Description
Trade and tax policy proposals floated by presidential candidate Donald J. Trump and his advisers would reduce the United States' reliance on income taxes while increasing reliance on import tariffs. Should these proposals become law, lower- and middle-income Americans would shoulder increased tax burdens; only upper-income earners would experience net tax cuts.
The lowest quintile of workers in the United States would experience a reduction of 3.7 percent in after-tax income after extensions of Trump's Tax Cuts and Jobs Act (TCJA) provisions and an across-the-board increase in tariffs, while the top 1 percent would experience a 1.4 percent increase in after-tax income. It's long been understood that the TCJA tax provisions disproportionately favored those at the top of the income distribution, but taken as a whole, the Trump fiscal agenda amounts to regressive tax cuts, only partially paid for by regressive tax increases.
Evidence from the first round of Trump tariffs shows that new tariffs are unlikely to help the workers harmed by import competition or other sources of concentrated job loss, such as technological change. Instead, the tariffs are likely to provoke retaliation and distrust among US trading partners. Instead of helping workers, tariffs introduce new economic shocks and collateral damage, while aggravating international tensions.
This PIIE Chart is adapted from Kimberly A. Clausing and Mary E. Lovely's Policy Brief, Why Trump's tariff proposals would harm working Americans.
