Raising tariffs and cutting income taxes sounds regressive. What really happens depends on whether exporters to the U.S. cut their prices
You can save this article by registering for free here. Or sign-in if you have an account.
You have to hand it to him. Republican presidential candidate Donald Trump knows how to make headlines. His latest is a “big bang” proposal to replace federal income taxes with a “yuuuge” tariff on imported goods and services.
Not surprisingly, many American economists are howling about the proposal’s unfairness and inflationary effects. As their argument goes, tariffs raise consumer prices, thereby hurting lower- and middle-income earners more than those with higher incomes. Since the top 10 per cent of taxpayers pay 75 per cent of U.S. income taxes, the rich will be made better off: their income tax savings will swamp any tariffs they pay on imported products.
Subscribe now to read the latest news in your city and across Canada.
Subscribe now to read the latest news in your city and across Canada.
Create an account or sign in to continue with your reading experience.
Former Harvard president and Clinton adviser Larry Summers warns it could also be devastating for U.S. trading partners, not only China but also friendly allies like Canada, the EU and Mexico, who could see their sales to the U.S. market shrink and their currency devalue against the American dollar. If other countries retaliate by raising their own tariffs against American goods, world trade and GDP will suffer, maybe triggering a 1930s-style Great Depression.
This proposal therefore looks dead on arrival. But is it as crazy as it........