An End to the Income Tax

At the core of Trump’s economic agenda, which is what allows many capitalists to overlook his volatility and vulgarity, are tax cuts and deregulation. A second Trump term would mean more of both, though details, as is usually the case with Trump, are elusive.

His tax proposals have been otherworldly. Last spring, he proposed a 10% across-the-board tariff and a 60% tariff on Chinese imports (paired with income tax cuts, but not yet full abolition). According to a paper published by the Peterson Institute for International Economics, that package would reduce after-tax incomes by about 3.5% for households in the bottom half of the income distribution and would cost the average household somewhat less: 2.7%, or $1,700.

But that wasn’t radical enough. In a meeting with congressional Republicans in June, Trump proposed scrapping the income tax altogether and replacing it with sharply increased tariffs. This would take the structure of federal revenue back to the nineteenth century, when tariffs accounted for 80% to 90% of total collections and there was no income tax. But aside from the occasional war, the federal government was small then and didn’t need much revenue. That hasn’t been true for almost a century.

What would federal revenues look like with the full Trump swap? They’d be a lot sparser. Personal income taxes account for almost half of total federal receipts. (Corporate taxes, which Trump wants to cut further, account for another 9%.) Existing customs duties, which are technically different from tariffs, account for less than 2%.

Rough calculations show that the 60% levy on Chinese imports and the 10% on all other imports wouldn’t even come close to replacing the lost income-tax revenues; a simulation suggests the package would yield revenues equal to just 28% of the current take. That would reduce federal receipts by one-third and double the deficit. It is very hard to imagine it ever being politically possible to offset spending cuts of that magnitude.

These revenue simulations assume that imports would remain unchanged in the face of higher tariffs, which of course they wouldn’t. Nor do they address the distributional consequences of a shift from a progressive income tax to a regressive consumption tax, which is what tariffs are, at least in part. Peterson Institute’s simulation of this proposal found that it would knock 9% off the income of the poorest fifth of the population, 5% off for the middle fifth, and add 14% to the income of the top 1%.

A New Era of Tariffs

Trump has a history with tariffs. He’d agitated for them for years, and he finally got to impose them on imports of steel and aluminum from most countries in March 2018 and on imports from China in four stages in 2018 and 2019. He also imposed stiff tariffs on solar panels and washing machines. The metals tariffs were greeted happily by American steelworkers, but the outcome was nothing like Trump and his supporters hoped for. Employment and production didn’t thrive, and the moves against China in particular provoked retaliatory actions that hammered American farm exports.

It’s not self-evident who pays tariffs. Trump fans say they come out of the hide of exporting firms and countries, but that view isn’t widely held. Most studies show that they hit buyers of imported goods, though there’s some disagreement over exactly how much of the increased costs are passed along in higher prices. A 2020 working paper from the National Bureau of Economic Research found, as did earlier studies, that “U.S. tariffs continue to be almost entirely borne by U.S. firms and consumers.” The authors, Mary Amiti, Stephen J. Redding, and David E. Weinstein, note that non-Chinese producers lowered their prices to gain market share, calling it “good news for U.S. firms that demand steel, but bad news for workers hoping that steel tariffs will bring back jobs. . . .  U.S. steel production only rose by 2 percent per year between the third quarter of 2017 and the third quarter of 2019 despite 25 percent steel tariffs.”

Mark Zandi, chief economist of Moody’s Analytics, estimated in 2019 that, a year in, the tariffs had cost the United States $88 billion and 340,000 jobs. These sorts of estimates often sound suspiciously precise, but almost everyone who’s studied the issue has come up with similar ones, and few have concluded the opposite. Unsurprisingly, the Trump administration, led by economist Larry Kudlow — someone who is almost always wrong — claimed economic gains but refused to show its work.

