Reminder: Democrats should love tariffs because they have wanted to raise taxes for years

While we might forgive politicians for a little politicking, it’s more than a little ironic for Democrats to abandon a core tenet of their philosophy and pretend higher taxes haven’t been a long term goal.

On December 1, 2010, Alan Simpson and Erskine Bowles concluded President Barack Obama’s National Commission on Fiscal Responsibility and Reform by releasing a plan that would reduce the deficit by between $4 and 4.6 trillion over ten years via a combination of spending decreases and tax increases on a roughly two to one basis, where every dollar saved was offset with an additional dollar in revenue.  As part of their proposal, spending would be addressed by both cuts to the discretionary budget and reforms to entitlement programs including both Social Security and Medicare, such as raising the retirement age and limiting cost of living increases in benefits.  Taxes would correspondingly be increased by almost $1 trillion through a combination of reducing rates while eliminating deductions, meaning the average American would pay more, and by new procedures to gradually increase gas and other taxes, meaning everyone would pay more.  While reaction to the plan was mixed, several prominent Democrats and related advocacy groups grew to support it over the years.  Former Speaker of the House and party leader Nancy Pelosi, former Whip Steny Hoyer, as well as the Democrat action group The Third Way.  As Maya McGuiness of the centrist Committee for a Responsible Budget described it, “the Commission released not only a credible plan, but an excellent plan. Of course it is filled with things people don’t like—that is the nature of deficit reduction. And yet the plan received bipartisan support from a majority of the Commission at a time where, up until now, fiscal leadership has been in short supply.”  Both before and after the Commission released their report, Democrats have generally embraced the notion that taxes are too low and increases are required, and have at times proposed various methods to raise additional revenue, many of which would have increased the tax burden for the middle class despite their claims to the contrary.  These measures included entirely new taxes, such as cap and trade or an outright carbon tax on energy.  For example, Democrats proposed a carbon trading scheme as part of the Clean Energy and Security Act.  The measure called for a limit on greenhouse gases, followed by companies buying and selling permits.  Though the measure didn’t pass, it was widely believed energy prices would increase and that these increases would disproportionately affect lower income people.  In 2021 and 2023, Democrats proposed a simpler approach to tax carbon directly with the same impact.  Senator Sheldon Whitehouse and Representative Suzan DelBenes re-introduced the Clean Competition Act that would have added a “border adjustment,” ironically a tariff, on imported goods from carbon-intensive industries including fossil fuels, fertilizers, and metals, all of which would have increased prices.  There have been other proposals as well, such as Vice President and candidate Kamala Harris’ proposed increase of  the corporate tax rate, from 21% to 28%.  Several Democrats have also proposed eliminating the cap on payroll taxes.

Whatever the specific proposal, the goal was obviously to get more revenue from the American tax payer one way or another, nor were they shy about saying so.  In 2024, Senator Elizabeth Warren claimed, “Today I want to talk about why taxes matter.  The tax code determines how much money we have for programs like Social Security and Medicare, child care and public education, and roads and bridges and upgraded transit systems.  Taxes also directly subsidize certain activities that shape our nation.  For example, the climate-related tax credits in the Inflation Reduction Act are predicted to create 3.3 million new jobs—including good, union jobs—and establish pathways to deal with the unfolding climate crisis. In short, taxes reflect our values.  Taxes show what—and who—we value enough to collectively invest in.  And today’s tax code reflects the values of a handful of the wealthy and well-connected, far more than the values of everyone else.”  After lamenting that “It is no surprise the United States ranks 31st out of 38 developed countries in terms of tax revenue as a share of GDP. Our tax code is now caught in a doom loop,” she continued, “it’s a matter of fairness—those who have more can and should pay more.  And it’s a matter of revenues—think how differently the U.S. balance sheet would look if politicians hadn’t slashed taxes for the wealthy, decade after decade. But it’s also a matter of the kind of nation we want to build.  A nation that makes health care and home care affordable for families, or a nation that gives rich people tax breaks?  A nation that fights the climate crisis so that the next generation isn’t crushed under skyrocketing energy, housing, and food costs, or a nation that gives billionaire corporations a free ride on taxes?  A nation that supports our mommas and daddies trying to find good, affordable child care for their children, or a nation that winks at wealthy tax cheats and their high-priced lawyers?”  A few years earlier, progressive firebrand Bernie Sanders proposed a truly incredible $23 trillion tax increase, perhaps the largest ever conceived, which was said to affect mostly high-income households and businesses, but which would have reduced take home pay for everyone.  According to the Tax Policy Center, “Over the next 10 years, Sanders would increase federal revenues by 50 percent. As a share of the economy, his plan would result in the largest tax increase in US history.”  This would have included tax increases on all economic quintiles, with those in the bottom 80% seeing their after tax income decline by around 2%.  Further, the business taxes, while Senator Sanders and others pretend will not affect the middle class, were shown to impact the labor market, “TPC assumes that in the long-run, about 60 percent of the corporate income tax is borne by shareholders, 20 percent by other owners of capital, and 20 percent by labor” which would further drive down wages – while also increasing prices given that companies are likely to make adjustments to maintain their profit margins.

