In yesterday’s
posting, “The
Two-Part Tariff Question,” we took a look at the question of whether
President Trump actually has the power to impose a tariff. A tariff, after all, is a tax, and under the
U.S. Constitution the taxing power is reserved to the people through their representatives
in Congress. Obviously, we are not
experts in Constitutional law, but it seems to us the issue ought to be raised.
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| Not a new issue, nor restricted to the United States. |
Where we are
expert, however (meaning we’re from out of town), is in what should be
considered as a serious alternative to tariffs and trade wars. After all, war doesn’t seem to be the answer,
no matter what, except as a last resort.
A trade war with Japan in the 1930s contributed to the Japanese attack,
while the so-called “War on Poverty” petered out in an expensive holding
action.
Looking at a
tariff as a tax — which it is — what is its purpose? We can answer that in general terms: raise
revenue to run government. That is the
sole purpose of any tax. It’s not “social
engineering” or to adjust the amount of money in circulation as the Keynesians
assume (that’s another whole can of worms), nor is it to ensure that private businesses
can save enough out of profits to finance growth, or cut alcohol or tobacco
consumption, or punish other countries for their trade policies, however desirable
(or undesirable) any of those things may be.
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| Not "social engineering" NO! |
No, the purpose
of any tax is to fund government.
Period. We happen to believe that
the most just and efficient tax is a flat tax on income over whatever amount is
needed to meet ordinary living expenses adequately, including not merely food,
clothing, and shelter, but also education and healthcare.
We’ve discussed
this before, so we won’t do more than say we think that amount is probably
about $30,000 for a non-dependent and $20,000 for a dependent. That would mean that the “typical” family of
four (two adults, two children) would not pay any tax on anything until
aggregate family income exceeded $100,000.
At that point, the same tax rate would apply on the amount over the exemption,
whether it was $1, or $250 trillion.
And the tax
rate? It should be set at whatever rate
is needed to meet ALL expenses of government at all levels of government,
local, state, or national, plus a reasonable amount to pay down existing debt. Any new debt, by the way, should come out of
existing savings, not be used to create new money. All government borrowing should be short term
to meet unexpected shortfalls in tax collections and should be retired as soon
as possible.
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| Yes, ultimately, all taxes are income taxes. |
And why an income
tax? Because, if you stop to think about
it, ALL taxes are “income taxes”! What
else are you going to pay them with? A
property tax does not pay itself, i.e.,
you don’t reduce the property you own unless you have no other recourse. No, you pay it out of the income generated by the property if it
is productive property, or you get the money from other income. A property tax not
an income tax? Don’t kid yourself.
And a
tariff? Here is the bad news: foreign
countries don’t pay tariffs. Nor do
domestic businesses. You know who pays a
tariff?
YOU
That’s
right. When one country exports to
another (actually, when businesses in one country sell to customers in another
country), the price is “X.” If the
government of the customers’ country imposes a 10% tariff, the price the
importer pays is “1.1X” (X plus 10% of X).
The 10% added on goes to the government of the country that imposed the
tariff.
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| We've actually been through all this before. |
The importer is
not going to absorb that cost, however.
No, he or she will raise the price charged to consumers, Y, by at least
the amount of the tariff, and probably more to compensate him or her for the
additional trouble and because the traffic will bear it, and to make up for the
lost profit because as the price of something goes up, the demand for that
something usually goes down.
The bottom line
is that foreign countries don’t pay tariffs imposed by our government, WE do,
in higher prices, while businesses get hit with lower demand, lower profits, and
reduced sales.
Looking at it
that way, yes, there is clearly an alternative to tariffs . . . but only if you
agree that the sole purpose of taxation is to fund government. If you’re worried about other goals, however,
is there a way to achieve them in a less harmful (or even beneficial) way?
We’ll look at
that next week.
#30#