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As most know, I'm not a fan of our current fiscal position and have written extensively about if for 25 years now. My first vote in a Presidential election was for none other than Ross Perot, who preached that fiscal solvency was of the upmost importance.

Well. Here we are, 30 some years later and the debt to GDP ratio has doubled since Perot ran for President: in 1992 is was roughly 60% and today in 2025 it's ~124%. Way to go, us. How to address it? democrats won't even ack there is a problem and why should they? Their entire electoral strategy revolves around giving things away. The Republicans in my view are even worse: you send supposed fiscal hawks to DC like Paul Ryan and give them power and you get...nothing. Nothing but more of the same. The same old Charlie Brown and the football approach to governance.

Neither party has shown a real willingness to address our spending problems or re-align taxation to address the debt. The GOP is content to hand out tax cuts and the democrats as I mentioned won't acknowledge there's a problem.

So what to do? Perhaps we're already doing it.

A targeted tax increase that puts a defined stream of money into the general fund only allows the next democrat to redirect it towards more boondoggles or the next GOP President to cut it back. Net gain of nothing, plus politically unpopular. Cutting spending is a mixed bag: House Republicans are all for it, Senate Republicans are reluctant to cut anything and the democrats fight every spending reduction tooth and nail. That's a very hard slot.

Lots of pain for little gain. So what else can be done?

Some economists tend to favor consumption taxes as the way to go. Rather than taxing income you tax activity. That gives the taxpayer some amount of flexibility in terms of managing spending. Governments don't like being exclusively tied to consumption taxes because as they're downstream of businesses and consumers...they have to manage their spending wisely. Government hate that.

Which brings us to tariffs. Tariffs are the ultimate consumption tax. A stealth VAT tax based on the wholesale price of production inputs that on the surface acts as an incentive to onshore production of certain items...but in areas where that doesn't happen another cash flow for the government is generated. A cash flow that can't be earmarked for any new program or other because the flow is variable.

But it CAN be used to bring down the federal deficit and, ideally, start paying down the debt.

Maybe this was the goal all along.

Some economists tend to favor consumption taxes as the way to go.

Unfortunately, consumption taxes become an undue burden on the poor. It is estimated that about 25% of Americans have zero savings. While there might be outliers, the vast majority of the people need to spend every penny they earn on food, housing, clothing, healthcare, and transportation. If costs go up (tariffs, etc) they have to do without some basic necessities. While we might not be happy, I assume that you and I (and most people on this Board) could handle a 15% increase in living costs.

Consumption taxes are regressive and will also slow down the economy. 25% of Americans will spend less on goods and services because they’re already spending every penny they have.

But it CAN be used to bring down the federal deficit and, ideally, start paying down the debt.

Maybe this was the goal all along.

Ha ha, you made a funny. The goal was to lower taxes on billionaires.

Personally (and they say I’m a dreamer), the best way to get the debt under control involves compromise; cutting spending AND raising taxes (hopefully, on those who can afford it).

But compromise is a dirty word these days. Just look at the bipartisan border bill shot down by Trump. Not perfect by anyone’s standards, but it would have at least move us in the right direction. Biden was old school (pun intended) because he believed in compromise like the infrastructure bill. Trump believes the only way to win is to have someone else lose. Compromise is weakness.

More to say about this, but my nephew and grand-nephew are on their way to visit.

You might recall disaster was predicted when CA implemented their "millionaire" tax. The only real consequences of this was to balance the CA budget.
Do you think it better to increase taxes on the poor, or on the wealthy, in order to decrease the deficit?
The answer seems obvious to me.
Alan

Which brings us to tariffs...A cash flow that can't be earmarked for any new program or other because the flow is variable.
But it CAN be used to bring down the federal deficit and, ideally, start paying down the debt. Maybe this was the goal all along.

LOL You're funny...

"New Bill Proposes Tariff Rebate Checks"

"Legislation introduced Monday by Sen. Josh Hawley, R-Mo., would provide tariff rebate checks of at least $600 to American families,
after President Donald Trump signaled his administration would consider sending checks based on the money his tariffs have collected,
though the payout program would likely lead to increased inflation."

https://www.forbes.com/sites/tylerroush/2025/07/28...

Do you think it better to increase taxes on the poor, or on the wealthy, in order to decrease the deficit?
The answer seems obvious to me.

