From Tariffs to the Income Tax: Trade Protection and Revenue in the United States Tax System

the Federal Government always needed a certain level of revenues. Southern Democrat, oversaw the cutting of the tariff rates roughly in half and eliminating nearly all federal excise taxes in about foreign trade policy should embrace free trade or protectionism.
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However, if the reported value is too far out of line with the database, the China Customs officer will estimate the value of the goods based on methods listed in Article 7 of the PRC Administrative Regulations. As a general rule, China Customs will charge against the highest price reflected in their database. The Foreign Agricultural Service is working with China Customs to improve their understanding of agricultural products pricing. Taxes On top of normal tariff duties, both foreign and domestic enterprises are required to pay value-added taxes VAT and business taxes.

VAT is assessed on sales and importation of goods and processing, repairs, and replacement services.

The Economic Effects of Trade Protectionism

VAT is assessed after the tariff, and incorporates the value of the tariff. China is bound by WTO rules to offer identical tax treatment for domestic and imported products. VAT is collected regularly on imports at the border. Importers note that their domestic competitors often fail to pay taxes. VAT rebates up to 17 percent a full rebate are available for certain exports. He thinks the damage done could not possibly have exceeded 2 percent of world GDP and tariff "didn't even significantly deepen the Great Depression.

Peter Temin , explains a tariff is an expansionary policy, like a devaluation as it diverts demand from foreign to home producers. He notes that exports were 7 percent of GNP in , they fell by 1. He concludes that contrary the popular argument, contractionary effect of the tariff was small.

The Economic Effects of Trade Protectionism | FocusEconomics

Nobel laureate Maurice Allais , thinks that tariff was rather helpful in the face of deregulation of competition in the global labor market and excessively loose credit prior to the Crash which, according to him, caused the crisis Financial and banking sectors. He notes higher trade barriers were partly a means to protect domestic demand from deflation and external disturbances. He obserses domestic production in the major industrialized countries fell faster than international trade contracted; if contraction of foreign trade had been the cause of the Depression, he argues, the opposite should have occurred.

So, the decline in trade between and was a consequence of the Depression, not a cause. Most of the trade contraction took place between January and July , before the introduction of the majority of protectionist measures, excepting limited American measures applied in the summer of It was the collapse of international liquidity that caused of the contraction of trade.

Tariffs up to the Smoot—Hawley Tariff Act of , were set by Congress after many months of testimony and negotiations. In , the U. Congress, in a rare delegation of authority, passed the Reciprocal Tariff Act of , which authorized the executive branch to negotiate bilateral tariff reduction agreements with other countries.

The prevailing view then was that trade liberalization may help stimulate economic growth. However, no one country was willing to liberalize unilaterally. Between and , the executive branch negotiated over 32 bilateral trade liberalization agreements with other countries. The belief that low tariffs led to a more prosperous country are now the predominant belief with some exceptions.

Multilateralism is embodied in the seven tariff reduction rounds that occurred between and In each of these "rounds", all General Agreement on Tariffs and Trade GATT members came together to negotiate mutually agreeable trade liberalization packages and reciprocal tariff rates.

The "average" tariffs now charged by the United States are at a historic low. After the war the U. American industry and labor prospered after World War II, but hard times set in after For the first time there was stiff competition from low-cost producers around the globe. Many rust belt industries faded or collapsed, especially the manufacture of steel, TV sets, shoes, toys, textiles and clothing. Toyota and Nissan threatened the giant domestic auto industry. In the late s Detroit and the auto workers union combined to fight for protection.

They obtained not high tariffs, but a voluntary restriction of imports from the Japanese government. Quotas were two-country diplomatic agreements that had the same protective effect as high tariffs, but did not invite retaliation from third countries. By limiting the number of Japanese automobiles that could be imported, quotas inadvertently helped Japanese companies push into larger, and more expensive market segments.