The response from China hurt. A December 2019 Bloomberg article on the fallout of the trade war with China cited, as an example of collateral damage, the case of Northwest Hardwoods, a timber exporter that suffered a 40% decline in orders as a result of China’s retaliation. The company closed plants and laid off workers. Farmers were especially hard hit. A year after Trump opened the agricultural front of the trade war in July 2018, a representative of the American Farm Bureau Federation told the Hill they’d “lost the vast majority of what was once a $24 billion market in China.”

The tariffs failed to balance trade with China or to stimulate employment. From 2016, the year before the trade wars began, through 2019 (just before COVID-19 broke everything), US imports from China fell 3%, but exports fell by 8%. And while increased prices of imports from China did discourage sales modestly, they also shifted demand to other exporters like Vietnam. Overall, from the beginning of 2017 through the end of 2019 (from the onset of Trump to just before the onset of COVID), real exports rose 4.8%, real imports rose 5.3%, and the trade deficit rose 7.6%.

Employment in basic metals accounts for a very small share of US employment, and the tariffs had no visible effect on it. Both steel and aluminum experienced steep job losses in the 1990s and 2000s (steel was down 55% and aluminum 50%, while overall employment rose 19%), but they stabilized at very low levels after that. In February 2010, as employment bottomed out after the Great Recession, iron and steel accounted for 0.06% of total employment. In March 2018, the month the tariffs were announced, the sector still accounted for just 0.06% of total employment. In February 2020, the eve of the pandemic, that number was 0.06% yet again. And in June 2024, it was still at 0.06%. Employment numbers in aluminum are very similar. Nor did the tariffs stimulate domestic production. Between March 2018 and December 2019, steel production fell by 6.1% and aluminum by 3.7%.

Trump would like to try some more tariffs, though.

Project 2025

What else could we expect? Delving into the chamber of horrors known as Project 2025, the Heritage Foundation’s blueprint for a new right-wing presidential administration — of which Trump professes to know nothing, even though many of its authors worked for him — we find an ambitious reactionary agenda, seasoned with piety and nineteenth-century values. It’s full of words fiscal conservatives love, like “streamline” and “flexibility” (each appears 43 times), which are polite terms for letting businesses do whatever the hell they want.

The chapter on the Department of Labor and related regulatory agencies opens with “the resolve to reclaim the role of each American worker as the protagonist in his or her own life and to restore the family as the centerpiece of American life” and, just a few lines later, pivots to recommending the “Judeo-Christian tradition, stretching back to Genesis.” That means repealing the “assertive left-wing social-engineering agenda” the US Labor Department currently embodies — and reducing regulation. The first of the specific action items listed are “revers[ing] the DEI revolution” and “eliminat[ing] . . . critical race theory trainings.” No social engineering here. The plan would lift antidiscrimination regulations and loosen regulations on the payment of overtime — especially in the “southeast,” the former Confederacy. It would deregulate child labor and encourage “alternatives to labor unions whose politicking and adversarial approach appeals to few.” But there are exceptions to the deregulatory thrust: Project 2025 would tighten rules for immigrant workers and move toward requiring that 95% of federal contractors’ employees be US citizens.

Subsequent chapters propose a more aggressive trade policy, meaning tariffs and other trade barriers, especially against China, apparently assuming Trump didn’t try hard enough last time. Peter Navarro’s chapter on trade is strenuously bellicose in urging us to fight the “existential threat posed by the Chinese Communist Party (CCP) in its quest for global dominance.” (The abbreviation “CCP” appears 41 times.) Curiously, however, Navarro’s manifesto is followed by a dissent — a defense of free trade by Kent Lassman, president of the libertarian Competitive Enterprise Institute. Lassman pronounces the tariff experiment a costly failure that angered US allies and extracted no concessions from China; instead of repeating it, he argues, policy should be reformed to assure it never happens again. Evidently there are some tensions within the Trump coalition.

