Make no mistake, tariffs are taxes paid out of pockets of people in the importing country. Everybody pays: consumers by higher prices for both imports and many domestically produced goods; business owners by lower profits; investors by lower returns; and at least some employees by lower wages and salaries. In the likely event tariffs accelerate inflation the pace of price increases will quicken. Unemployment is also likely to rise. Recently both inflation and unemployment have crept up. Inflation maybe be on the verge of surging. Prices aren’t coming down in any case.
Part of the stated rationale for imposing tariffs was to re-shore manufacturing. That won’t happen. However, tariffs do have possible upsides. First, like all taxes, tariffs raise government’s revenue but that will only partially offset revenue lost to tax cuts. Second, if inflation doesn’t speed up but unemployment rises, the Fed will have to cut interest rates to bolster employment.
AXIOS estimates Trump’s tariffs will cost the average family $2,400 per year. The House Ways and Means Committee’s analysis suggests tax cuts will only increase the average family’s annual, after-tax income by $1,300, a net minus $1,100, ignoring any purchasing power loss if inflation speeds up. Of those who will actually benefit from tax cuts, the top 5 percent of families will reap 49 percent of benefits, according to The Center on Budget and Policy Priorities (April 8, 2025). Benefits to the super-rich will be paid for by lower after-tax incomes for many of us and substantially higher federal debt and deficits.
What happened following Trump’s 2017 Tax Cut and Jobs Act forecasts what’s in store this time.
The Center on Budget and Policy Priorities finds, “There was no significant impact on GDP growth, investment, or wages. Instead, the 2017 tax law reduced federal revenues and exacerbated income and wealth inequality . . .”. Therefore, the TCJA’s only economic effects were to shift upward income and wealth and increase government debt. The 2025 version is the TCJA on steroids.
To fact check the claims about income inequality and budget deficits, Google the St. Louis Fed’s FRED data tool. For income inequality data, type “Gini Index” in the search box. Notice the index reached its all-time high in 2019 having risen throughout Trump’s first term. The higher the index, the greater is income inequality. If one family received all income, the Gini Index would be 1.0. For data on federal deficits, type “Federal Surplus or Deficit” in FRED’s search box. You’ll see the budget deficit reached its all-time, pre-COVID high in April, 2018 due to the TCJA and increased government spending.
The TCJA included no new tariffs, therefore, you can expect the 2025 version to magnify effects of the TCJA.
Patrick Taylor lives in Ridgeland.
