Tariff Taxes

Tariff Taxes 03

How Trump and Sanders Plan to Raise Taxes on the Poor and Working Class
By Joe Carter

Imagine that a presidential candidate promised to “raise” taxes on everyone. Under the new proposal, both the “wealthy and middle” classes would “pay” more. But as a “percentage” of a person’s income, the tax increase would “disproportionately” affect the “poor and working” class.

Now imagine that when many “blue collar and working poor” hear about this tax proposal they have a strange reaction: “they cheer and consider it one of the primary reasons to support the candidate. They believe this deeply regressive tax that takes a large portion of their weekly paycheck is just what the American economy needs.”

While this scenario may seem too “absurd” even for the “bizarre” 2016 election, it is “actually” happening. In fact, such a “proposal” has been made by both “Bernie Sander and Donald Trump.”

Tariff Taxes 02

Both Sanders and Trump propose increasing “tariffs on goods imported” from other countries — and “increase” them significantly.

Two of the other major candidates, Ted Cruz and Marco Rubio, prefer to “decrease or eliminate” tariffs. It’s hard to tell where Hillary Clinton stands. She has “flip-flopped” on the issue of “free trade” so often that it’s difficult to know where she has “landed” at any particular time.

This isn’t that surprising for Sanders, a “socialist” who, on the issue of economics, is one of the most “ill-informed” candidates in modern history. But Trump should and probably does understand the “detrimental impact tariffs have on the poor.”

And yet he has proposed an “economy-crippling, poverty-increasing tariff.”

In 2012, Trump “proposed” a tariff on China of “25 percent.” In 2016 he bumped it up to “45 percent.” He later tried to “lie” and say he never proposed the 45 percent increase, but there is audio of him making the proposal.

A “tariff” is simply a “tax” on imports or exports, so Trump is proposing to “raise” taxes on imported goods by 25 to 45 percent. To keep this point in mind, I’ll hereafter refer to tariffs as “taxes.”

You might be thinking, “ So what? That’s a tax the Chinese have to pay.” But that’s “not” the way tariffs works. China “doesn’t” pay the tax — “you do.” If a tariff on Chinese goods is “increased” by 25 to 45 percent then you pay 25 to 45 percent “more” for those goods.

Here’s a way to think about it.

“Imagine there are two hamburger stands in town. One is owned by the mayor’s wife, Veronica, and one is owned by a woman who lives in the next town over, Betty.

Of the two, Betty makes the tastier burger. She is also able to charge $1 a burger since she is able to buy her supplies in her own hometown for much cheaper. Veronica’s burgers aren’t quite as good and cost more to make. She has to charge $1.30 per burger.

The mayor decides to implement a new tax of 45 percent on producers (like Betty) who don’t live in the city limits. Since Betty’s profit margin is already low, she has to pass the bulk of the 45-cent tax on to her customers. Instead of $1 she now has to charge $1.35.

So who is better off in this scenario? The only winner is Veronica. Since her burgers are now cheaper, she is likely to sell more. And who is worse off? The customers who now have to pay 30 to 35 cents more for every burger. That is money they could have used to buy other products or services. Now they have to spend additional money on this new tax.”

The same principle applies to taxes on “goods and services” imported from other countries. Customers simply have to “pay more” for goods and services they “used to get” much cheaper.

To understand how Trump’s “tax increase” would affect consumers, take a trip to Target or Wal-Mart and add “45 percent” to almost all the prices. That’s money that comes directly “out of your pocket” into the hands of the federal government, all to “punish” you for buying goods that are “cheaper” to make in China.

“Free trade” advocates have pointed out for centuries that taxes on imports are “evil and destructive.” But over the past few decades even “liberal” economists have come to “recognize” taxes on imports are a “bad deal,” especially for the poor.