The Japanese producers, limited by the number of cars they could export to America, opted to increase the value of their exports to maintain revenue growth. This action threatened the American producers' historical hold on the mid- and large-size car markets. The Chicken tax was a response by President Lyndon B. Beginning in , during the President Kennedy administration, the US accused Europe of unfairly restricting imports of American poultry at the request of West German chicken farmers. Diplomacy failed, and in January , two months after taking office, President Johnson retaliated by imposing a 25 percent tax on all imported light trucks.

This directly affected the German built Volkswagen vans. Officially it was explained that the light trucks tax would offset the dollar amount of imports of Volkswagen vans from West Germany with the lost American sales of chickens to Europe. But audio tapes from the Johnson White House reveal that in January , President Johnson was attempting to convince United Auto Workers 's president Walter Reuther , not to initiate a strike just prior the election and to support the president's civil rights platform. Reuther in turn wanted Johnson to respond to Volkswagen's increased shipments to the United States.

During the Reagan and George H. Free trade with Canada came about as a result of the Canada-U.

It was based on Reagan's plan to enlarge the scope of the market for American firms to include Canada and Mexico. Likewise, in Clinton worked with Republicans to give China entry into WTO and " most favored nation " trading status i. NAFTA and WTO advocates promoted an optimistic vision of the future, with prosperity to be based on intellectuals skills and managerial know-how more than on routine hand labor. They promised that free trade meant lower prices for consumers. Opposition to liberalized trade came increasingly from labor unions, who argued that this system also meant lower wages and fewer jobs for American workers who could not compete against wages of less than a dollar an hour.

The shrinking size and diminished political clout of these unions repeatedly left them on the losing side. Despite overall decreases in international tariffs, some tariffs have been more resistant to change.


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For example, due partially to tariff pressure from the European Common Agricultural Policy , US agricultural subsidies have seen little decrease over the past few decades, even in the face of recent pressure from the WTO during the latest Doha talks. Historically, high tariffs have led to high rates of smuggling. The United States Revenue Cutter Service was established by Secretary Hamilton in as an armed maritime law and custom enforcement service.

Today it remains the primary maritime law enforcement force in the United States. Customs and Border Protection CBP is a federal law enforcement agency of the United States Department of Homeland Security charged with regulating and facilitating international trade, collecting customs import duties or tariffs approved by the U. Congress , and enforcing U. They man most border crossing stations and ports. When shipments of goods arrive at a border crossing or port, customs officers inspect the contents and charge a tax according to the tariff formula for that product.

Usually the goods cannot continue on their way until the custom duty is paid. Custom duties are one of the easiest taxes to collect, and the cost of collection is small.


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In , the GOP platform pledged to "renew and emphasize our allegiance to the policy of protection, as the bulwark of American industrial independence, and the foundation of development and prosperity. It upholds the American standard of wages for the American workingman.

One of the first acts of Congress Washington signed was a tariff among whose stated purpose was "the encouragement and protection of manufactures. In his State of the Union Address , Washington justified his tariff policy for national security reasons:.

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A free people ought not only to be armed, but disciplined; to which end a uniform and well-digested plan is requisite; and their safety and interest require that they should promote such manufactories as tend to render them independent of others for essential, particularly military, supplies [75]. As President Thomas Jefferson wrote in explaining why his views had evolved to favor more protectionist policies: After the War of , Jefferson's position began to resemble that of Washington, some level of protection was necessary to secure the nation's political independence.

In , then the United States Senator from Kentucky , Henry Clay said about his disdain for "free traders" [13] that "it is not free trade that they are recommending to our acceptance. It is in effect, the British colonial system that we are invited to adopt; and, if their policy prevail, it will lead substantially to the re-colonization of these States, under the commercial dominion of Great Britain.

When gentlemen have succeeded in their design of an immediate or gradual destruction of the American System, what is their substitute? The call for free trade is as unavailing as the cry of a spoiled child, in its nurse's arms, for the moon, or the stars that glitter in the firmament of heaven. It never has existed; it never will exist.


