From the end of the month, Americans are going to lose the tax tariff “break” they currently enjoy on small items sent from abroad.
Writing in the Wall Street Journal, Phillip W. Magness and Alberto Mingardi note that, as from the end of the month (and for the first time since 1938) international packages containing some “bauble” (to borrow Scott Bessent’s sneer of a noun) will come with “a tariff bill to be paid by the recipient”:
That means your next eBay purchase from Europe will incur a 15% tax. Your online coffee order from Brazil will face a 50% markup. And everyday purchases from Amazon Haul, or its Chinese competitor Temu, will come with a surcharge matching the tariff on its origin country. If a postal carrier isn’t equipped to calculate the fee according to Mr. Trump’s ever-changing tariff schedule, the new tax is a minimum $80 flat rate per package. In total, Mr. Trump’s order will put tariffs on the estimated 1.36 billion packages that Americans receive every year from online purchases that were previously tax-exempt.
That will go down well with voters.
However, making people pay “their” tariffs this way has some merit.
Consider the history of the income tax. Taxpayers used to pay their income taxes quarterly by, presumably, check. That was too cumbersome after the massive increase in the number of taxpayers during the Second World War, and so withholding was introduced. The new system was partly designed by Milton Friedman (!), although, as he later wrote, withholding would have happened had he been involved or not. Nevertheless, while Friedman understood withholding was a wartime necessity, he came to regret the ease that it had brought to tax collection.
Joseph Thorndike, writing in Tax Notes:
The older Friedman yearned for the days when taxpaying was inconvenient. Like many other conservatives, he believed that more friction in the taxpaying process would create more accountability in the world of public finance . . .
In a 2008 article, Sal Nuzzo of the James Madison Institute explained his complaints about withholding in notably vivid terms, comparing the device to the invention of casino chips. “I have often considered one of the most brilliant market inventions of the 20th Century to be the development and implementation of casino chips,” Nuzzo wrote, saying:
“Consider — in separating gamblers from their actual cash and replacing it with colorful plastic discs, casino owners were able to gain a unique and very important psychological advantage over patrons. It’s a challenge to separate a player from a crisp $100 greenback featuring the bust of Ben Franklin himself; it’s far easier to part with a colorful plastic disc. The cash already feels gone — it’s just a matter of playing with the discs until there are no more left. The casino has won, even before you’ve placed a single bet.”
Something similar happened with the advent of withholding, Nuzzo contended. “The federal government accomplished what casino owners would with the development of casino chips — it implemented a psychological barrier separating people who had earned wages from their money before the tax bill was officially due — and even before they had received their earned wages.”
There will be few more vivid demonstrations to people of the fact that a tariff is indeed a tax — and a tax paid by Americans — than having to pay it directly.
That may be instructive.