The sales tax in Utah is about 4.85%. It is a regressive tax because everyone pays the same amount for any given item. Income tax is a progressive tax because the more earned, the higher the tax rate.
Tariffs are also considered a regressive tax because everyone pays the same rate for any given item. As an example: someone earning $50,000 buys an imported TV for $500 with a 10% tariff ($50) and another person earning $100,000 buys the same model and make and pays the same $50 tariff.
While tariffs bring in a lot of money to the Treasury, that money is being paid by everyone at the same rate (i.e., it’s a regressive sales tax). Recently the president said that with so much money coming in with tariffs we might be able to eliminate income tax!
Whether this was a joke or he was serious, who knows? If such a transition was made, the progressive income tax would be replaced by a regressive sales tax, giving a huge advantage to the highest earners.
A more long-term consequence of tariffs is that they protect American businesses from rigorous foreign competition, likely raising prices of American products. While at the same time, they tend to make American products less competitive on the world market place.
If Congress or the next president reduces tariffs, many American businesses will scream! Here come the lobbyists! Right now, according to the Yale Budget Lab (Aug. 9 issue of The Economist) America’s effective tariff rate is about 18%. This means that the average American is paying a regressive sales tax of about 18% on all imported goods.
Is this the world we want, where American businesses are protected (and get rich) while the average American pays for it?
David Hart, Torrey
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