Opinion

The Trump administration’s sweeping tariffs have harmed the economy by increasing input costs and uncertainty for businesses and raising prices for consumers, placing a particularly heavy burden on people with low and moderate incomes. Now President Donald Trump is floating the idea of replacing income taxes with tariffs—a proposal that could not plausibly make up for lost revenue and would follow the administration’s pattern of showering wealthy households with windfalls at the expense of households with incomes in the bottom half of the income distribution. This plan would raise taxes on people with incomes in the bottom 20% by $4,000 (26% of income) and the middle 20% by $5,300 (8.7% of income), while wealthy households would receive a $337,000 windfall (21% of income), on average.

Instead, policymakers should abandon the administration’s economically harmful and regressive tariffs and pursue more efficient and equitable revenue-raising policies. In particular, raising the corporate tax rate, which mostly taxes profits not inputs, would raise significant revenues and have little impact on overall investment, while the costs would be borne predominantly by wealthy shareholders of large corporations.