tax increase

Tariffs on imported goods are often compared to a tax increase, as importers typically pass the higher costs onto customers. And President Trump’s new tariffs on Mexico would be a significant tax increase.

That’s according to revenue estimates from the Tax Foundation, which did a comparison of estimated increase in revenue to Gross Domestic Product (GDP) between both Trump’s tariffs and former President Bill Clinton’s 1993 tax increase. The Tax Foundation calculated that, if Trump’s new 5% tariff on imported Mexican goods is instituted, it would bring in an estimated $69 billion in revenue each year, which would be approximately 0.32% of GDP.

Clinton’s tax increase in 1993, for example, brought in revenues equaling approximately 0.36% of GDP at the time. That figure was just five hundredths of a percentage point shy of the GDP impact of former President George H.W. Bush’s 1990 increase, which increased revenue by approximately 0.41% of GDP a year following its implementation.

The Tax Foundation (which is described by Media Bias Fact Check as having a right-center bias) criticized tariffs as trade policy, saying they “raise prices and reduce economic growth.” The think tank also said tariffs on imports ultimately lead to “lower income, reduced employment, and lower economic output.” And while the value of currency may improve due to tariffs, the Tax Foundation warned that even an increase in currency value could still cause economic harm:

Tariffs could reduce U.S. output through a few channels. One possibility is that a tariff may be passed on to producers and consumers in the form of higher prices. Tariffs can raise the cost of parts and materials, which would raise the price of goods using those inputs and reduce private sector output. This would result in lower incomes for both owners of capital and workers.

…Alternatively, the U.S. dollar may appreciate in response to tariffs, offsetting the potential price increase on U.S. consumers. However, the more valuable dollar would make it more difficult for exporters to sell their goods on the global market, resulting in lower revenues for exporters.

President Trump has defended the new 5% tariff on Mexican imports, saying it’s necessary to stem the flow of immigrants across the U.S./Mexico border. However, some companies that purchase large amounts of Mexican imports have already hinted at price increases. Restaurant chain Chipotle, for example, said it expects to increase the price of its burritos in response to the tariff, as it purchases avocados, tequila, and beer from Mexico.

 

Tom Cahill is a contributor for Grit Post who covers political and economic news. He lives in Bend, Oregon. Send him an email at tom DOT v DOT cahill AT gmail DOT com.

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