Unedited
Thank you, Senator. Thank you all for your bravery in the environment that Senator Cortez Masto mentioned to make this a public issue.
It is the role of the Senate Finance Committee to treat tariffs as a tax and to evaluate it whether it is a good form of tax or a bad form of tax. And the title of this hearing or this spotlight is exactly right. It is a bad form of tax in terms of costs versus the amount of revenue you raise, in terms of costs who pays the tax, in terms of chaos, it inherently creates uncertainty, which affects small business, which affects individuals trying to plan their lives, which affects consumers. And it provides widespread opportunities for corruption that other forms of taxation either do not or do on a fraction of the scale.
And I'm saying all this not because I was scripted by your excellent staff. It's because your excellent staff has properly conveyed what the vast majority of economic research on 250 years of trade policy in the U.S. and beyond has taught us. Cost, chaos, corruption are reasons you don't use tariffs as a large-scale revenue gaining point.
So let me go on and draw on the work of a number of my colleagues at the Peterson Institute, in particular that of Kimberly Clausing and Mary Lovely, who've looked at the tax incidence. Meaning, the numbers of who pays what when you put on this kind of tariff. Other colleagues have worked on other aspects.
The key point is, as the number cited up here, is we come up with a number that the middle quintile of the U.S. income distribution would pay $2,600 a year in additional taxes, in lost income, real after-tax income. That that number goes up, the further down the income distribution you go. That we have a number that it's for the lowest quintile of Americans' households in terms of income, they would lose 3.7 percent of their income, or they would lose more than $2,600, closer to $3,000 a year.
So as Senator Cortez Masto put it, this is a double whammy. You are taking away Medicaid, other aspects of the society that the U.S. government has voted to pay for, to help working people and to help small business and to help farmers and help labor, and then you are asking the same people to pay more taxes.
This is just bad on the face of it as both a human and a political matter, but also as an economic matter, it makes no sense, because it's a very inefficient way to generate revenue. Estimates done not just by the Peterson Institute, but by the center-right Tax Foundation, by the center-left Yale Budget Lab, by the Penn Wharton studies that Senator Luján mentioned, they all show that you would end up not just collecting something on the order of 1.5 percent of GDP a year in tariffs, if the tariffs all stay on, if there is no evasion, if there is no industrial restructuring, if there is no retaliation -- if, if, if, if, if. If all that, it all stays on, you get maybe 1.5 percent of GDP a year, but that's small compared to everything else that the reconciliation package proposes to do that adds up to the four trillion over 10 years, and more importantly, all those ifs are not going to come true.
Inherently, if the president is using arbitrary executive power and insists he's going to make deals and bargains and create exceptions for this country or that industry, you're not going to get that much revenue. Inherently, because this is not done by congressional legislation and cannot be depended upon for the 10-year window of reconciliation, there is uncertainty, you're not going to get the full amount of money. Inherently, because tariffs involve international affairs in a way that other domestic taxes do not, you're at risk of losing things from other countries' retaliation or nonresponse. And inherently, you're going to have more impact on growth negatively through the distortions that the taxes make.
I will leave it to my colleagues here and the witnesses who can articulate in very real terms what this has meant for their farms, their businesses, their workers. It's real. But from the top-down data, the evidence is clear and also real. This is a very inefficient way, a very unjust way to create government revenue, and it creates insufficient, uncertain streams of government revenue in a way that erodes our tax base.
Congress should be making tax policy through legislation, not through executive orders accepting them. Congress should be making tax policy for those most able to pay and benefit to pay the most. Congress should be making taxes on the broadest feasible basis for efficiency and also to prevent corruption and abuse. Congress should be setting tax policies to encourage growth. In America's self-interest, national security, and economic, Congress should not be making its tax policy to provoke fights with other countries rather than working with them to figure out where they owe us money in a constructive way.
The tariff policies of President Trump's administration and those embodied in the reconciliation bill fail on every one of those criteria. I commend the Senate Finance Committee Democrats, and I hope some Republicans will join you in asserting that Congress, the Senate Finance Committee, should treat this as a tax bill. And if you treat this as a tax bill, it fails the American people.
