With Trump’s worldwide, across-the-board aggressive Tariff Policy leveling hefty tariffs on our four major trading partners–China, the European Union (EU), Canada and Mexico currently at 25 precent on both Canada and Mexico, 30 percent (originally as high as 145 percent then down to 80 percent and now at 30 percent) on China, with a 50 percent tariff on the EU for steel and aluminum to start on June 4th and a 10 percent across-the-board tariff on all other nations with certain exceptions given to Britain on cars and certain metals.
However, earlier in the week, all but the 50 percent tariffs on the EU (just invoked for steel and aluminum) were recently overturned by the U.S. Court of International Trade on the basis that legally Congress (and not the executive branch) only has the authority to levy tariffs though the executive branch does have limited authority in certain circumstances.
It was determined Trump had exceeded his legal authority under the 1977 International Emergency Economic Powers Act (IEEPA) reserved for emergency situations such as when the U.S. is in actual conflict (with a particular nation.) However, Trump and his legal team was able to immediately get a stay of execution from the federal Court of Appeals and it looks like Trump will seek a reversal of decision and relief from the U.S. Supreme Court.
Now, as it appears per Arthur Laffer’s recent comments (Arthur Laffer being the father of Supply-Side Economics and Reaganomics) on what he “feels” on where Donald Trump is “going” with his tariffs—he believes IS to “level the playing field” with all nations imposing tariffs on us, getting those nations to drop their tariffs and other non-free trade practices thereby creating a freer, non-encumbered trade environment.
Also because of our National Debt level of almost $37 Trillion and still climbing because of (1) its yearly debt servicing costs alone of close to a trillion dollars and (2) our annual federal budget overruns, Trump also wants to, at the end of all negotiations with all nations he’s imposed tariffs on, is to continue with an across-the-board tariff of 10 percent to help pay for the continuation of his 2017 tax cuts to corporations and all others who benefitted from his original 2017 Tax Act which is due to lapse later this year and also to pay for his no-tax-on-tips, no tax on overtime and no tax on social security benefits.
This concern of Trump’s, that is, “help[ing] to pay for the continuation of his 2017 tax cuts to corporations and [those] who benefitted from his original 2017 Tax Act” partially stems from his budget and National Debt overrun estimated to be $7.8 to $8.4 Trillion in his first 4 years in office and regardless of what Trump may say (in public), has to “weigh on his mind.”
And, also, in this author’s opinion, though not mentioned on any of the primary major economic news stations (and those appearing on cable) such as Bloomberg News, CNBC, CNBCW, and Fox Business News—it IS this author’s opinion, Trump wants to be the President that will hold the record for America’s highest best ever GDP/GNP.
To do this, to increase our national productivity of all goods and services being offered for profit and for increases in GDP/GNP, Trump, per Arthur Laffer’s Theory of Supply-Side Economics, wants to lower the corporate tax rate as much as possible or in this case by simply continuing his original 21 percent rate which was before he lowered it in 2017, at a “whopping” 35 percent. And this time he also wants, for those producing totally “American Made” goods which would also apply to foreign corporations relocating over here, to lower it to an effective 15 percent corporate rate and to do that, he will allow an immediate 100 percent deduction on equipment and property purchases versus the standard (partial yearly) depreciation schedule over several years per current IRS guidelines.
This effort to get foreign corporations relocating over here would include Trump’s recent visit to the Middle East where Saudi Arabia, Qatar and the U.A.E. will respectively invest $600 Billion, $1.2 Trillion and $200 Billion to strengthen U.S. manufacturing, investing in A.I. development and national security for a total investment of $2 Trillion Dollars!!
Now, as everyone knows, his tariffs and what he’s actually going to do next, will depend on how these recent court decisions and final rulings will “go” and his negotiations go with all the many nations around the world, the exact outcome, at this time, to say the least, being certainly UNCERTAIN!! And, as a result, both foreign and domestic corporations are currently hesitant to make financial commitments.
