His Thanksgiving Day comments to the military were, however, greeted deliriously (and taken very seriously) by his MAGA followers on social media. And they weren’t contradicted by the senior economic officials in his cabinet, despite the reality that the numbers make both his tariff dividends and the replacement of income taxes with tariffs nonsensical.
Depending on the cut-off points for the dividend cheques, for instance, they would cost between about $US300 billion and $US600 billion a year.
Trump’s MAGA supporters shouldn’t hold their breath awaiting his tariff dividends or the removal of income taxes.Credit: Bloomberg
Again depending on how they were targeted (Trump has previously said taxes for those earning less than $US200,000, or about 90 per cent of US taxpayers, would initially benefit), abolishing income taxes for that group could cost something approaching $US700 billion, while completely removing individual income taxes (if it included the payroll taxes deducted from employees’ wages) would cost about $2.6 trillion a year.
Whatever the number might be, it would be big.
Unhappily for Trump, and US taxpayers, the tariff numbers aren’t as big.
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So far this year, US Customs and Border Protection has collected about $US195 billion of tariff revenue, of which about $US118 billion relates to Trump’s new tariffs. The Yale Budget Lab has estimated that, between 2026 and 2035, revenue from those tariffs will be a net $US2.3 trillion, or about $US230 billion a year.
That wouldn’t cover Trump’s tariff dividends, let alone replace the lost revenue from taxes.
Nor would the tariff revenue, as Trump has boasted it would, help to reduce US deficits and government debt, which has blown out from $US36.2 trillion to $US38.1 trillion in the 11 months since Trump regained the White House – and will blow out even more once all the measures in his One Big Beautiful Bill Act, including $US4.5 trillion of tax cuts over a decade, primarily for the wealthy, are in place from next year.
Whether it’s his tariff dividend, or income tax cuts, they would add (and add substantially) to US deficits and debt, not subtract from them.
The rate of the tariffs could, of course, be raised to increase revenue. The average effective rate of the tariffs to date is about 17 per cent, or nearly seven times their level when Joe Biden was in the White House.
The problem with that is that the higher the tariff rate, the more it is likely to discourage imports (and the tariff revenue they generate).
To replace all income taxes paid by those earning below $US250,000, the average effective tariff rate on all imports would have to be about 25 per cent. To replace all individual taxes (about half of all government revenue), the rate would need to exceed 70 per cent. There’d be few, if any, imports – or tariff revenue – at that point.
The other challenge to the maths is that the headline amounts of revenue being collected from tariffs overstates their net benefit to the government’s income.
Contrary to Trump’s assertion (his economic spokespeople tend to prevaricate when questioned on this subject), tariffs are paid for by US companies, and ultimately by US consumers.
They are a tax on businesses and consumption and, by reducing the incomes available to businesses, their shareholders or households, the tariffs also shrink the tax base. The US Tax Foundation says that tariff revenue should be discounted by between 23 and 25 per cent.
Because they flow through to US companies and ultimately households via higher prices for goods (most estimates are that exporters, once the regime settles, will absorb only between about 5 and 15 per cent of their cost), they are also highly regressive.
Contrary to Trump’s assertion, tariffs are paid for by US companies – and ultimately by US consumers.Credit: Bloomberg
Lower income households spend more of their income on necessities than wealthy households.
The US income tax system is progressive, albeit that its tax rates are far lower than in most developed economies, so its tax system would be switching from one that is progressive to one where the lower income households shouldered most of the burden of funding the government.
Higher income households, already set to benefit massively from the One Big Beautiful Bill, would be even better off if tariff revenues were substituted for at least some of their income tax.
Trump’s promises disappear as their impossibility becomes clear to him and a cabinet which, while generally unwilling to challenge anything Trump says or does, has at least one or two who can probably add up.
Trump’s proposed abolition of income taxes (while handing out tariff dividends and slashing government debt) is, of course, a fantasy.
Either he doesn’t know that (just as he doesn’t seem to know that tariffs on China’s exports aren’t paid by China) or he is deliberately and cynically misleading his MAGA base for political gain, with his cabinet and congressional Republicans happy to go along with him.
MAGA shouldn’t hold its breath awaiting Trump’s tariff dividends or the removal of income taxes.
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Like the promised $US5000 per household cheques that Trump and Elon Musk once promised (before Musk’s $US2 trillion of spending cuts shrank to $US1 trillion and then to a claimed – but almost certainly overstated – $US214 billion), Trump’s promises disappear as their impossibility becomes clear to him and a cabinet which, while generally unwilling to challenge anything Trump says or does, has at least one or two people who can probably add up.
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