It's not that simple. Is California's population of millionaires staying static? Or are some of them relocating outside of the state?

"Legislation introduced Monday by Sen. Josh Hawley, R-Mo., would provide tariff rebate checks of at least $600 to American families,
after President Donald Trump signaled his administration would consider sending checks based on the money his tariffs have collected,
though the payout program would likely lead to increased inflation."

Silly use of the funds, but it is all for show and may fool some into believing that the tariffs are really working out for the average American.

Is California's population of millionaires staying static? Or are some of them relocating outside of the state?
Of course people relocate all the time, so some are certainly relocating out of the state. I suspect conservative news sources report every time one of the several hundred thousand millionaires chooses to relocate. OTOH, the population of millionaires in CA is very large and growing.
https://inequality.stanford.edu/sites/default/file...

This paper takes a look at several states, CA included. The migration (in and out) seems mostly unrelated to tax policy.

Most people greatly underestimate how skewed the income curve is. As an example for CA...
Although just 0.3 percent of California tax filers reported more than $1 million in the year it came into effect, these filers accounted for
more than 21 percent of all income in the state.

Alan

This paper takes a look at several states, CA included. The migration (in and out) seems mostly unrelated to tax policy.

That paper seems to be several years old. What about more recent data?

https://finance.yahoo.com/news/leaving-rich-americ...
‘We’re leaving!’: Rich Americans are ditching California and ‘taking their tax dollars with them — and now the tax rates they're fleeing have been raised even higher

Analysis of the approximately 750,000 people who have bid farewell to California over the last three years has revealed that thousands more high-earning, well-educated workers have left the Golden State than have moved in.

This is a problem — as Joel Kotkin, a fellow at Chapman University, told the Los Angeles Times — because: “People who are leaving are taking their tax dollars with them.”

And how many businesses have relocated away from the state?

Jeff Bezos recently bailed on his native Washington state because of targeted taxes.

At any rate. Incentives drive behavior. Merely taxing a few people more isn't going to solve a $1.8 trillion annual deficit.

As most know, I'm not a fan of our current fiscal position and have written extensively about if for 25 years now.

No, we don't know any such thing. What I do know is that you said you wouldn't have done it with tariffs. That's it. Nothing else have you disagreed with, and you've championed everything else Trump has done, including his gross inhumanity. You've agreed with deporting people under very inhumane conditions under various guises to cover up the cruelty. Now trump is admitting the starvation, so you can now disagree with that. You follow Trump in lockstep with a mild disagreement on the tariffs.

No, we don't know any such thing.

That doesn't sound like a me thing.

The rest of your post is a typical thing where instead of addressing an issue...you make the poster an issue.

Why can't you engage on actual current events? Is reading a different perspective really that hard for you?

As most know, I'm not a fan of our current fiscal position and have written extensively about if for 25 years now. ~Dope

i.e., "If Trump keeps up his tradition of adding more to the national debt than any president in U.S. history,
I'll have no choice but to become an even bigger Trumper!" ~Dope

Attention shoppers:

There's an Orange-Light Special on aisle ..., well actually every aisle.
https://www.meidasplus.com/p/attention-maga-shoppe...

Now, Trump has long insisted that tariffs punish other countries. He once said, “We tax China.” No, Sir. You tax Americans. You slap a 25% tariff on imported goods, and what do you think happens? The companies don’t eat that cost out of patriotism. They pass it on to the store. The store passes it on to you. So congratulations, MAGA faithful: you’re now the proud owners of the Trump tax—and you didn’t even get a commemorative coin.

Now, Trump has long insisted that tariffs punish other countries. He once said, “We tax China.”
No, Sir. You tax Americans. You slap a 25% tariff on imported goods, and what do you think happens? The companies don’t eat that cost out of patriotism.
They pass it on to the store. The store passes it on to you. So congratulations, MAGA faithful: you’re now the proud owners of the Trump tax—and you didn’t even get a commemorative coin.

100%...

"Trump has a pronoun problem. He keeps saying he’s imposing tariffs on they/them. But he’s actually imposing them on us." ~Economics Professor, Justin Wolfers

Now, Trump has long insisted that tariffs punish other countries. He once said, “We tax China.” No, Sir. You tax Americans. You slap a 25% tariff on imported goods, and what do you think happens? The companies don’t eat that cost out of patriotism. They pass it on to the store. The store passes it on to you. So congratulations, MAGA faithful: you’re now the proud owners of the Trump tax—and you didn’t even get a commemorative coin.

