Sen. Rick Scott has an excellent idea.
The Florida Republican has suggested that all the revenue from President Trump’s tariffs on imports should be returned to the American people through tax cuts. After all, as Trump keeps telling us, China is paying us billions and billions right now.
So why not give that money back to us all?
Of course, there is the little issue economists keep going on about, that it’s really Americans paying those tariffs — as tariffs are actually just a tax on people who buy imports. But then that’s even more reason to cut taxes, right?
If we’ve got to pay more on imports because of China’s malicious behavior, then we should pay less elsewhere to compensate. It only seems fair.
But what’s really excellent about Scott’s idea is that if we were to do this, we’d have to work out how much revenue is truly being raised. And just because someone’s decided to charge a nominal fee doesn’t mean there’s actually more cash in the Treasury, as charging more in one area can mean that there’s less to collect in tax revenue in another. Plus, we can even see greater costs as a result of the new tariffs, costs that we’ve got to pay for. Given the way we pamper farmers with subsidies, those are costs that the government has promised to pick up.
So, we’ll have to pay for this, you and I. Or, of course, we could divert that income from the tariffs.
But then there’s the economist Art Laffer’s famous point. Certain taxes mean that the economy itself is smaller. Thus there’s less revenue from all the other taxes — income, capital, corporate, sales, and so on — meaning there’s less money in the Treasury even though taxes have nominally gone up.
This is why Scott’s idea really is so wondrous and clever.
Because to lower taxes as a result of tariff revenue, we’ve got to work out how much we should reduce taxes by. We need to look at the revenue coming in from them directly — whether it’s China or American taxpayers paying it — then subtract all the associated costs. Yet funny enough, this would probably be a negative figure!
How much are we doling out in extra subsidies because of the tariffs? How much are we losing in other tax revenues as a result of the trade war? Quite a bit, most likely. If we lower taxes by the amount of revenue raised, that could be zero — or a tax hike!
Which really is wondrously clever. The tariffs are costing us all money: in lower living standards because imports cost more, then again because the whole trade war is a net revenue loser, and so, Scott would, possibly unknowingly, have us cough up even more. So we should embrace Scott’s brilliant idea, calculate the costs, and reconsider the entire trade war to begin with.
Tim Worstall (@worstall) is a contributor to the Washington Examiner‘s Beltway Confidential blog. He is a senior fellow at the Adam Smith Institute. You can read all his pieces at The Continental Telegraph.
