President Donald Trump is pushing a plan to use revenue from increased tariffs on imported goods to help pay for expanding trillions of dollars in tax cuts, an unprecedented shift that is likely to face opposition from many Republicans in Congress.
The United States collects less than $100 billion annually in trade sanctions on imported goods as a tool to protect and grow domestic industries, money that is rarely a topic in Washington’s budget battles because it represents such a small proportion of U.S. revenue. federal government.
Trump has threatened to impose widespread tariffs on imports, but has not yet done so.
The president and his allies say he wants to use them in a similar way to the personal and corporate taxes that account for the vast majority of U.S. income, raising tariffs to help pay for government programs and cover promised tax cuts.
“Instead of taxing our citizens to enrich other countries, we will put tariffs and taxes on foreign countries to enrich our citizens. To this end, we will create the Foreign Revenue Service to collect all tariffs, duties and revenues. “There will be enormous amounts of money coming into our Treasury from foreign sources,” Trump said at his inauguration on Monday.
Raising enough money in tariffs to make a dent in the U.S. budget would be a huge task: In recent years, these tariffs have accounted for only about 2% of annual revenue.
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“Tariffs are going to be a really important part of the tax cut debate.” A 10% tariff represents “between 350,000 million and 400,000 million dollars of income. So the beauty of that is seen in the negotiations,” Trump adviser Peter Navarro told CNBC on Tuesday.
Hardline budget Republicans concerned about the reliability and durability of tariff revenue, along with the potential dangers that trade wars pose to individual districts and voters, will likely put up resistance, U.S. lawmakers and trade analysts say.
U.S. Rep. Ralph Norman, R-South Carolina, told Reuters that any push by Trump to pass tariffs through Congress as legislation would be an uphill climb.
“Everyone has their district and businesses that are affected by tariffs, good and bad. I doubt he thinks he can get it,” Norman said.
“It is technically and mathematically possible to find some tariff policy that will offset Trump’s tax cuts, but there is no way they have the votes to do it,” said Bobby Kogan, senior director of federal budget policy at the Center for American Progress, of leftist tendency.
Asked how seriously Republicans are considering tariff revenue as a offset to Trump’s agenda, House Majority Leader Steve Scalise told Reuters: “Trump has alluded to tariffs, but we still don’t know the details. He said to wait for something. But until we see it, it’s really hard to speculate.”
The White House did not respond to requests for comment.
Concern about the deficit
Importing companies pay tariffs on goods entering the United States, and most economists and business executives say importers are likely to pass costs on to consumers or be forced to accept lower benefits.
The House Ways and Means Committee, the House’s top tax body, included a 10% blanket tariff on its menu of options to pay for the extension of tax cuts, according to a recent memo seen by Reuters.
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It is estimated that such a tariff regime would generate $1.9 trillion over 10 years, according to the memo. Extending the tax cuts that Trump approved during his first term and that expire this year would cost $4 trillion over 10 years, analysts estimate.
Trump has also promised to stop collecting taxes on workers’ tips and Social Security payments to retirees, which would add hundreds of billions to the federal deficit without matching revenues or cuts.
Republicans are preparing to enact these plans through a parliamentary process called “budget reconciliation,” which does not require support from Democrats in the coming weeks.
With a slim majority in the House of Representatives and a 53-47 seat margin in the Senate, Trump needs to convince budget hardliners within his party that his plans will not increase the deficit. Democrats have opposed the vast majority of Trump’s tax cuts.
If they aren’t technically in the legislation, the tariffs likely won’t be included in the Congressional Budget Office’s official score for the reconciliation bill.
“Counting the tariffs as revenue would require Congress to vote on them as legislation and would have a material impact on the budget,” House Budget Committee Chairman Jodey Arrington, R-Texas, told Reuters.
“Therefore, it is a legitimate departure that could be considered. But I’m not saying it’s being considered right now. In fact, it has been discussed and debated, but there is no definitive plan,” he added.
Even with tariff revenue included, Republicans would likely have to impose massive cuts to popular government programs, such as Social Security and the Medicare health insurance plan for seniors, to pass a balanced bill.
The nonpartisan Tax Foundation estimated that Trump’s most extreme tariff proposals – a 20% universal tariff plus a 60% tariff on China’s exports to the United States – would raise about $3.8 billion over 10 years, less than the $4.3 billion needed to fully offset the cost of making expiring tax cuts permanent.
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Very inefficient
Erica York, vice president of federal tax policy at the Tax Foundation, said it is “very unusual and unprecedented” to use tariffs to raise revenue.
“Tariffs are a very inefficient way to raise revenue,” York said.
“They create a greater burden on poorer households than richer ones, meaning that many low- and middle-income households could be worse off from the proposed combination of tariffs and tax cuts,” he added.
Relying on tariffs to balance a budget also doesn’t make much sense in the long run because of how consumers react to them, other experts said.
The tariffs are intended to change behavior, much like so-called “sin taxes” on tobacco or alcohol, meaning that if they were effective, they would reduce income over time, said Martin Muehleisen, a researcher at the center for Atlantic Council studies.
“If tariffs are intended to shift domestic consumption toward American products, they would generate little revenue if they were successful. “If they are designed primarily to increase income, they would be inflationary and reduce economic growth,” he said.
With information from Reuters
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