Again, this depends entirely on the relative price elasticities of the goods and the incidence of the tax.

There are at least four parties who can pay some portion of the tax (or all of it):

1) The foreign producer of the goods;
2) The importer who brings in the goods;
3) The retailer who sells the goods;
4) The customer who buys the goods.

The most likely outcome is that each of these four parties will pay at least some portion of the tax. IOW, for most goods, it's exceptionally unlikely that the incidence of the tax to any given group is zero.

How much is paid by which group is an empirical question, and might vary considerably from product to product (and region to region). For goods where the consumer is very price-sensitive, much of the tax might be borne by folks other than the end-user; for necessities or other products where consumers are very price inelastic, they'll bear more of the cost.

The most likely outcome is that each of these four parties will pay at least some portion of the tax.

Let's not forget the original intent of tariffs: To allow producers of competing alternative goods to charge more for their product. As you correctly note, a tariff will increase the price of the taxed goods. How much or little that price changes depends on a lot of factors, but ultimately, the price of the good will go up.

That price increase allows domestic (or non-tariffed foreign) producers to increase their price - or at least sell more of their goods at an unchanged price.

So the actual cost to consumers is likely to rise not only from the increase in price due to the tariff, but also to price increases (or higher availability) of goods free of the tariff/tax. Consumers not only pay a higher price for the taxed goods, but may be forced to pay higher prices for alternative goods as well.

--Peter

I understand 2, 3, & 4. How does the foreign producer pay the tax? As I understand it, the tax is applied when it is received by the importer. If you are saying that the producer would discount their products going to the US, I can see other customers clambering for equal treatment. That way lies deflation at best and bankruptcy at worst.

Mungofitch recently posted an excellent take on the subject, from the Berkshire board:

...many of the things that they are doing are spectacularly stupid. As a prime example, bilateral trade balances, which have driven trade policy and are set to impoverish many people around the world including many Americans, are meaningless. They have no more economic meaning that the precise distance from one's arse to one's elbow. Only the aggregate across all trading partners has a meaning, and even then not all THAT much meaning.

Much of that list is mainly a demonstration of the impressive power of an unquestioned leader backing a policy based on pseudoscience, a bit like Lysenkoism, or backing pseudoeconomics, like chairman Mao ordering backyard blast furnaces in little villages which would otherwise have been producing food. Sometimes that's a good thing. Sometimes not.

Economically speaking, I doubt many people making decisions in Washington are even aware that an import tariff is just a sales tax paid by domestic importers, let alone that it is economically the equivalent of a tax on US *exports*. The Lerner Symmetry theorem showed this 89 years ago and it still stands, assuming that the economy still has a meaningful set of companies with competitive pricing.

The thing to note is that the already very large rise in the weighted average US tariff rate will undoubtedly reduce both US imports AND exports, making the US poorer. Many in the administration like Mr Bessent are well educated in basic economics and know this, but they are going along with it anyway. I presume this is because of some mix of (a) they don't care about that particular outcome, and/or (b) it is career suicide to contradict the leader.

As the US economy is likely to be on a weaker trajectory in the next few years than it would otherwise have been, and given Berkshire's near complete link to and correlation with the US economy, I expect the intrinsic value of a share of Berkshire is lower than it would otherwise have been, by a material amount. For US based investors holding it in taxed accounts, this might be partially or even fully offset by the temporarily lower tax rates. (I say "temporarily" in the sense of Ricardian equivalence...debt and deficits can not grow without bound, so lower taxes for a while generally means either higher taxes later, or a financial explosion).

https://www.shrewdm.com/MB?pid=700935331

So the actual cost to consumers is likely to rise not only from the increase in price due to the tariff, but also to price increases (or higher availability) of goods free of the tariff/tax. Consumers not only pay a higher price for the taxed goods, but may be forced to pay higher prices for alternative goods as well.

