Trump floats replacing income taxes with tariffs, gets criticized by economists

By Victor Reklaitis

'Fundamentally unserious stuff' is the among reactions from a range of analysts

Economists and other analysts offered criticism Thursday after presumptive Republican presidential nominee Donald Trump floated the idea of imposing an "all-tariff policy" that could let the U.S. eliminate income taxes.

His suggestion came during a private meeting on Thursday morning with Republican lawmakers in Washington, D.C., according to a CNBC report, which cited unnamed sources at the meeting.

A Trump campaign official told MarketWatch that Trump simply floated the idea as part of a conversation - adding that the former president has said many times that as tariffs on foreign countries go up, taxes on American workers can come down.

Tariffs were once the main source of the U.S. federal government's revenue, but that hasn't been the situation in modern times.

Below are some of the initial reactions:

-- "Fundamentally unserious stuff. ... The price of imports would rise, but so would the [dollar] DXY, leading to lower sales and income for exporters." - Kyle Pomerleau, a senior fellow focused on tax policy at the conservative American Enterprise Institute, in social-media posts.

-- "U.S. imports total $3.5 trillion per year, while total income tax revenue is about $3 trillion ($2.5t individual). You'd be well on the wrong side of the tariff Laffer curve if you tried this." - Marc Goldwein, a lecturer on economics and senior vice president at the Committee for a Responsible Federal Budget, a nonpartisan watchdog group, in a social-media post. (The Laffer curve refers to the idea that lower taxes help generate economic activity, leading to more money to tax and higher tax revenue.)

-- "The individual income tax raises about $2 trillion annually on a tax base of personal income of roughly $15 trillion. Customs duties currently raise about $80 billion annually on imports of $3.4 trillion." - Erica York, senior economist and research director at the Tax Foundation, a nonpartisan nonprofit, in a social-media post.

-- "Even Trump's current tariff proposals (10% on all, 60% on China) would raise insufficient revenue (by a wide margin) for this wrongheaded goal, while making us less safe, prosperous, and competitive. ... Just another way Trump wants to take us back to the 19th century." - Kimberly Clausing, an economist and professor at UCLA's law school who previously worked in the Biden administration, in a social-media post.

-- "Swapping all income tax for tariffs would be unbelievably regressive." - Steven Rattner, financier and former Obama White House car czar, in a social-media post.

-- "The income tax has its flaws. But, the bottom line is it raises $2.5 trillion per year in progressive fashion. Broadly substituting tariffs for income tax is a sure way to hit hard low and middle income Americans and reward top." - David Kamin, a New York University law professor who previously worked in the Biden administration, in a social-media post.

Trump also was meeting in Washington on Thursday with members of the Business Roundtable, an association for chief executive officers of American companies. The association said that because President Joe Biden is overseas for a Group of Seven meeting, White House Chief of Staff Jeff Zients was filling in for the Democratic incumbent and meeting with its CEOs.

-Victor Reklaitis

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06-13-24 1445ET

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