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Trade implies, at least two parties. To be free, it should be fair, equal and reciprocal. Clay explained that "equal and reciprocal" free trade "never has existed; [and] it never will exist. Henry Clay's longtime rival and political opponent, President Andrew Jackson , in explaining his support for a tariff, wrote:. We have been too long subject to the policy of the British merchants. It is time we should become a little more Americanized, and, instead of feeding the paupers and laborers of Europe, feed our own, or else, in a short time, by continuing our present policy, we shall all be paupers ourselves.

In , President James Monroe observed that "whatever may be the abstract doctrine in favor of unrestricted commerce," the conditions necessary for its success—reciprocity and international peace—"has never occurred and can not be expected. President Abraham Lincoln declared, "Give us a protective tariff and we will have the greatest nation on earth. Lincoln similarly said that, "if a duty amount to full protection be levied upon an article" that could be produced domestically, "at no distant day, in consequence of such duty," the domestic article "will be sold to our people cheaper than before.

Additionally, Lincoln argued that based on economies of scale, any temporary increase in costs resulting from a tariff would eventually decrease as the domestic manufacturer produced more. Lincoln did not see a tariff as a tax on low-income Americans because it would only burden the consumer according to the amount the consumer consumed. By the tariff system, the whole revenue is paid by the consumers of foreign goods… the burthen of revenue falls almost entirely on the wealthy and luxurious few, while the substantial and laboring many who live at home, and upon home products, go entirely free.

Lincoln argued that a tariff system was less intrusive than domestic taxation: The tariff is the cheaper system, because the duties, being collected in large parcels at a few commercial points, will require comparatively few officers in their collection; while by the direct tax system, the land must be literally covered with assessors and collectors, going forth like swarms of Egyptian locusts, devouring every blade of grass and other green thing. Under free trade the trader is the master and the producer the slave. Protection is but the law of nature, the law of self-preservation, of self-development, of securing the highest and best destiny of the race of man.

Why, if protection builds up and elevates 63,, [the U. We cannot take a step in the pathway of progress without benefiting mankind everywhere. Well, they say, 'Buy where you can buy the cheapest' Of course, that applies to labor as to everything else. Let me give you a maxim that is a thousand times better than that, and it is the protection maxim: It will be self-destruction.

He also rejected the "cheaper is better" argument outright:. They [free traders] say, 'Buy where you can buy the cheapest. They say, if you had not the Protective Tariff things would be a little cheaper. Well, whether a thing is cheap or whether it is dear depends on what we can earn by our daily labor. Free trade cheapens the product by cheapening the producer. Protection cheapens the product by elevating the producer.

The protective tariff policy of the Republicans… has made the lives of the masses of our countrymen sweeter and brighter, and has entered the homes of America carrying comfort and cheer and courage. It gives a premium to human energy, and awakens the noblest aspiration in the breasts of men. Our own experience shows that it is the best for our citizenship and our civilization and that it opens up a higher and better destiny for our people. President Theodore Roosevelt believed that America's economic growth was due to the protective tariffs, which helped her industrialize.

He acknowledged this in his State of the Union address from The country has acquiesced in the wisdom of the protective-tariff principle. It is exceedingly undesirable that this system should be destroyed or that there should be violent and radical changes therein. Our past experience shows that great prosperity in this country has always come under a protective tariff. From Wikipedia, the free encyclopedia. Excise tax in the United States. This article needs to be updated.

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History of the United States Coast Guard. The Brief American Pageant: A History of the Republic, Volume I: To 9th ed. Recent Recoveries and the Long-Term Trend". Retrieved 15 March Free trade doesn't work. The Hidden History Of Trade". Retrieved January 4, Archived from the original on January 6, Retrieved January 3, Smuggling in the American colonies at the outbreak of the Revolution: Tyler, Smugglers and Patriots: Tucker, and Kenneth H.

Tucker, Industrializing Antebellum America: Competing Views of Republican Political Economy: James and David E.

