by Daniel Brouse
March 20, 2025
Tariffs function as one of the most regressive forms of taxation because they disproportionately burden lower-income individuals, harm economic efficiency, and provide minimal benefit in terms of reducing the deficit. Here’s why:
1. Tariffs as a Regressive Tax
A regressive tax is one that takes a larger percentage of income from low-income earners than from high-income earners. Tariffs fit this definition because:
- They increase the price of goods—especially necessities like food, clothing, and household items—forcing lower-income consumers to spend a greater portion of their income on these essentials.
- They do not scale with income—everyone pays the same higher price for imported goods, meaning that the burden is disproportionately heavier on those with less disposable income.
2. Damage to the Economy
Tariffs hurt the economy in multiple ways:
- Higher Prices for Consumers – Import taxes make foreign goods more expensive, allowing domestic producers to raise prices due to reduced competition.
- Supply Chain Disruptions – Many U.S. industries rely on imported components; tariffs increase their costs, reducing competitiveness and efficiency.
- Retaliatory Tariffs – Other countries impose their own tariffs in response, harming U.S. exports and industries reliant on international markets.
- Reduced Investment and Growth – Businesses facing higher costs and uncertainty are less likely to invest, expand, or hire new workers.
3. Minimal Impact on the Deficit
While tariffs generate revenue, their contribution to reducing the deficit is small because:
- Tariff Revenues Are Limited – Even in years of aggressive tariff policies, they typically raise tens of billions—not enough to significantly impact a deficit that runs in the hundreds of billions or trillions.
- Indirect Economic Costs Offset Revenue Gains – The economic drag from tariffs (reduced trade, job losses, lower productivity) often results in lower tax revenues elsewhere, negating much of the benefit.
- Political Pressure for Subsidies – When tariffs hurt domestic industries (e.g., farmers suffering from retaliatory tariffs), the government often responds with subsidies, which further erode any fiscal gains.
Conclusion
Tariffs act as an inefficient, indirect tax on consumers, particularly the poor, while harming overall economic growth. They offer little benefit in reducing the deficit because their revenue is small relative to overall spending, and the economic damage they cause reduces other sources of tax revenue. In essence, they function more as a political tool than an effective economic policy.