But one thing is clear, customers purchasing foreign made goods especially from China (though tariffs were dropped from 145 percent to 80 percent then to 30 percent) will pay more even if the extra cost burden of the tariff is shared between the foreign manufacturer and shipper by initially lowering the cost of their merchandise and/or shipping costs and here, in the states, if the cost of the tariff is shared by the importer, their shipper(s) and distributors and the retailer.
There has been several estimates that extra costs to the typical family could run as much as $2,700 to $4,800 per year. And as stated above, Trump wants to use these tariffs collected by customs to be used to help finance his tax cuts to the business, corporate community and to the wealthy hoping that these tax breaks will be reinvested back into manufacturing and production and the stock market which, in turn, will produce more taxable income for the government. Based on last year’s figures, we imported over $3.8 Trillion in foreign goods, which at 10 percent would be $380 Billion going to Customs and the US Government.
This year’s total tariffs collected are estimated to be $270 Billion. But all this is still “up in the air”. In fact, Moody’s just downgraded the U.S. for the first time ever to a Double-A (AA) rating!! This being, in part, from Trump’s April 2nd Liberation Day hefty multi-nation tariff impositions fiasco when, on the same day, the stock market crashed, China and Japan, our biggest foreign government bondholders threatened to dump a significant portion of their Treasury holdings, causing Treasury bond yield rates to “shoot up” while stocks plummeted—the exact opposite of what one would expect when the stock market drops!!!
In fact, this is why Moody’s dropped their Triple-A (AAA) rating of the U.S.—loss of confidence in the U.S. Dollar as The World’s Reserve Currency and this brings us to the whole point of this article—Is there anything we can do NOW to help prevent The Dollar from losing its status as The World’s Reserve Currency should we ever reach The Unthinkable!!
Now here’s The Plan—As mentioned above, “This year’s total tariffs collected are estimated to be $270 Billion.” But now because of China’s and Japan’s (our two biggest bondholders) recent threats to sell their Treasuries, to prevent a potential bond sales threat by a collective of foreign nations should such actually ever materialize, the one way and the only practical way we could ever prevent this from happening would be to require foreign corporation-importers (or domestic importers or a combination thereof) to purchase U.S. Treasuries with a certain percentage of their sales when initially importing their goods here–thereby creating a LARGE NEW 3rd class of U.S. Treasury purchasers!!
First of all, before we get into this NEW 3rd new class of bond purchasers, obviously the best way to handle our growing National Debt is to simply balance our budget and NOT spend more than what we take in!! But, in reality, because of the so many things we must to do to adequately protect society by protecting one’s health and safety and to regulate business and prevent fraud, that simply isn’t gonna happen!! Fortunately, all advanced industrialized G7 nations have national debts that are more then what they make (that is, their debt to GDP ratio is greater than 1. Our ratio debt to GDP ratio is 121.85. Some nations are even higher!!) Fact is, it simply takes more to adequately protect and police a society than what we collect in taxes and, as a result, bonds must be issued in the form of debt to do everything that must be done!!
Now back to this NEW proposed 3rd class of U.S. Treasury purchasers–As it stands now, there are two (2) main groups of bond purchasers–domestic institutional investors such as banks and retirement funds, with the second class of large-scale bond purchasers being foreign governments. But, as mentioned, foreign governments, because of their present concern over our rising National Debt, are now buying less and are also investing more in developing their own country’s infrastructure and economy and that of their trading partners. A prime example being China’s Belt and Road Initiative.
But with a large-scale third class of U.S. Bond purchasers ALSO being required to be a MANDATORY class of bond purchasers, this would STABILIZE the U.S. Bond Market giving “guaranteed” relief and confidence to domestic institutional investors and foreign governments as this way, there would ALWAYS be, as a result of this NEW Large 3rd class of bond buyers, the REQUIRED minimum of CASH RESERVES The Treasury needs to, along with collected tax revenue it has “on hand”, to make scheduled payments and for current government expenditures coming due. This, alone, would stabilize the bond market and act as a “hedge” against (and allay) any fears causing large scale selloffs OR NON-PURCHASES of U.S. Treasuries by foreign governments or domestic investors fearing a loss in the value of their investment!!
