutiny, a testament to the dangers of economics driven by ignorant soundbites rather than rational policies.

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