Whatever perspective you choose, Democrats have been clamoring for higher taxes for years because the government isn’t bringing in enough money to fund our various priorities, even as those priorities might be in dispute.  Recently, however, almost every Democrat has vociferously objected to the idea that tariffs should be both a component of our tax policy and our trade policy. This despite the reality that they bring in the large amounts of revenue, whether they are paid for fully by the consumer, partially, or not at all in the case of Japanese cars, they have been demanding the entire time.  As CNN recently reported, “Trump’s tariffs are bringing in tens of billions of dollars a month.”  “The US government collected nearly $30 billion in tariff revenue last month, according to the Treasury Department. That’s a 242% jump in tariff revenue compared to last July,” they continued.  “Since April, when the president began imposing a 10% tariff across nearly all goods, among several other steeper levies that followed, the government collected a total of $100 billion in tariff revenue, three times the amount collected during the same four months last year.”  In fact, there’s so much money, CNN wondered “What’s the government doing with all that money?”  To answer, they noted “Trump has floated a combination of two options: paying down the government’s multi-trillion debt and sending ‘tariff rebate checks’ to Americans.”  “The purpose of what I’m doing is primarily to pay down debt, which will happen in very large quantity,” the President said earlier this week. “But I think there’s also a possibility that we’re taking in so much money that we may very well make a dividend to the people of America.”  From there, they went on to ponder what happens to government revenue in general, as though that were some big mystery.  “Any revenue the government collects, through ordinary taxes or tariffs, goes into a general fund managed by the Treasury Department. The Treasury refers to that fund as ‘America’s checkbook,’ because it’s used to pay the government’s bills, such as Social Security payments.  When the amount of revenue the government takes in falls short of its bills, meaning it runs a budget deficit, it borrows money to make up the difference. In total, the government is on the hook to repay more than $36 trillion, an amount that has been steadily growing, raising alarm bells among many economists claiming it’s weighing on economic growth.”  After noting that the government must pay interest on the debt, meaning the more debt, the higher the cost to the government and hence the tax payer, and that tariffs alone are not capable of reducing the entire deficit, they conceded that collections have caused that figure to shrink, “That means the government doesn’t have to resort to borrowing as much money as it otherwise would without the tariff revenue.” “It’s not like there’s a better use for the money,” Brett Ryan, senior US economist at Deutsche Bank explained.

Given that tariffs have only had a minimal impact on prices so far, with inflation still coming in lower than before President Trump retook office, what possible objection could there be from those who have long advocated tax increases at this point, especially knowing that we can adjust the rates should prices rise further?  Shouldn’t those who have argued that we need more revenue embrace more revenue?  Crucially, this should also be seen in the context of President Trump’s first term tax reform plan which lower rates and reduced deductions while slashing the corporate tax rate similar to the original proposals from Mr. Simpson and Mr. Bowles.  From this perspective, tariffs can best be seen as his approach to raising revenue as they believed necessary.  Therefore, one would think Democrats would embrace the strategy or at least admit it was filling a need even if they would opt for a different approach, but instead they’ve suddenly become low-tax conservatives, who think higher taxes is a bad thing in principle despite what they’ve been claiming for well over a decade.  Indeed, they are actively branding tariffs as some kind of new national sales tax in an attempt to turn the public against them, even claiming they are somehow dangerous.  Representative Chris Deluzio told Politico, “Democrats are pretty uniform, if not entirely uniform, in making the case that what’s happening right now is really dangerous.”  Senator Elizabeth Warren claimed they don’t boost manufacturing, strengthen supply chains, or create jobs, and they allow corporations to raise prices while discouraging investment and harming consumer confidence.  Representative Don Beyer insisted they lead to higher prices, do not create manufacturing jobs, and lack strategy.  Representative Chris Pappas called them “foolish” and “incredibly destructive.”  Former Chief of Staff to Barack Obama, Rahm Emmanuel claimed they are the “largest tax increase.”  Perhaps even worse, there’s at least some indication they are doing this purely for political purposes.  “The problem is not tariffs, generally. It’s the way that Trump is doing them,” explained Representative Hillary Scholten.  “Trump tariffs are bad, and the American people are suffering. It’s a pretty easy message.”  Charlotte Clymer, a Democratic operative, said similarly, “Trying to offer nuance on Trump’s disastrous tariffs policy in this moment is like telling someone with alcohol poisoning: you know, red wine in moderation is actually good for heart health. It’s missing the point. It’s bad messaging.  For the love of God, just keep it simple and focus on Trump’s economic extremism.”

While we might forgive politicians for a little politicking, it’s more than a little ironic on their part to abandon a core tenet of their philosophy and pretend higher taxes haven’t been a long term goal.  It also suggests that they believe the American public has a short memory, and are too stupid to remember their prior claims about taxes in general, as though we all woke up on January 20th at President Trump’s second inauguration.  To me at least, the no tax conservative argument has a lot more merit, even as I am not certain they’re right either.  At this point, I remain somewhat skeptical yet cautiously optimistic and I believe others should as well, especially when claims of major price spikes and empty store shelves have not come to fruition.  If prices do not rise further, tariffs have a lot of potential upside and next to no downside, but only time will tell.  In the meantime, the next time a Democrat laments them as a tax increase, ask them if they’ve completely abandoned their position on the need for more government revenue or if they’re just playing politics as usual.