Why are so many Republicans in Congress going along with Trump’s tariffs?
San José, CA – Why are so many Republicans in Congress going along with Trump’s tariffs? For decades the Republican Party has been a party of free trade and “lower” taxes, so why the support, or at most silence, from Republicans in Congress?
Many of them are true believers and believe in whatever Trump says. But for many others, the easy answer, is that they live in a MAGA world, and any opposition to Trump would result in loss of their job and even death threats. But there is also another factor less discussed in the media.
For many years, right-wing think tanks have toyed with the idea of a consumption tax like the value-added tax that many other countries have. Project 2025, a guide to right-wing policy developed by the Heritage Foundation, is one example of the right’s embrace of consumption taxes.
Their goal is to replace income taxes, which are progressive in that they tax higher income households at a greater rate and lower income households, with a consumption tax. A consumption tax is regressive, where lower income households pay a larger percentage of their income in taxes than higher income folks.
But tariffs on imported goods are a type of consumption tax that is restricted to imports. Just like a consumption tax, tariffs are regressive in that lower-income folk with pay a larger percentage of the income to tariffs than higher-income folks.
When Trump claims that his tariffs will pay for his income tax cuts, that means the higher taxes for low and middle-income people will pay for tax cuts for the rich, something that most people would oppose. But he tries to sell this by first claiming that the exporters will pay the tariffs, and secondly by promising that this will bring more jobs and income back to the United States.
So why is Wall Street so scared by the tariffs if they are actually consumption taxes? One reason is that the tariffs are not confined to consumer goods, but include many of the raw materials (such as steel and aluminum) as well as parts (like auto parts) that U.S. companies use to make their products. This raises the costs of production, leading them to have to raise prices, which would tend to reduce the volume of sales, or squeeze their profit margins. Other U.S. companies, like Apple computer, basically import all of their products, which are made overseas. Last, but not least, they worry that the high rates – about 22% on average across all imports – would slow sales in general and tip the economy into a recession.