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Trump’s Proposed “China Tax” Would Cost Every American $670

Posted: April 3, 2016 at 4:57 pm   /   by   /   comments (0)

Editor’s note: In the Party Line’s last issue (March 24, 2016) Brad Botwin’s letter to The Washington Times: “Trump Right on Import Tariff” was republished. This piece is a response.

markUncaphernewBy Mark Uncapher

Earlier this year, Donald Trump told The New York Times editorial board that he favors a tax on imports into the U.S. from China.  The Times quoted Trump as saying, “I would do a tax and the tax, let me tell you what the tax should be … the tax should be 45%.”

While some may engage in wishful thinking that the Chinese will somehow absorb the increased costs, the reality differs little from how your local service station handles higher expenses – they get passed on to the consumer.

So how much more would American consumers pay?  Given that imports from China totaled $482 billion in 2014, 45% works out to $217 billion, or an average of $670 for each American.

How much does this amount to?  This year, Maryland’s 6% sales tax will generate an average of $750 per person.   So, Trump’s “China Tax” would be an equivalent drain on consumers’ pocketbooks as the state’s sales tax.

On a national level, the Trump “China Tax” would exceed the total annual burden of all the taxes associated with Obamacare, about $120 billion per year in nominal dollars.  It also is more than the potential annual cost of the laundry list of new taxes in the Obama administration’s current budget proposal.

To be sure, at first Trump denied his “China Tax” proposal at a January debate hosted by the Fox Business Network, saying, “That’s wrong. They were wrong, It’s The New York Times, they are always wrong.”  However the Times undermined Trump’s denials by releasing both the transcript and audiotape confirming their story.

Trump’s “China Tax” is not as burdensome as the one he proposed in 1999 as a prospective candidate for the Reform Party’s presidential nomination.  At that time, he proposed a one-time 14.25% “net worth tax” on individuals and trusts worth $10 million or more.  At that time, Trump’s own estimate was that the tax would raise $5.7 trillion.   Bernie Sanders may be a socialist, but even his tax plan does not rake in as much for the government as Trump wanted to.

It has been several generations since any national Republican politician has embraced a protectionist trade policy that was this explicit. In June 1930, President Hoover signed into law the Hawley–Smoot Tariff Act.  Like Hoover, Senator Reed Smoot and Representative Willis C. Hawley were both Republicans.

Smoot-Hawley’s “dutiable tariff rate” in 1932 was 59%, the highest rate in over a century, and a level near Trump’s 45%.  During the global trade war that resulted from this policy, world trade decreased by some 66% between 1929 and 1934.  Meanwhile, U.S. exports also plunged 61% during the same period of time.   According to Ben Bernanke, “Economists still agree that Smoot-Hawley and the ensuing tariff wars were highly counterproductive and contributed to the depth and length of the global Depression.”

High tariffs also proved to be very bad politics for Hoover, Smoot and Hawley.  All three were defeated for re-election in 1932.  Also, for more than a generation thereafter, many Americans no longer trusted Republicans to be stewards of the country’s economy. In fact, it was not until the nation prospered as a result of Reagan’s economic policies of lower taxes and less government intrusion did that tide turn.

However, Trump has been a vocal critic of lowering marginal tax rates, which was the centerpiece of Reagan’s economic policies.  He called it a “disaster.” He opposed lower rates because they were made possible by eliminating tax loopholes that the politically well-connected real estate industry benefited from.  (See Trump’s 1991 Congressional testimony:

All too often during the 2016 presidential campaign, anyone questioning proposed reversals of past conservative policies has been met by the all-purpose attack about being part of “the Republican establishment.” However, instead of hiding behind personal attacks, let those who want to perform a U-turn with Republican tax policies openly and explicitly try to make their case with voters about why they think higher taxes will improve the economy.