Tariff-Skeptic Stockman Cheers Tariffs
Former OMB director and serious deficit hawk David Stockman sees sense in revenue tariffs.
Former Congressman David Stockman, who served as director of the Office of Management and Budget (OMB) throughout President Ronald Reagan’s first term in the White House, is about as fierce a deficit hawk as you can find.
Stockman has been strongly critical of President Donald Trump’s first-term budget record from the outset, and there are numbers that justify that complaint. Even before the pandemic lockdowns, Trump signed spending increases, although it is only fair to note that Trump’s spending trend was about $1.4 trillion lower than what President Joe Biden inflicted on the American taxpayer:
Spending was rapidly heading back down toward the pre-Covid trend line when Biden took office with Democrat majorities (and fiscally crazy ones at that) in both houses of Congress. Trump is not to blame for the current spending numbers, though I think that he should have been cutting spending sharply in his first administration instead of increasing it, because cutting government spending is always good. Always.
Note that $1.4 trillion is approximately the spending increase that, projected forward a half-dozen years or so, threatens to bankrupt the U.S. government and bring about a barf-storm of economic disasters.
Stockman has also been extremely critical of tariffs, recounting all the standard arguments about them.
Given Stockman’s copious criticisms of Trump and expressed hatred of tariffs, it is rather startling that he has written an article giving “Two Cheers for a Revenue Tariff.”
Stockman starts with faint praise:
Let’s make clear that a pure 19th century-style “Revenue Tariff” would not be the worst thing in the world. That’s because it mostly taxes consumption, which is the least damaging way to extract the revenue needed to fund America’s Leviathan on the Potomac—that is, what’s left after Elon has his way with it.
Stockman says that he would prefer a value-added tax or even a national sales tax. I would note in response that a value-added tax taxes production in part, and hence reduces economic output. A national sales tax would not tax production (directly, anyway).
The positive aspect of tariffs, as I have noted before, is that they cannot raise much revenue.
Stockman considers tariffs third-best while recognizing their nature as essentially a consumption tax: “That’s because owing to the hollowing out of American industry by the Fed and the Washington-spenders, … it would largely fall on imported final consumption items.”
Stockman approves of a tariff only as a tax and not as a means of federal government economic manipulation or a foreign policy tool:
However, a pure Revenue Tariff would needs be imposed on a strict across-the-board basis at a rate of, say 10%, on each and every item of imports processed by the US Customs Service. No exceptions!
Across the board means across the board, Stockman states:
As a Revenue Tariff it should be kept clear and far away from the Donald’s cotton-pickin’ deal-making hands and his penchant for start and stop haggling, which is enormously disruptive to productive commerce and is actually an open invitation to the corruption of beltway lobbying for exceptions.
For a tariff to work as a consumption tax, Congress and the president would have to resist the temptation to make exceptions, and Trump’s statements about tariffs suggest that it would not be easy for him to do that. Stockman writes,
Needless to say, these strictures run afoul of some of the tastier items in the Donald’s box of White House chocolates. To wit, he’s mainly interested in the deal-making and power politics part of the tariff, not its revenue potential.
As a stern deficit hawk, Stockman knows exactly what the tariff revenue should be used for:
It should be strictly applied to chiseling away at the $22 trillion baseline deficits built in over the next decade according to CBO. In truth, this prospective red ink is more like $25 to $30 trillion if you make allowance for removing all the spending cut and revenue increase gimmicks in the CBO baseline that are never likely to happen, and also allow for the budget cost of upsets to the perfect economic weather for the next decade assumed by CBO but which will never happen, either.
An interesting angle on the isue is that a tariff would not raise nearly as much money as the taxes it would replace, if it were put in place of income, corporate, and capital gains taxes, and that would require very large spending cuts. That would entail a hard-nosed downsizing of the federal government and a proper return to the states of all powers the Constitution does not grant explicitly to Congress and the president.
As a compromise and a step in the right direction, free-market economist Stephen Moore has offered what he calls the “15, 15, 15 Plan.” Speaking to Glenn Beck at Blaze Media, Moore outlined the idea of 15 percent taxes for all the main revenue grabs the federal government currently imposes:
“What Trump is basically talking about, which I think is a really interesting idea, is not necessarily getting rid of the income tax, but lowering all the tax rates to 15%,” Moore tells Glenn Beck of “The Glenn Beck Program.”
“I broached with Trump the other day, this idea of 15, 15, 15. So how about if we have a 15% corporate rate, a 15% individual income tax rate, a 15% universal tariff, a 15% capital gains dividend,” he continues. “Can you imagine that?”
I think that Moore must mean a 15 percent capital gains tax, not dividend. The simplicity of the idea is very engaging, and the rate cuts to the taxes on production—income, corporate profits, and capital gains—would be extremely beneficial to the U.S. economy and to the liberties of the American people. The latter is in fact what I care about most.
Such a tariff, Moore says, would accomplish what Trump has been pushing for since he first hit the campaign trail in 2016: a much better deal for U.S. industries and American workers than what the current tax system offers, to foster greater production of goods and services in the United States. The Blaze story continues:
However, some Americans are still rightfully concerned that tariffs are just another tax on an already heavily taxed population.
“What he wants to do is charge a 15% tax on things that are made in China, or Europe, or Japan, but if it’s made in Michigan or Ohio or Pennsylvania or California or Maine, he wants to have the rate 15%,” Moore explains.
“What I’m saying is you’re going to pay 15% income tax if it’s made in the United States. In other words, the profits you make on selling something, let’s say you make widgets, and you make a profit on making those widgets in Pennsylvania, wherever it is, you’re only going to pay a 15% income [tax] to buy that product if it’s made in America,” he continues. [I think Moore means to make that product, not buy it.—SK]
“So what you’re trying to do is skew the table a little bit more in favor of buying things made in the U.S. versus other countries,” he says, adding, “And by the way, that’s what all other countries do to us.”
Moore’s proposal is a less-radical alternative to a (currently politically impossible) pure, naturally limited consumption tax that cannot raise much revenue, which is what an across-the-board, single-rate tariff is. Moore’s 15-15-15 Plan would be a large and beneficial reform and is far less scary to budget hawks like Stockman than the revenue-limiting tariff is.