That is true. Tariffs are like all taxes. They shift behavior from what the parties would have done absent the taxes, which results in a loss of utility to both buyers and sellers of the good in question. Producers make less, consumers pay more, and the government receives revenue - and neo-classical economy theory teaches that the amount of revenue to the revenue will be smaller than the combined loss to consumers. That difference is the "deadweight loss" to all the market participants.

But the idea with tariffs is that the producers are foreign firms. So while the net effect on all market participants (including the government revenue) is a deadweight loss, the net effect on all domestic participants (including the government revenue) doesn't have to be a deadweight loss. If the tax incidence on producers is very high compared to consumers, it is possible that the domestic parties collectively will be better off. Consumers pay higher prices, but the higher prices they pay could theoretically lower than the revenues collected by the government.

Again, if people are having trouble seeing how tariff supporters can convince themselves that this might be a win-win, consider it a mirror to the "carbon tax plus rebate" argument that used to be made by progressives before they gave up on the idea of a carbon tax in any form. There, the idea was that as long as you structured the carbon tax and rebate dividend appropriately, enough of it could be forced onto a very small group of "other" people (in that case, the rich) so that you could have significant taxes on everyone else without causing them any economic pain. Even though that would have forced "consumers to not only pay a higher price for the taxed goods [fossil fuels rather than imports], but may be forced to pay higher prices for alternative goods as well [alternative energy rather than domestic goods]."

Same lyrics, different tune. People tend to exalt neo-classical micro-economic models of the markets inconsistently, depending on whether the results support or oppose their preferences...

I understand 2, 3, & 4. How does the foreign producer pay the tax? As I understand it, the tax is applied when it is received by the importer. If you are saying that the producer would discount their products going to the US, I can see other customers clambering for equal treatment. That way lies deflation at best and bankruptcy at worst.

The incidence of taxation isn't tied on who pays the tax. The burden of the tax can fall on all parties to the taxed transaction, regardless of who actually makes the payment. In theory, the amount of that burden will be exactly the same no matter who actually collects the tax.

I impose a 10 cent per carrot tax on carrots, it doesn't matter whether I make the farmer or the store or the consumer actually remit the tax to me. All of them will bear some portion of the economic burden of the tax. Fewer carrots will be sold - and at higher prices - than either the farmer or the consumer or the store would have wanted. Everyone's a bit worse off, and the government's better off (to the tune of 10 cents per carrot).

"So the actual cost to consumers is likely to rise not only from the increase in price due to the tariff, but also to price increases (or higher availability) of goods free of the tariff/tax. Consumers not only pay a higher price for the taxed goods, but may be forced to pay higher prices for alternative goods as well."

Let's not forget that the US Dollar has fallen 11% ( last I heard, last week ) against a basket of foreign currencies. Stands to reason that these foreign companies that import to the USA are going to want/demand more US Dollars for their products and goods. Put a tariff on top of
that higher price, and the potential is there for a good sized jump in prices. Powell and the
Fed were smart to sit tight and see how this plays out.

If it plays out as Albaby thinks it could, where every player in the process eats part of the tariff, then this leads to companies having lower gross profit margins, which in theory should
cause Wall St to place a lower PE ratio on Companies stock. So American stock holders would also get hurt by that, too.

Of course, we should see the National Debt shrink dramatically due to all of this tariff money flowing into the US Treasury, so perhaps the US Dollar will rise in value in relation to the foreign currencies. ( I'm sure it's easy to see that is sarcasm, lol )

MAGA says Trump is playing 3D chess, but even in 2D chess, it sure looks like he is backing himself ( and the Country ) into a corner.

People tend to exalt neo-classical micro-economic models of the markets inconsistently,

I'm likely to be guilty as charged there. I have both a Bachelor's and Master's degree in Business Administration, which included a pretty thorough indoctrination in neo-classical micro econ. I can draw Xs on the wall with the best of them. (Well, maybe not the best of them, but far better than the average person and on par with those similarly trained.)

However, I don't normally try to argue against a neo-classical explanation. If it supports my position, I'll use it. If it doesn't, I'll use some other argument in favor of my position. Kind of like the stereotypical attorney. When the facts are on your side, pound the facts. When the law is on your side pound the law. (We'll ignore the table pounding that is the usual third option out of politeness - I'm not in accountant mode at the moment. ;-) )

--Peter

It's amazing to me that we never learn from history.

