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Tariff Increases vs. Tax Cutsmises.org/power-market/tariff-increases-vs-tax-cuts
67 sats \ 6 comments \ @Rothbardian_fanatic 1 Mar Politics_And_Law
News feeds are stuffed full of reports and opinions about President Trump’s tariff increases on Mexico, Canada, China, and the EU. Then the add-on story is about the tax cut legislation—extending President Trump’s tax cuts to the coming years.
The media is spinning the story as a political hot potato: can tariff increases make up for the future revenue losses from extending the income tax reductions from President Trump’s first term?
This is a false scenario, and a dangerous one. It puts our standard of living at a critical crossroads. Here are the missing road signs.
Let us take a brief review of the economic and fiscal ramifications of both components facing us. Not extending the tax cuts means in effect a tax increase moving forward and a big economic uncertainty right now. Extending the tax cuts or cutting tax rates in general does a multitude of things to the economy, all of them good.
Tariffs cause both a loss of efficiency and a decrease in the standard of living. Economists call this a double deadweight loss to society. While these losses might seem obscure and fleeting, I would say this is the primary reason economists of all ideological stripes are universally against tariffs and protectionism.
OK, so lowering taxes is good and making or raising tariffs is bad because they have opposite effects on the economy and the wealth of the people. Everyone except politicians understands that tariffs and protectionism leads to trade and tariff wars and a diminution of the wealth of the original tariffing country and anyone doing business with it. What is the way out of the debt conundrum? It looks like none, other than to quit digging the hole any deeper. Lowering taxes doesn’t have a very good effect and tariffs have an adverse effect. So what do you do?
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36 sats \ 5 replies \ @Undisciplined 1 Mar
Optimal Tariff Theory at least suggests that it's possible for a large nation to benefit from tariffs. That cannot be said for almost any other types of taxes, so I'm fine with substituting tariffs for income taxes.
Obviously, the best path would be radical spending cuts and deregulation, but at best we might get a sprinkling of those things.
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30 sats \ 4 replies \ @Rothbardian_fanatic OP 1 Mar
The very best path forward would be huge deregulation and recession of dubious laws with a topping of tax cuts. I don’t know how well DOGE will work out, though. It seems DOGE doesn’t have the magic to wave their wand and vaporize whole departments or agencies, that is left to Trump and he seems to be getting questionable advice from some of his advisors. BTW, where and who does this Optimal Tariff Theory come from? I must not be keeping up with it, is it like MMT? Most economists are of the schools that think that tariffs are destructive to the economies of those applying them for any other purpose than small incomes to the states, not huge deficit and debt payback incomes, though. Another article I posted today: #901056 Covered what Say had to say about tariffs and as a pre-Austrian, what the damage to economies interventions, in general did and still do. Trump’s advisors must not include any Austrians, but then again his advisors don’t seem to last long if they contradict his expertise in business and economic matters.
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13 sats \ 3 replies \ @Undisciplined 1 Mar
BTW, where and who does this Optimal Tariff Theory come from? I must not be keeping up with it, is it like MMT?
Not at all like MMT. It's widely accepted amongst trade economists. Most others are either unaware of it or oppose the idea over concerns of retaliation. An informed free market economist would probably oppose it on the grounds that tax revenue should not be counted towards economic surplus.
Bob Murphy did a good job explaining it on a recent podcast: https://www.fountain.fm/episode/0O3VVgykLV79fPeHKD7B
The basic idea is that when a large country imposes a tariff, there's significant downward pressure on price, which partially offsets the increase from the tariff.
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32 sats \ 2 replies \ @Rothbardian_fanatic OP 1 Mar
Not at all like MMT. It's widely accepted amongst trade economists. Most others are either unaware of it or oppose the idea over concerns of retaliation. An informed free market economist would probably oppose it on the grounds that tax revenue should not be counted towards economic surplus.
Sorry, the like MMT was a bit of sarcasm about current economic mainstream thought. I would oppose it on the grounds that any intervention in the economy by the state is bound to destroy prosperity and screw up the production and pricing mechanisms. As well as send the wrong signals to the entrepreneurs, investors, workers and landowners. I haven’t yet listened to Murphy, but he is unusually good with Austrian economic thought and the free markets. I really liked his dissertation on time preferences. He also did something really interesting with Hayekian triangles.
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20 sats \ 1 reply \ @Undisciplined 2 Mar
Neither Bob nor I buy into the interpretation of Optimal Tariff Theory that holds that tariffs can be net benefits. I only brought it up because there are very good reasons for thinking tariffs are comparatively better than the kinds of taxes we have now and therefor substituting current taxes for them could be beneficial.
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33 sats \ 0 replies \ @Rothbardian_fanatic OP 2 Mar
Yes, I think you may be correct on being better in the consequences for first order consequences, but it is the second and third order consequences that are even more damaging. Introducing errors into the production mix of ever other good in society is not a happy sort of consequence. Also, protected industries are awfully hard to reallocate away from if they have been protected enough. Of course all of these consequences are from the beginning, when the state first decided to intervene in the economy.
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