Project 2025’s authors would also break up the National Oceanic and Atmospheric Administration (NOAA), because it’s the core of the “climate change alarm industry,” privatize the National Weather Service (an agency within NOAA), and “align the Census Bureau’s mission with conservative principles,” reversing the federal statistical agencies’ long-standing insulation from politics. They’d purge the Treasury of its “woke” agenda. (An animating passion of the document looks to be the war on woke.) They’d promote “tax competition” rather than an “international tax cartel,” which means nixing international efforts to avoid tax evasion and crack down on tax shelters. They’d reduce the progressivity of the income tax and cut corporate and capital gains rates. Raising taxes would hereafter require a three-fifths congressional supermajority. They’d also withdraw the United States from the International Monetary Fund and the World Bank — not because they’ve been agents of punishing austerity for decades, but because they’re “inimical to American free market and limited government principles” and promote “higher taxes and big centralized government.” Countries that lived through the Latin American debt crisis of the 1980s and the euro crisis of the 2010s would be surprised by these characterizations.

Digging deeper, we find proposals to overhaul the financial system, namely via a radical deregulation — basically letting banks do as they wish — at the same time as radically downsizing the Federal Reserve. The chapter on the Fed is surreal. It points out that since the Fed was created in 1913, there’s been a recession every five years, which is roughly correct. What it doesn’t mention is that, between 1854 (when the official statistics begin) and 1913, there was one every two years, and the expansions lasted only slightly longer than the downturns, unlike the post-1913 period, when the expansions have been four times longer than the recessions. Since 1945, they’ve been six times longer. Yes, the Fed (along with the rest of the government) has been absurdly indulgent about bailing out financiers when they get in trouble, but the answer to that problem is to regulate and supervise them tightly, not to bring back the regime of panics and slumps that prevailed during the nineteenth and early twentieth centuries. The 1929 crash, during which the young Fed did next to nothing, is not an inspiring model almost a century later.

Creative Destruction

Another source for what Trump’s second term might look like is the America First Policy Institute, described by the Financial Times as “Trump’s ‘White House in waiting’” (where Larry Kudlow serves as vice chair, surrounded by alumni of Trump’s first administration). The material on the website is rather thin, however, and includes op-eds on economics from such rigorous sources as the Daily Mail and the Daily Caller. Its prescriptions can be easily summarized: drill, deregulate, cut taxes, cut spending, promote sound money (and not climate politics and DEI), stop subsidizing federal unions, and raise tariffs. The site is full of complaints about how federal debt has risen under Joe Biden — it has, but it rose much faster under Trump, thanks in no small part to his 2017 tax cuts, which added almost $2 trillion to the deficit. And since Trump would like to extend and deepen those tax cuts, it’s hard to see how the debt wouldn’t rise again. The only alternative would be profound spending cuts that have proved politically impossible in the past. But since these deficits would go to fund high-end tax cuts rather than child allowances, they’re okay.

A wild card in all this is would-be vice president J. D. Vance and his populist posturing. A vice president doesn’t have much power, but Trump is 78 years old and not, at least to the naked eye, in the best physical shape, so it’s not outlandish that Vance could ascend. Vance — whose rise was lubricated by funding from Peter Thiel, the tech billionaire who thinks democracy is over — has made a lot of pro-worker noises and even walked a picket line, but it’s hard to see much more than affectation here. (The picket line visit took place during last fall’s United Auto Workers strike against the Big Three; Vance’s appearance prompted Ohio representative Marcy Kaptur to ask, “First time here?” “Yeah,” he responded.) Despite the picket line cosplay, Vance doesn’t seem very pro-union, and his idea of boosting working-class power seems to revolve around endorsing Trump’s plan to seal the borders and deport ten million undocumented workers.

But this is all informed speculation. Trump’s résumé as a manager makes you wonder how much he could get done. His first administration was chaotic. He wasn’t prepared to win, and he improvised his way through his term. There was immense churn in his cabinet: turnover, according to a Brookings Institution tally, was seven times Biden’s and five times the average from Ronald Reagan to Barack Obama. A second term could be more stable, with an agenda drawn from the likes of Project 2025 and a staff assembled from seasoned right-wing technocrats and agitators. On the other hand, Trump would still be at the top, so we could have an extravagant drama of imperial decay.