During the Great Depression, they tried tariffs. The Hawley-Smoot (sp?) Tariff Act. It didn't work, and made the Depression even worse.

Assuming the tariffs hold (that is still in doubt, since the courts have yet to rule whether the Executive can levy them at all), the economy is going to go south for a while. Recession likely. Maybe full depression. Limited, targeted tariffs can be useful. But this general "tariff everyone we have a trade deficit with" is going to be a disaster.

Hopefully the courts stop it (as they should...Congress has tariff power, not the Executive). Of course, Congress may legitimize his tariffs since they are all bending the knee to him. In which case, they all would be on the hook when disaster hits. I'm not sure they would be willing to risk that, but they might.

Everyone's a bit worse off, and the government's better off (to the tune of 10 cents per carrot).

Quibble. If demand drops off enough for those carrots, the govt might also be worse off because whatever amount they got previously from sales of carrots could actually be more than with the addition of the 10cent carrot tax. Sort of like profit margin...if you sell X widgets at one price, and Y widgets at a lower price, there comes a break-even point, after which you're making more money selling Y widgets at the lower price.

How does the foreign producer pay the tax?

To add a bit of detail to albaby's reply, the foreign producer "pays" a part of the tax by being forced to accept a lower price for their goods due to the tax. How much lower depends on the elasticities of supply and demand. When there is a tariff, the buyer always pays more per unit and the producer always gets less per unit (barring some edge cases where either supply or demand are essentially fixed), with the difference being the tariff. Moving into the real world, the importer and shipper might similarly be forced to accept a lower fee for their services because of the tariff. So the actual cost of the tariff can get split up among several parties.

--Peter

Quibble. If demand drops off enough for those carrots, the govt might also be worse off because whatever amount they got previously from sales of carrots could actually be more than with the addition of the 10cent carrot tax. Sort of like profit margin...if you sell X widgets at one price, and Y widgets at a lower price, there comes a break-even point, after which you're making more money selling Y widgets at the lower price.

The simplifying assumption (though unstated) in these types of hypotheticals is that your just looking at this one new tax in isolation. That you're ignoring for convenience the effect on state sales tax receipts, health impacts of diminished carrot production, environmental impacts of reduced carrot transport, and everything else.

The simplifying assumption (though unstated) in these types of hypotheticals is that your just looking at this one new tax in isolation.

Yes. The ceteris paribus problem. Ceteris is rarely paribus in the real world. There's a reason economics is called the dismal science. The results of field tests are dismal compared to the hard sciences like chemistry and physics.


--Peter

Ceteris (latin) others. As in et cetera or the ubiquitous etc.
Paribus (also latin) equal. As in parity.

Before I post I want to preface this by saying I had knee replacement surgery 9 days ago and I am strong pain meds.* So if this makes less sense than my usual post, I'm blaming the meds.

The farmer grows the carrot and sells it to a merchant. The farmer pays the tax on the carrot. The farmer charges the merchant the price of the carrot + the 10¢ tax. The merchant charges the customer who is buying the carrot their price + the 10¢ tax. The customer uses the carrot in a delicious carrot cake with cream cheese frosting. The customer is the only one out the cost of the carrot and the 10¢ tax. Who pays the initial tax is irrelevant. The customer bears the full burden of the tax in the end.

* The surgery went well and recovery is painful, hence the meds, but it is going well too. I was released from using a walker, and now I'm using a cane.

* The surgery went well and recovery is painful, hence the meds, but it is going well too. I was released from using a walker, and now I'm using a cane.

Happy the surgery went well, sorry about the pain. I had carpal tunnel on my left hand recently and lucked out, no swelling or pain.

"As most know, I'm not a fan of our current fiscal position and have written extensively about if for 25 years now. My first vote in a Presidential election was for none other than Ross Perot, who preached that fiscal solvency was of the upmost importance." - Delusional Dope.

Dope says he is not a fan of the country's fiscal position, but for over 25 years he has consistently supported most of the policies that have put us in the fiscal position the country is in.

His actions speak way louder than his words. His support of those polices are one of the reasons the country is in such a fiscal mess.

How does the foreign producer pay the tax?

On this point, it would be interesting to see what percentage of imports to the US have more than just a tiny amount of elasticity. Which products have such a high mark-up that the producer can afford to eat a percentage of the product's production without deleterious effects to the business?