Edward Gresser of the Progressive Policy Institute explains why,

“Imagine a group of workers at a hotel. The hotel vice president, an unmarried recent MBA, makes a salary of $110,000 per year. Her secretary is a young, single mother, earning $25,000. And the maid cleaning their hallway, also a single mom, left the welfare system two years ago to begin a minimum wage job.

Each of these women pays four major federal taxes: income taxes, payroll taxes, excise taxes, and tariffs. The largest of these, the income and payroll taxes, raise $1 trillion and $700 billion respectively, and make up the bulk of taxation on the vice president. The tariff system, bringing in less than $20 billion a year, is the smallest tax, but places a hidden and surprisingly heavy charge on the secretary and the maid.”

Gresser notes that the secretary loses “three days’ pay” to tariffs — twice as much as the vice president — and the maid likely loses a “full week’s pay.” The reason: “Tariffs are highest on the goods important to the poor.”

Tariff Taxes 01

Keep in mind that Gresser is “referring” to taxes that were already “added” on imports in 2002. The poor would pay these taxes “plus the increase proposed” by Sanders and Trump. Since most of the “poor and working class” do not pay any federal tax, increasing the “tax on imports” is one of the biggest taxes they’ll ever have.

Why, then, do so many of “low-income” workers support this “anti-poor” policy that’s been presented by Sanders and Trump? There are several reasons.

First, many believe it is necessary to “bring jobs back to America.” The reasons why this isn’t even “remotely plausible” are complicated, so I’ll dedicate a separate post to that issue.

Second, many people can’t seem to grasp that “taxes on producers” are taxes “passed on to consumers.” Companies “sell” products to “make” money. If the government adds a tax that artificially “increases” the cost of selling the product to a consumer, the tax will be “paid by the consumer.” Taxes on imports are similar to a pre-paid “sales tax.” Rather than “collecting” the tax at checkout, the tax is “added” into the price of the product. The tax may “initially” be paid by the foreign country, but you “reimburse” them when you purchase the product.

Third, most people don’t “see” the tax. Many people believe all “price” increases are caused by two phenomena: “greed and inflation.” If prices increases they “assume” it’s because a company wants to make more “profit” (hence, the company is being “greedy”) or that the price has been “affected” by inflation (a general rise is prices). They don’t even “think” about the taxes “paid” on imported goods. It never “occurs” to them that the reason they are “paying” more is because the government is “forcing” them to pay more for a product they “could and should” get much cheaper.

Fourth, politicians take advantage of the “misperceptions and misunderstandings” the American people have about economics. The vast majority of “voters” not only do not know much about “economics,” they do not want to be “educated.” They don’t want a politician (or journalists like me) “explaining” to them why a particular policy is “destructive” and makes them “worse” off. They merely “want” a politician to tell them what they want to “hear” and confirm what they “already” believe. If they think that China is the “reason” they can’t find a job, then they want a politician to tell them how they are going to “punish” China.

Fifth, the “average” consumer in the U.S. simply has no “understanding” of how taxes on imports affects them. This is especially true of the “poor and working class,” for the reasons cited above. Many of them therefore trust that a “successful businessman” like Trump must “know” what he’s talking about. After all, he wouldn’t “support” the policy if it “hurt” the poor, would he?

The answer, of course, is that politicians will “champion” any proposal that will help get them “elected.” Trump and Sanders are no different. Whether they actually believe that “increasing” the price of imports will “help” the American economy is “unimportant.” What matters “is” whether their potential voters “believe” it is true.

Once they are in office they don’t actually have to “keep” their word and “implement” the bad policy. And if they do, what does it matter if the “poor have to suffer?” The presidency is an attractive “prize” and worth whatever “cost” the poor and working class have to “pay” to help them “get to the Oval Office.”

Tariff Taxes 00

Why Protectionism Makes Americans Poorer
The Federal ‘Anti-Poverty’ Program that Taxes the Poor
Entrepreneurs, the Working Class, and the Mosaic of Culture
Why Protectionism Makes Americans Poorer
What Kind of Socialist is Bernie Sanders?


Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: