Over on twitter, Connor J. O’Brien wrote a brief explanation of the federal government budget. Want to replace the income tax with tariffs? Nearly impossible. Read this, then I’ll add a little more data.
Connor O’Brien
Income tax revenue is $2.4 trillion. Total imports for 2024 were $4.08 trillion. That implies a tariff rate of 58.8%. And, of course, that’s the static estimate. With a tariff that high, the quantity of imports will fall. A lot. And domestic prices will rise, perhaps by a lot. A recession would depress personal income and income tax revenue. Good luck with that.
If you doubt the impact on U.S. prices, consider two major targets of President Trump’s tariffs: steel and aluminum. Both are used in production by many industries. Boeing buys a lot of aluminum. Steel is used in areas as diverse as construction, car and truck manufacturing, and railroad equipment. Increase their prices, then add the effects of “markup over unit cost” pricing. The cost of the metal in the final good will increase by much more than the percentage increase in the tariff.
