Tariffs Are, in Fact, Regressive Taxes

President Trump’s protectionist trade representative, Jamieson Greer, has messed up an economic concept so elementary that either he must be serving up nonsense on purpose — thereby operating on the assumption that his audience is stupid — or he is genuinely unfamiliar with basic notions.

When asked to defend Trump’s tariffs on the CNBC show Squawk Box, Greer said the following:

But the other piece to keep in mind, too, is that it’s not regressive. Most consumption in America is done by the wealthiest people. So the idea that it’s somehow regressive is just wrong.

Greer then repeated the administration line that the tariffs “aren’t making their way down to consumers anyway” because they are paid by foreigners instead, so there’s no need to worry about whom they hit on the income scale. This is a condemnable lie that has been debunked (most recently) by the Congressional Budget Office, the Kiel Institute for the World Economy, the Yale Budget Lab, and the Federal Reserve Bank of New York, which all find that tariff costs are overwhelmingly getting passed on to American businesses and consumers.

But we’ve heard the lie that Americans don’t pay tariffs many times before. What’s new is Greer’s incredible argument that tariffs are not regressive because wealthy people spend more money on imported goods. I cannot say this bluntly enough: That is not what “regressive” means.

A tax is considered regressive if it falls more on poorer people than wealthier people as a percentage of their income. The dollar-amount distribution of the tax’s burden has nothing to do with it. Of course, wealthy people spend much more on consumption than poor people, because they have far higher incomes. Therefore, almost any consumption tax will get more absolute revenue from high-income households than low-income ones. That’s true of traditional sales taxes. But sales taxes are universally known to be regressive because poor people tend to consume more, once again, as a fraction of their income. Rich people consume more in absolute terms, but they usually devote a greater share of their income to savings and investments than do less-well-off households.

The Yale Budget Lab has broken down the incidence of Trump’s tariffs to show how high-income people can contribute most of the revenue and still suffer less of a tax burden than low-income people. Under the current policy, tariffs are estimated to cost the lowest-earning 10 percent of U.S. households $925 per year on average. Meanwhile, they cost the highest 10 percent of earners $3,894 per year. That’s a lot more money. But that $3,894 constitutes only 0.8 percent of the top decile’s average income. For the lowest decile, $925 in extra taxes costs them 2.5 percent of average income, because their earnings are so much lower.

Consider a theoretical example: One man pays $5,000 in a certain tax, another pays $10,000. Knowing nothing else about these people, you would say that the second man bears the greater tax burden. Then say that the first man earns $50,000 per year, and the second man makes $500,000. Thus, the former is forced to spend 10 percent of his income on the tax, and the latter just 2 percent. Now which one do you think is more burdened financially? Unquestionably it’s the first man — which is why the tax in question is definitionally regressive.

This is how tariffs work. Poorer households, which spend more as a share of their income on consumption, inevitably pay more as a share of their income in consumption taxes. Jamieson Greer knows there’s a word for that, but he apparently has no idea what it means.