Donald Trump recently floated the idea of paying poor and middle income American adults $2,000 each out of the money "pouring into" our country from his tariffs. While we cannot take his proposal literally, it contains the germ of a good idea.
Here is how Mr. Trump put it, on social media:
"All money left over from the $2000 payments made to low and middle income USA Citizens, from the massive Tariff Income pouring into our Country from foreign countries, which will be substantial, will be used to SUBSTANTIALLY PAY DOWN NATIONAL DEBT."
The first problem with Mr. Trump's statement is that any money collected from tariffs is not "pouring into our country from foreign countries."
Although the president speaks of tariffs "on China" or "on Canada" what he is really imposing are taxes on goods imported from China or Canada.
The taxes on these goods are paid by Americans paying higher prices for these imported goods or by American companies absorbing the higher costs they are paying for imported goods. They are not "coming in" from someplace else.
The second problem with Trump's proposal is that his tariffs are not producing enough income to pay anything near $2,000 to Americans.
There certainly would be nothing left over for paying down the national debt.
The third problem with the proposal is that the U.S. Supreme Court may well hold that the tariffs imposed by the president exceeded his legal authority so they might have to be refunded.
Still, something along these could be a good idea, assuming that the tariffs were duly enacted by Congress and an equal rebate to all Americans were proportional to money actually collected.
Two goals have been claimed for the new tariffs: funding the government, and encouraging businesses to set up shop in the U.S.
The proposed rebates would conflict with the first goal, because they could not be used to pay rebates, and to also fund the government.
But rebates would be compatible with the second goal.
Tariffs are not just a tax on Americans.
They are a regressive tax.
Taxes on imported goods are particularly hard on poorer Americans, who need to spend everything that comes in.
But distribution of an equal rebate financed by those tariffs could reduce this problem. Encouraging firms to locate in the U.S. need not be at the expense of our poorest people.
There is an analogy here to the proposed carbon tax to encourage everyone to substitute green energy for coal, oil, and gas, with receipts paid out as a dividend to everybody subject to our government’s jurisdiction.
The dividend would repay people for the extra costs added to their energy bills by the carbon tax, while still encouraging everyone to prefer non-carbon fuels whenever possible.
A carbon tax refunded through an equal social dividend, like a rebate of tariffs, would redistribute some purchasing power to the poor.
Their extra energy costs would be less than the dividend because the poor can't afford to use much energy in the first place.
But we need not trust the government to decide who gets the money in either of these cases. Rebates should be distributed to all men, women, and children so they are proportional to the size of families. This would mean smaller payments to adults, but spread benefits more equitably among households.
A workable system would require stable tariffs rather than the recent dramatic ups and downs, so like other taxes they should be enacted by Congress.
Likewise, rebates should be based on stable legislation, again enacted by Congress.
Even though he got so many details wrong, we should give Donald Trump some credit for bringing public attention to this approach for wiping out some of the bad side effects of high tariffs.
Paul F. deLespinasse is Professor Emeritus of Political Science and Computer Science at Adrian College. Read Professor Paul F. deLespinasse's Reports — More Here.
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