WASHINGTON (AP) — The Trump administration this week stepped up its ambitious efforts to replace the estimated $1.6 trillion in lost revenue from tariffs that were eliminated by Decision of the Supreme Court to cut a number of the president’s import taxes.
Recouping that lost revenue, which the White House was counting on to help offset the steep, the multi-trillion dollar cost of tax cutsit is possible but it will be challenging, experts say. Administration should use various legal provisions to impose new obligations and these provisions require longer and more complex processes that US companies can use to request exemptions. It could be months or more before it becomes clear how much revenue the replacement fees will bring in.
“I wouldn’t bet on this administration being able to put the same effective tax rate back on paper that it had before,” said Elena Patel, co-director of the Urban-Brookings Tax Policy Center. But the new approach “will make it easier for people to challenge charges, which will put a big asterisk on the revenue until it’s all sorted out”.
On Wednesday, US Trade Representative Jamieson Greer said the administration will investigate 16 economies — including the European Union — whether their governments are subsidizing excess factory capacity in a way that hurts American manufacturing. The investigation will also include China, South Korea and Japan, Greer said.
In addition, he said there would be a second investigation of dozens of countries to see if their failure to ban goods made from forced labor constitutes an unfair trade practice that harms the United States. This investigation will also include the EU and China, as well as Mexico, Canada, Australia and Brazil.
Both investigations are being conducted under Section 301 of the Trade Act of 1974, which requires the administration to consult with targeted countries, as well as hold public hearings and allow affected US industries to comment. A hearing as part of the factory capacity inquiry will be held on May 5, while the forced labor inquiry hearing will take place on April 28.
It’s a far cry from the emergency law that President Donald Trump relied on in his first year in office, which allowed him to immediately set tariffs for each countryat almost any level, simply by issuing an executive order.
Moments after the decision of the Supreme Court, Trump imposed a 10% tariff. for all imports under a special legal authority, but this tax can only last for 150 days. The president has said he will increase it to 15%, the maximum allowed, but has not yet done so. About two dozen states have already challenged new fees. The Administration is aiming to complete its Section 301 investigations before the 10% obligations expire.
The effort underscores the importance the Trump White House has placed on tariffs as a revenue raiser at a time when the federal government is facing large annual budget deficits for decades into the future. Previous administrations, in contrast, used tariffs more sparingly to narrowly protect specific industries.
Erica York, vice president of federal tax policy at the Tax Foundation, noted that the first probe covers roughly 70% of imports, while the second would cover nearly all.
“This breadth suggests that the intent is not to address the issues at hand, but instead to recreate a comprehensive tariff tool,” she said.
Trump sees the tariffs as a way to force foreign countries to essentially help pay the cost of US government services, even though all recent economic studies find that American companies and consumers are paying their dues, including those from Federal Reserve Bank of New York AND economists at Harvard University. In his State of the Union address last month, Trump even touted his tariffs as a potential replacement for the income tax, which would take the United States’ tax regime back to the late 19th century.
Trump also wants the tariffs to help pay for the tax cuts he extended in key legislation last year. The tax cut legislation is expected, according to the most recent estimates from the nonpartisan Congressional Budget Office, to add $4.7 trillion to the national debt over a decade, while all of Trump’s duties, including those not struck down by the courts, were projected to offset about $3 trillion — or two-thirds of that cost.
The court’s Feb. 20 ruling that it could no longer impose emergency tariffs eliminated about $1.6 trillion in expected revenue over the next decade, according to the CBO.
Some of Trump’s tariffs remain in place, including previous duties on China and Canada that were imposed after previous 301 investigations. The administration has also imposed tariffs on some specific products, including steel, lumber and cars. Those, combined with the 10% rate for part of this year, should yield about $668 billion over the next decade, the Tax Foundation estimates.
“It’s going to take a very large portion of these other investigations to make up for the (lost) charges,” York said.
The administration’s efforts are also unusual because they reflect an excessive reliance on tariffs to bring in more government revenue. Trump has also said the duties are meant to bring manufacturing back to the United States, and he has used them to push for trade deals.
“What makes this really different,” said Kent Smetters, executive director of the Penn Wharton Budget Model, “is it’s really the first time that fees have been used primarily as a revenue raiser.”
Patel, meanwhile, argues that revenue growth can be made more credible and direct by Congress. Laws like Section 301 are traditionally intended to be used to address specific trade policy concerns in particular countries.
“It’s not supposed to be there to raise revenue,” she said. “If we want to raise revenue through tariffs, then Congress needs to put in place a broad-based tariff.”
By CHRISTOPHER RUGABER AP Economics Writer
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