OPINION:
President Trump has predicted that his tariffs could raise as much as $6 trillion in federal tax collections over the next decade. These include up to 125% tariffs on China and the combination of reciprocal tariffs: we charge them whatever they charge us. Also, don’t forget the protectionist tariffs on steel, aluminum, autos, lumber, etc.
Mr. Trump’s tariff rates are higher than at any other time in the past century, so it is no wonder we have seen a painful stock sell-off, reducing asset values by more than $7 trillion.
However, the markets are missing the fact that Mr. Trump has announced that other tax cuts will offset money raised from the tariffs. If that is the case, then the net impact of the tariffs could be positive for the economy.
He is on to something big that could cause an epic stock market recovery. It is a way to bounce stocks back to life and boost growth while fulfilling his goal of freer and fairer trade.
In other words, tariff revenue should be a major “pay for” in extending and expanding the tax cuts. It would obviate the need for any offsetting tax rate increases. If we were to raise, say, $500 billion from tariffs, that would pay for indexing the capital gains tax, the 15% made-in-America business tax and a reduction in the payroll tax.
Another idea is a 15% flat tax on everything. Steve Forbes and I have advised that Mr. Trump announce a bold “15% Plan.” The plan would include a 15% tariff, a 15% personal income tax, a 15% corporate tax and a 15% tax on capital gains, dividends, etc. It’s a plan with a broad tax base and low rates to minimally distort economic activity. Imports would share some of the load, much as other nations do to us.
Why not go all the way? Eliminate the income tax and pay for government the way we did before the 16th Amendment, which allowed for a federal income tax. Mr. Trump is right that this was one of the nation’s greatest mistakes. Before that, we funded the government through tariffs and land sales.
If this happened, the tax on work, saving, investment and entrepreneurship would largely disappear. Even getting halfway there would be a triumph for growth.
If any of these plans were announced, the Wall Street growling bears would turn into raging bulls. Instead of any further short-term pain, we would start to see a shared long-term gain for everyone.
• Stephen Moore is a visiting senior fellow at The Heritage Foundation and a co-founder of Unleash Prosperity.
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