The big picture here is that President Trump wants to further lower taxes, which would of course further exacerbate the federal debt. He has suggested raising tariff revenue to offset reduced tax revenue like they did in the good old days as portrayed by the president.

He said that McKinley made the USA rich from tariffs and then they screwed it up by passing an income tax in 1913. That was followed by reintroducing tariffs via the Smoot-Hawley act signed by Herbert Hoover. Those tariffs were a tax increase on the world economy that deepened the Great Depression. Hoover was warned and Trump has been too.

There is a difference. The U.S. economy is the strongest in the world today if graded on a curve. We do not depend on exports like many of our trading partners do, their needing access to our markets more than we do theirs (with the exception of our ag sector). That does put us at an advantage overall.

According to S&P Global, “Comparing the U.S.’s output at risk with Canada’s and Mexico’s, our scenario suggests that Mexico and Canada face impacts on their whole economies that are 11 times and 5 times higher, respectively, than the impact on the U.S.” The theory is that if the global economy sinks, ours should sink less and that to our pesident is how we would win and they lose in this trade war of his initiation. New history being written versus old.

The president fully intends to make his 2017 tax cuts, set to sunset this year, permanent and add to them. The current tax regimen has evolved into what I would call a sweet spot. The income tax rate, capital gains and estate tax set-up appear reasonable and doesn’t hinder the U.S. economy or growth. It is about the right mix of regressive and progressive. I think that it is historically fair from the perspective of past tax systems. Trump’s 2017 tax cuts cost the government $1.9 trillion in topline revenue, but I think that they added supply-sided GDP to trim the net loss. As they sunset this year, the OMB left them out of their future calculation. That means that to extend them it would cost another $4.6 trillion over the next decade in their fiscal forecast. Too bad, as it would cost the economy that much to end them in lost growth. They did not even try to get rid of them earlier because they can’t without tanking the economy.

The problem is that the current tax system doesn’t cover government spending and that is not projected to improve and in fact could become worse. Many would say that we have the opposite problem, which is spending too much. The U.S. had a fiscal deficit of $1.8 trillion in 2024 and has already run a deficit of $711 billion in fiscal 2025 as of Jan. 31. Interest being paid is a problem toward restraining spending.

Elon Musk and DOGE is literally being given the keys to the vault of the U.S. Treasury, which will be challenged eventually in the Supreme Court. What Musk does or attempts to do will not be fair, it will not be balanced, and it may not even be legal, but something dramatic must be done to curtail what is becoming an out-of-control budget.

Gotta better idea? The president is putting our country’s financial future in the hands of a crazy/brilliant oligarch who contributed $240 million to his campaign to get this job. He is going to be given more latitude than he should because of this. Congress failed miserably at managing the budget so will they stop Musk from doing it?

The next conundrum is that Musk is not going to find ways to cut $1.8 trillion from federal spending to balance with revenue. The optimists think that maybe he can find $500 billion to cut, which is a material improvement. So, if Musk can find spending to cut, our fiscal situation improves? Not if the president can help it, as he wants an additional set of tax cuts which would cost an additional $3 trillion over 10 years, which would reduce government revenue even further. His tax cut proposals would soak up a substantial portion of the spending reduction that Musk is likely to find. I do not believe that it would leave our tax system with the same balance of fairness that exits today.

So, with our feet in the fire and budget trajectory worsening, how do we fix this hot mess? President Trump says that he will be the tariff man and he will make our fiscal dilemma go away by generating tariff revenue. Can that work? The U.S. did $3.2 trillion in imports and $2.1 trillion in exports in 2022. Let’s just say that the goal is to raise a net $1 trillion in tariff revenue and we assume that U.S. tariff rates will be matched by trade partners on our exports. If a universal tariff of 25% is imposed and reciprocated, by my math we net $252 billion on 2022 numbers. It would then require a 100% tariff for us to net $1 trillion in tariff revenue.

What would a 100% tariff do to our economy and the world economy? It is a global tax on trade.

In my example of a 100% tariff on all goods, that $1 trillion in tariff revenue initially raised is more than wiped out by the resulting related hike in cost of living. If so, then tariffs are fool’s gold. That is why 1,000 economists wrote Herbert Hoover asking him not to sign the Smoot-Hawley Tariff act in 1932 and why they have not changed their tune about tariffs todays. President Trump’s tariff walk is pied-piper-ish. Yes, tariffs can raise revenue but they ultimately just transfer the revenue they raise to a higher cost of living in the end.