President Donald Trump’s tariffs may wipe out all of the gains from his $1.5 trillion tax cut for low- and middle-income workers, according to two analyses reported by The New York Times.
One analysis by The Tax Foundation found that Trump’s tax cuts boosted after-tax incomes for workers at every salary level but his tariffs have more than wiped out all of those gains. The Tax Foundation also reported that his proposed new tariffs on Mexico would be the largest tax hike Americans have seen in three decades.
Another analysis from Trump’s alma mater, the University of Pennsylvania’s Wharton School of Business, found that increased cost of goods will more than cancel out the benefits of tax cuts for the lowest-earning Americans next year. The analysis found that American consumers will “initially bear the full cost” of the tariffs.
The Federal Reserve Bank of New York estimated that Trump’s tariffs cost the average American household $414 in 2018 and will increase to $831 after Trump’s latest round of tariffs on Chinese goods.
Warning signals flash across the board:
“Yields on Treasury bonds are tumbling, as investors seek safe harbor against growing fears of an economic downturn. A closely watched survey of manufacturing activity declined at a faster rate than forecasters expected,” The Times reported. “Analysts have abruptly changed their forecasts for Federal Reserve policy this year and are now predicting as many as three rate cuts as concerns grow that the Fed will need to take drastic action to prop up the economy. JPMorgan and Evercore ISI now project a total of two interest rate cuts starting in September, and Barclay’s predicts three cuts, up from previous estimates of a single rate cut at most for 2019.”
Analysts slam Trump for hiking taxes on Americans:
“Once you start adding in the tariffs and start talking about what Trump wants to do at the end of the day,” Kyle Pomerleau, the chief economist at the Tax Foundation, told The Times, “it gets harder and harder for Trump and Republicans to claim that they are cutting taxes for the middle class.”
Pomerleau’s analysis found that the lowest-earning 20% of American workers would see a 1.1% tax increase under the proposed tariffs while only the top 5% of earners would still see a net tax cut of more than 1%.
The analysis found that even if Trump backs off his latest threats, the poorest Americans would still see a net tax increase.
The Wharton study similarly found that workers earning median incomes would also see most of the tax cut gains wiped out.
“Ultimately, the tariffs make all consumers worse off,” said Richard Prisinzano, a senior economist at the Penn Wharton Budget Model. “The question is how much worse off.”