We have heard about certain businesses that have only a 1-3% profit margin. Are these simply anomalous? Have foreign producers been able to jack up prices for them to take their (quarter or whatever) share of the tariff?

Pete

The farmer grows the carrot and sells it to a merchant. The farmer pays the tax on the carrot. The farmer charges the merchant the price of the carrot + the 10¢ tax.

That's wrong. You're assuming that there's perfect price inelasticity for the carrot. Or in layman's terms, that the merchant is completely insensitive to the price of the carrot, and will buy exactly the same number of carrots as before - and the farmer can pass 100% of the tax on to the merchant.

In the real world, that almost never happens - and certainly not for goods like carrots. In reality, the farmer will not be able to charge the price of the carrot + the 10 cent tax. They will have to charge less.

The same holds in the exchange between the merchant and the customer. The merchant will pay more for the carrots from the farmer (but not 10 cents more), and the customer will pay more for the carrots from the merchant (but not the full amount of the delta the merchant paid to the farmer).

In theory, the amount of tax borne by the customer can be anywhere from 0 cents to the full 10 cents, depending on how price sensitive everyone is. In real markets, the value is always somewhere in between.

So continuing to use your carrot example, If the merchant usually bought 100 pretax carrots how many fewer post-tax carrots will the merchant buy from the farmer?

So continuing to use your carrot example, If the merchant usually bought 100 pretax carrots how many fewer post-tax carrots will the merchant buy from the farmer?

Don't know. It's an empirical question. We just know it will be fewer.

The merchant knows that he will be able to sell fewer carrots after the imposition of the tax, because customers will buy fewer carrots. Demand curves slope downward - if you raise the price of a good, people will buy fewer than if the price were lower.

There are some theoretical and perhaps a few real-world goods that don't exhibit that (OMG Giffen goods), but nearly any good like a carrot will see quantity demanded fall in response to an increase in price. So you won't see the farmer pass along 100% of the tax to the merchant, and you won't see the merchant pass 100% of his increased cost on to the customer.

Beyond knowing the direction of the price and output movements (and being very confident that neither will exhibit 100% price inelasticity), we don't know the amounts of those movements. That will depend on how sensitive the farmer, merchant, and customer are to price changes.

Don't know.

Neither do I. But I know that at the end of the transaction chain the character in our little orange drama who will be paying the tax is the hapless consumer.

But I know that at the end of the transaction chain the character in our little orange drama who will be paying the tax is the hapless consumer.

But that's incorrect. Payment of the tax will be allocated among the market participants in accordance with their price sensitivities. It's almost certain that no single party will pay all of the tax.

For example, suppose the consumer is extremely price sensitive (econ-speak for saying they change their behavior a lot in response to price changes). They have lots of readily available alternatives to carrots, all of which they like just about the same as carrots, and which aren't much more expensive than carrots are now. Meanwhile, assume the farmer is extremely price insensitive - he's got a lot of sunk costs in land that is really maximized for carrot farming, and carrot-specific improvements and machinery, etc. In that scenario, the farmer would end up paying most of the tax. The price can't be increased very much on the consumer (else they'd stop buying carrots and move to alternatives), and the farmer doesn't have a lot of options. So the farmer ends up eating the extra cost, selling his formerly $1 carrots for maybe $0.91 or $0.92, and the consumer ends up paying only $1.03 or so for the carrots.

If the price sensitivities are reversed, the outcome is reversed - the more price sensitive farmer would bear less of the tax, while the price insensitive consumer would eat more of it.

It's simply not true that either the hapless consumer or the producer or the merchant (or the importer or shipper or wholesaler or anyone else in the transaction chain) will end up paying all of the tax.

I'm not talking about all those other effects (which are valid). Simply that volume comes into play with any price hike (or reduction). Can you "make it up in volume", or not. There is a sweet spot where you break-even. Beyond that, you actually make less with the higher price.

* The surgery went well and recovery is painful, hence the meds, but it is going well too. I was released from using a walker, and now I'm using a cane.

Cool. Hope it continues well.

I will say, don't skimp (or wimp) out on PT. When I shattered my calcaneus, the PT was unpleasant, but it really (REALLY!) helped the long-term recovery. Same when I broke my spine. Not pleasant, but consider it a long-term investment for your future.

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