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Donald Trump may be interested in using steep new tariffs to pay for tax cuts next year, an idea that would force Congress to vote on his aggressive trade agenda.
Republican lawmakers, however, are far from sold. Some are already panning the prospect.
“I don’t like tariffs, Number One. I think the consumer pays them. So they’re regressive. They’re a sales tax, basically,” Kentucky Sen. Rand Paul told Semafor, adding that he’d still listen to the idea even though “I kind of doubt” tariffs would make it into a GOP tax bill.
As Republicans prepare to take control of both chambers of Congress in January, they’re weighing whether to formalize Trump’s tariff regime as part of a bill that would extend tax cuts they passed during his first term. The decision pits the party’s free-trade orthodoxy against its new populist impulses under the president-elect, who has floated a 10 percent across-the-board tariff and more targeted tariffs on everything from Chinese goods to John Deere tractors.
Trump’s broad tariffs could bring in trillions of dollars to help extend the tax cuts and potentially pay for some of the many new tax promises he made during the campaign. But such sweeping tariffs also would raise consumer prices while possibly failing to raise the revenue Republicans would need in order to vote for new levies on foreign goods.
Which explains why senior members of the party are treading very carefully around the idea of paying for tax cuts with tariffs.
Sen. Mike Crapo, R-Idaho, the incoming Finance Committee chairman, said he’s “not working on” any such proposal right now. Incoming Senate GOP leader John Thune said it’s a “novel” idea to raise revenue for tax cuts but only one of many options: “The question is, what are the other implications of doing that?”
Some Republicans said tariffs can be used constructively to push foreign countries on specific policy issues but that Congress should not use them as a piggy bank.
“I don’t want to do tariffs just to raise revenue. If President Trump must do tariffs, it should be to equal the playing field for American businesses. But I don’t think just using them just to be revenue raisers is necessarily a strategy we would employ,” said Rep. Greg Murphy, R-N.C.
The party is likely to take months to figure out the broad contours of its tax plan, including the cost and the status of rates across the current code. But one of Republicans’ most politically pressing decisions is whether to formalize Trump’s tariff plans in their tax bill — if, of course, he goes through with them.
Sen. Ron Johnson, R-Wis., said that “you gotta show me the numbers. Right now, tariffs are a very small sliver” of the broader revenue picture.
Trump imposed tariffs on allies during his first administration to help push immigration policy changes in Mexico, for example. His party’s lawmakers don’t necessarily share the extent of his tariff fandom.
“Tariffs are a double-edged sword. They can be used strategically,” Johnson said. “That’s at a cost to consumers and to manufacturers who rely on all kinds of important products to compete globally. So, I’m not as enamored with tariffs as other people might be.”
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Republicans are plainly uncomfortable with Trump’s appetite for universal tariffs on foreign goods. The last time they saw similar pressure from a party leader to consider a tariff in a tax bill was eight years ago, during work on what became the 2017 Trump tax cuts, when then-House Speaker Paul Ryan tried to add a border adjustment tax to the plan.
After months of struggling to sell it to his colleagues, the GOP Congress and Trump’s White House, Ryan eventually dropped it. And while Trump has a lot more sway over the party than the Wisconsinite did, adding broad tariffs to next year’s tax plan could be similarly difficult.
“I’d have to see the evidence on how tariffs pay for the tax cuts,” said Rep. Darin LaHood, R-Ill. “This is new territory, and I think there are many of us that want to see the supporting facts on that.”
Republicans across the political spectrum told Semafor this week that they were concerned that tariffs wouldn’t even bring in projected revenues due to retaliation from other countries and lower consumer demand. A universal tariff in particular could have unpredictable effects on both the US and global economies.
Sen. Thom Tillis, R-N.C., called relying on tariffs to finance tax cuts “unsustainable at scale.”
“If we just do it like a blunt force object, we’re gonna have blunt force trauma,” Tillis said.
Room for Disagreement
Not every Republican has reservations about the benefits of tariffs. Rep. Thomas Massie, for one, embraced Trump’s broad tax proposal … with a catch. The Kentuckian said he favors a concept Trump flirted with last month during an interview with podcaster Joe Rogan: replacing income taxes with tariffs.
“For the majority of our country’s history, this government was founded with tariffs,” Massie said. “I would be OK with using tariffs instead of the income tax … The broader, the better, because that way you don’t have government picking winners and losers.”
It’s effectively impossible to design a tariff sizable enough to replace the income tax, according to the nonpartisan Peterson Institute for International Economics.
Burgess and Kadia’s View
Tariffs pose a particular challenge to Republicans as Trump prepares to take power. Most don’t like the idea of across-the-board tariffs on imports, but they don’t want to push back too hard too early because they are unsure where he will end up.
Trump rattled Republicans during his first term by slapping tariffs on allies and China; many in the GOP are steeling themselves to accept it this time around if he tries to use more targeted tariffs.
If Trump does impose universal tariffs, Republicans could try to stop him. Or they could make lemonade from the lemon by seeking to use the resulting revenues to help finance an extension of the tax cuts. Despite the overwhelming skepticism they’re voicing now, that’s not out of the question.
“I don’t know until I get something concrete from the president,” said Sen. Chuck Grassley, R-Iowa.
Notable
- Republicans are “studying” the idea of using broad tariffs as a revenue-raiser under the complex rules they plan to use for their tax bill, The New York Times reported.
- While tax cuts are projected to boost US economic growth, tariffs would slow that growth, per a Goldman Sachs projection reported on by Fox Business.