The tariff burden as a regressive tax

Lake, "The second face of hegemony: The following figures demonstrate the regressivity of tariffs by presenting the tariff burden across income deciles as a percentage of after-tax income and as a percentage of non-housing expenditures. The CEX suffers from well-known data quality issues with respect to the ratio of consumption to income for very low-income households. For this reason, the estimate of the tariff burden relative to after-tax income for the bottom decile should be interpreted with caution.

Regardless, the broad pattern of regressivity is clear.

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Figure 3 Tariff burden relative to expenditures excluding mortgage, rent, and utilities. These conservative estimates of the direct tariff burden are large compared to other recent and hotly debated tax policies. Economists often think of tariffs in a stylised way, as though they are applied uniformly to broad swaths of the economy, or simply targeted to protect only the most deserving or vulnerable sectors.

In fact, there is enormous variation in tariffs at the disaggregate level for reasons that sometimes are due to careful targets, but alternatively may favour some groups or products over others for reasons that are not always obvious. For example, for a family doing their back-to-school shopping, backpacks of man-made fibres carry tariffs of The tariff code thus penalises students more for using ballpoint pens and mechanical pencils than markers.

Meanwhile, there are no tariffs applied on imports of cross-country snow skis, sailboards, or archery equipment USITC Within consumption goods, categories like apparel and many types of home furnishings and other household goods, tariffs are sometimes higher on cheaper varieties, making tariffs on these goods more regressive than our benchmark estimates suggest.

A look at disaggregated US import data reveals many goods categories with unit values a proxy for prices that have a strong negative correlation with statutory tariffs, implying lower-cost goods often face higher tariff rates. Goods are grouped at the HS 4-digit level and correlations are computed across HS 8-digit items. For the HS 4-digit categories classified as consumer goods by the United Nations that have a calculated correlation between tariffs and prices, the tariff scale decreases in prices for roughly half, and the list of categories with strong negative correlations is extremely wide-ranging across the activities of daily life.

These goods include adult, child, and infant apparel; waterproof footwear; home furnishings and bedding; olive oil; processed tomatoes; wine; bicycles; camping gear; helmets and protective sporting headgear; small kitchen appliances and humidifiers; clocks, tableware and kitchenware; crafted wooden boxes including caskets.

Sometimes the variation in tariffs just appears to be an artefact, a legacy left from decades of many rounds of negotiations. Chapters 42, 61, and Tariffs on nappies made with paper pulp or cellulose are duty free due to the sectoral agreement on pulp and paper products in the Uruguay Round, while tariffs on nappies made with cotton cloth or other textile fibres can face tariffs ranging from 2.

Anderson and Neary and , Kee et al. Looking across demographic groups, the tariff burden is highest for families with children, particularly single parents. The category which includes both feminine hygiene products and diapers, HS , has an average statutory MFN tariff of 7. Thus, the tariff burden among single parents may be even higher for single mothers than for single fathers. Based on this initial analysis, it appears tariffs are imposed in a regressive manner — in part because expenditures on traded goods are a higher share of income and non-housing consumption among lower income households, but also due to explicit regressivity within categories.

The analysis highlights an underexplored aspect of trade policy and its effects and leaves open a path for subsequent research. More research on this area would be welcome — and the new dataset created for this analysis hopefully will help further some of that research. The matching of the tariff lines to consumption categories allows us to calculate the tariff burden across groups. The dataset with aggregated consumption categories is available publically for researchers here , and the pre-publication tables containing the more detailed categories used in the crosswalk are available upon request from BLS.

We encourage other researchers to use these data and or extend and improve the match process. Tariff data is available at the Harmonized System HS code level, which is often more granular e. Crustaceans, molluscs and other aquatic invertebrates, prepared or preserved than the CEX category e. Canned Fish and Seafood. For each CEX category, we calculated an average tariff rate, dividing total tariffs collected for goods in the expenditure category by total imports of those goods.

This is an effective tariff rate.