The Corner

Economy & Business

Tariffs Adding up to an Historic Tax Increase

Imported automobiles are collected in a lot at the port of Newark, N.J., February 19, 2019. (Eduardo Munoz/Reuters)

The administration’s plan that will impose tariffs up to 25 percent on all Mexican imports is sending shockwaves around the world. The move is perplexing for several reasons, including the use of tariffs to address an issue completely unrelated to trade, and the timing as the U.S., Canada, and Mexico work to enact United States–Mexico–Canada Agreement implementation legislation through their respective legislatures.

What’s even more confounding is that Mexican tariffs promise to undermine the administration’s enormously successful pro-growth tax and regulatory policies that have brought about a strong economy, record-low unemployment and – finally – rising wages.

Tariffs are taxes – taxes paid by Americans. The tariffs on Mexican imports will cost Americans $17 billion at their lowest level of 5 percent, and $87 billion at the full 25 percent levy. Over 10 years, Americans would shell out nearly $900 billion on these imports alone.

Taken together, all the president’s tariffs add up to the largest tax hike in post-World War II history as Bryan Riley and Demian Brady write at the National Taxpayers Union.

Let’s take a look back at the annual cost of billions of dollars in new taxes levied on Americans over the last 18 months, in chronological order:

  • Washing-machine and solar imports: $150 million
  • Steel and aluminum imports: $6.4 billion (excluding cancelled tariffs for Canada and Mexico)
  • Additional tariffs on steel and aluminum imported from Turkey: $360 million
  • 25 percent tariffs on $50 billion in imports from China: $12.5 billion
  • 25 percent tariffs on $200 billion in imports from China: $50 billion
  • 5 percent tariffs on all imports from Mexico: $17.3 billion

Altogether, the annual tab for announced or imposed tariffs is nearly $87 billion — a tax paid by American businesses and consumers on everything from avocados and tequila to cars and computers. That’s nearly equal to net business tax cuts in the Tax Cuts and Jobs Act for 2019!

That’s bad enough, but there’s more. The administration has more tariffs in the pipeline.  Here’s what’s in play in future tax increases should the administration go through with all the tariffs they have threatened:

  • Additional 20 percent tariffs on all imports from Mexico, total of 25 percent tariff tax rate: $69.3 billion
  • Tariffs on imported autos and auto parts: $73 billion
  • 25 percent tariffs on an addition $300 billion in imports from China: $75 billion

The total possible tab — as of this writing — would be $303 billion on an annual basis. This is a huge tax increase — about $2,000 per tax return, hitting low-income taxpayers the hardest. It would negate all of the president’s tax cuts of $280 billion in 2019, and then hike taxes some more. Over 10 years, tariff taxes would top $3 trillion — twice the president’s tax cuts.

The president’s pro-growth tax and regulatory agenda have delivered solid results. And while the tariff taxes are hurting numerous businesses and workers across the country, at some point they will take a much larger toll on the broader economy. Reversing course would be the wiser way to go.

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