Trump’s Economic Program Has Left Most Americans Worse Off

His tax cuts and tariffs are driving up prices and lowering wages.

President Trump’s tax and tariff policies form the heart of an economic program that he’s promised will help average Americans. The hard data, however, show that he’s actually imposed substantial costs on about 70 percent of Americans.

That’s because of both the growing burdens imposed by both the tariffs and the tax changes that provided no relief to the nearly 43 percent of U.S. households that paid no income tax before, less than nothing to five percent whose taxes went up, and not much to an additional 22 percent of Americans whose small tax benefits are dwarfed by the negative income effects of Trump’s tariffs.

It may get even worse. If the president goes ahead in December with his plan to increase and expand tariffs on imports from China, 80 percent of the country—roughly 102 million households with 258 million people—will be worse off under his economic program.

The tariffs directly raise the prices for thousands of foreign and U.S.-made goods produced with Chinese or European parts. The U.S. companies that sell those goods lose some business; and as we pay more for some products, we have less left to pay for everything else. So, consumers cut back and businesses follow suit, forcing them and their suppliers to cut the hours their employees work or their jobs—setting off another round of cutbacks by households that squeezes more companies and workers. On top of all this, retaliatory tariffs on U.S. exports by China and the European Union trigger similar cutbacks by American companies and workers. His trade program dampens our Gross Domestic Product (GDP), loses jobs, and lowers incomes and wages.

For most Americans, those costs exceed any savings they can incur from the president’s tax changes. It’s a reminder of just how dramatically his tax program favors the high-income bracket. To begin, 42.7 percent of “tax-paying units” (households and spouses filing separately), covering 154 million people in 2018, got little or nothing from Trump’s tax cuts, because their incomes were too small to trigger income tax liability before those changes. Trump’s decision to cap people’s deductions for their state and local taxes also turned his tax program into a tax increase for five percent of households, living mainly in high-tax blue states.

Additionally, the 2017 tax changes provide so little for the lower 40 percent of tax-paying households that Trump’s tariffs wind up swamping those meager tax benefits. Across the bottom quintile, or 20 percent of taxpayers, the tax benefits averaged just $60 per-household in 2018, and the benefits for the next 20 percent of taxpayers amounted to $380. Trump’s tariff program costs the average household an estimated $690 in foregone income.

That estimate is based on the Tax Foundation’s calculations that Trump’s current tariffs have shaved $62.5 billion per-year from our GDP, and that foreign tariffs imposed in retaliation cost our GDP another $25.6 billion. GDP may just be a particular way of measuring the value generated by the economy, but almost all of it ultimately translates into people’s incomes.

The rest is arithmetic.  Trump tax changes such as the expanded standard deduction did raise the share of households whose incomes are below the threshold for the federal income tax from 42.7 percent to 44.4 percent.  That leaves 55.6 percent of households paying some income tax in 2018, so each 20 percent of them represent 11.1 percent of all U.S. households. So, the president’s economic program has cost another 11.1 percent of tax-paying households $630 in 2018. An additional 11.1 percent will pay $310 more in 2018.

There are also the 42.7 percent of households with incomes too low to trigger any income tax liability before Trump’s tax changes and the five percent who saw their taxes go up under those changes.  Both of those groups bear the full $690 net costs from his tariffs.  Adding it all up, Trump’s economic policies have imposed significant net costs on 69.9 percent of American households, or roughly 89.2 million households with 226 million people. What’s more, the ripple effects of Trump’s tariffs cost Americans in other ways. Using Tax Foundation data, his tariffs—and retaliation by our trading partners—have cost the economy 272,864 jobs and dampened people’s wages by $25.6 billion or $246 per working household.  Moreover, tariff payments by U.S. business jumped $35.7 billion from 2016 to 2018.  Economists expect that almost all of those payments are passed along in higher prices. Even if U.S. businesses pass along just three-fourths of those payments, Trump’s tariffs have directly cost an average household $282 in higher prices for goods and commodities.

And, if Trump carries out his threat to double down on his tariffs this winter, the annual impact on GDP will nearly double from $88.1 billion to $167.8 billion. As that lost GDP results in lower wages and incomes, Trump’s tariffs will cost the average household an estimated $1,315. At that rate, those costs will overwhelm the $930 in average tax savings claimed by the third income quintile of taxpayers, adding another 11.1 percent of households to the 69.9 percent who already are net losers. When the president asks voters for another four years, he will have to explain how his signature economic policies have left the vast majority of them worse off.

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Robert J. Shapiro

Robert J. Shapiro is the chairman of Sonecon and a Senior Fellow at the McDonough School of Business at Georgetown University. He currently advises Future Majority, a Democratic strategy center, and previously served as Under Secretary of Commerce for Economic Affairs under Bill Clinton.