Import taxes will be paid disproportionately by low and middle-income families, since they both spend disproportionately to goods rather than services.
The taxes on imports (tariffs) that Donald Trump is putting in placek, coupled with his earlier taxes, will rank among the largest tax increases ever imposed. They are far larger than the tax hikes put in place by Presidents Clinton and Obama, which sent Republicans into a frenzy.
The basic story, as it stands now, is that Trump will impose 25 percent taxes on imports from Canada and Mexico, while increasing his 10 percent tax on imports from China to 20 percent. Our imports from Canada and Mexico together came to roughly $1 trillion last year, while our imports from China were a bit over $400 billion.
This means that, before any resulting adjustments in trade patterns, the tax would come to $330 billion ($250 billion plus $80 billion). There are many issues with this simple calculation. Trump may allow some items, like Canadian oil, to be taxed at a lower rate. However, the figure also excludes Trump’s tax on steel and aluminum imports from other countries, which would make the tax considerably larger.
This means that we can use this $310 billon figure as a reasonable approximation of the size of Donald Trump’s tax increase. With GDP coming in at around $30 trillion in 2025, this tax hike would be equal to 1.0 percent of GDP.
By comparison, the tax hike [2] that Bill Clinton pushed through in 1993, primarily on high-end taxpayers, came to 0.66 percent of GDP. The tax increase [3] that President Obama pushed through in 2010 to cover the projected cost of Obamacare came to 0.43 percent of GDP, less than half the size of Trump’s tax hikes, as shown below.
If Republicans are really opposed to tax increases, they should be outraged about the huge taxes that Donald Trump is imposing on imports. On the other hand, these import taxes will be paid disproportionately by low and middle-income families, since they both spend a larger share of their income than rich families, and what they do spend goes disproportionately to goods rather than services. (Low and middle-income households are less likely to spend money on fine dining and foreign vacations.)
If the Republicans’ main concern is taxes that rich people pay, then it is more understandable that they would not be upset about the huge taxes Donald Trump is imposing on imported goods. The rich will be less affected by these taxes and can be more than compensated by tax cuts that Trump has promised them.