Imagine never paying income tax again. Sounds damn nice to me too. That’s until reality kicks in and you start looking at the math on how large the tariffs would need to be to replace those taxes…
Tariffs on imported goods would need to be roughly 50-65% and you could imagine the fallout that would have. Trade with key partners would collapse, prices would surge, supply chains would be disrupted, and energy supplies would take a hit. Tariffs once worked as a revenue source for the US, but with all the current programs and expenses, they barely scratch the surface.
In theory, there could be a way to make this work; like implementing entitlement programs, so a lower tariff would suffice. However, that would require some massive political changes that the US just isn’t ready for.
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Hey, all, Peter Zeihan here. Coming to you from a windy Colorado. We’re taking a couple of questions from the Patreon page today, specifically. A lot of talk in Washington these days is about replacing all income taxes with import tariffs. Is this possible? What do you think about what it would look like? Great question. The proposal dates back to something that predates the income tax, which was really adopted only about a century ago.
But you have to keep in mind the volumes in question. Today, the United States imports about 1.14. trillion dollars of goods and services, about, three quarters of that as goods. And the tax generates about 2.6 to $2.7 trillion of income. So if your goal is to zero out the income tax, you need a tariff on everything, not just from China, everything that is in the range of 50 to 65%.
I guarantee you, if you increase the price of things by half, it’s going to change how we live. For example, we bring in a lot of Canadian crude, heavy stuff that is then refined into, distillates such as gasoline and diesel, which are the primary fuel source for most of, say, the Midwestern part of the United States. That would go to zero almost overnight with a 50% increase. So we’d have lots of reshuffling. We’d have to basically shut down trade relations with all of our major countries that participate. Link supply chains with us. And, anything that is electronic come to Asia would get very expensive.
So you’d have some big impacts. The reason why you’d have this, such as mismatches. We don’t have the same economy that we had back during the times in the 1800s, when tariffs were our primary source of income. So we have built out the social welfare state with Medicare, Medicaid, Social Security and defense now being our four biggest line items in the government.
So if you were to zero out Social Security, Medicare and Medicaid, then you could perhaps talk about doing an equalization with a tariff that’s only around 20 or 30%. But I would argue that that would require a lot of political evolutions in the United States that we are not quite ready to cope with at the moment. So it’s an interesting idea, but as a, as an income tax eliminator, we’re nowhere near to tariffs, being the solution to that particular problem.
