Who pays tariffs?

Consumers do.

In his first campaign, Trump claimed China would pay his tariffs. That’s false.

The U.S. can’t make China pay taxes. All it can do is make Americans pay taxes on Chinese goods.

Tariffs are imposed at the U.S. border when goods come into the country. They become part of the cost of those goods, and are passed through to consumers by distributors and retailers.

Trump is now talking about replacing income taxes with tariffs. MSNBC says (here) this would be a massive “gift to the rich,” and that’s true. Tariffs are a consumption tax. Shifting taxes from income to consumption reduces tax burden on the wealthy and makes ordinary households pay more.

Under Trump’s proposed scheme, the federal income tax would entirely go away. (However, Social Security and Medicare taxes on wages, and state income taxes where they exist, would remain.) But half of Americans don’t pay income taxes now, because they don’t earn enough, and everyone would pay higher consumption taxes.

It’s probably not possible to raise enough money from tariffs to replace income tax revenues. Tariffs might raise very little revenue if people stopped buying imported goods because of them.

To raise equivalent revenue, all goods and services, not just imported goods, would have to be taxed; and at a rate of at least 30%, on top of state and local sales taxes. You wouldn’t pay federal income taxes anymore, but you’d pay a 40% to 45% tax on everything you buy.

Trump’s tariff scheme is superficially attractive, but if it actually worked, it would have been done long ago. It’s a pipe dream. That doesn’t mean he can’t try, if he gets elected and a Republican Congress goes along, but I’ll bet very few voters who voted for this would foresee the unintended consequences, which would hit them like a brick.

Photo below: Ports like Seattle’s would be far less busy if high tariffs discouraged imports

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