If such a large scale of NON-PURCHASE of bonds were to happen, this would force The Fed to have to print money to pay for maturing bonds being held by The Treasury and coming due and to cover the costs of any federal budget overruns. This also causing The Dollar to drop in value due to the printing of extra money to make further payouts.
Such a NON-PURCHASE of bonds would force The Treasury to raise their yield rates TO ATTRACT ADDITIONAL BUYERS causing debt servicing costs to skyrocket from the almost $1 Trillion it ALREADY now pays annually. Just to give an example, yield rates are now in the 4 to just barely 5 percent range. If yields got out of control as they did when Carter was President when it reached 18 then 20 percent, debt servicing costs would quadruple to as much as $3 to $4 Trillion per year.
One estimate of Trump’s One Big Beautiful Bill with its continuing corporate tax cuts of 21 percent and to 15 percent (in some instances) would run a deficit of $240 Billion per year and in 10 years amount to $2.4 Trillion. Another puts it at $380 Billion per year and in 10 years amounting to $3.8 Trillion.
On the high side, one CNBC commentator estimated our Debt possibly going up to $55 to $57, $58 Trillion in 10 years. Another independent estimate shows a yearly deficit of as much as $2.2 Trillion (with $1.2 Trillion in yearly budget overruns with another $1 Trillion in debt servicing costs on borrowed funds (i.e., outstanding U.S, Treasury Bonds)) and in 10 years amounting to $22 Trillion raising our National Debt to $60 Trillion and even if our GDP/GNP currently at about $30 Trillion per year were to increase, we’d be close to 200 percent of GDP. As stated, our current Debt to GDP is 121.85 percent and economists agree and warn that if our Debt to GDP ratio approached 180 percent, this would be where Our Economy and Our Dollar would be IN REAL TROUBLE!!!
This would ALSO force Congress to have to keep raising the Debt Ceiling causing havoc across the nation and worldwide, causing further sell-offs of bond holdings (especially by foreign entities) creating financial panic!! And as The Fed continued to print money, even more panic–The Dollar further falling in value. Then OPEC deciding not to use The Dollar as their transaction currency because of its instability, then The Dollar losing its status as The World’s Reserve Currency probably being replaced by the Chinese Yuan (China being the World’s Leading Exporter of Goods) or possibly another currency such as the Euro.
So this is what I suggest—After Trump has fully negotiated with all nations and has gotten them to drop their tariffs and other unfair trade practices as much as can be achieved and has begun his across-the-board 10 percent tariff on all nations with a higher 30 percent tariff on China and a 50 percent tariff on steel and aluminum regardless of what country imports it–let’s see how that “plays out”. After all, that’s an estimated $270 to $380 Billion each year to the Treasury. Ready cash for them in addition to the taxes the government will collect (though with tariffs a significant portion will end up being paid by the average consumer-shopper-wage earner.)
Some will contend that we shouldn’t have any tariffs at all as it basically amounts to a tax on the consumer but others will argue we ARE reaching a “point of no return” with respect to our budget and National Debt and as noted, foreign governments are beginning to get worried about our “situation” and it’s beginning “to show.” One argument can be made that we are, after all, the World’s Greatest Marketplace with the highest per capita spending and that this across-the-board 10 percent tariff can be viewed as essentially an Infrastructure Tax that provides for the network needed to operate and use the items being imported here even where the product itself doesn’t use any infrastructure per se as with bananas and toys (but even such items still need the “roads and rails” to be shipped to their final point of sales.) Plus part of these tariffs would go into a general fund where our government routinely assists a portion of its citizens increasing their purchasing power and, in this case, to be able to better afford the more affordable imported goods and the U.S. government can and does provide other things and services such as the military, especially in cases of emergency, to our trading partners.
Now with this proposed across-the-board 10 percent tariff on our trading partners with certain exceptions as noted above, with a proposed (estimated) annual $270 to $380 Billion to the Treasury and if this isn’t enough so that the Treasury has sufficient reserves to handle pay-outs on maturing bonds (not being reinvested) and budget overruns due to lack of collected tax revenue (“on hand”) where the Treasury would possibly need to raise the Debt Ceiling to conduct additional bond auctions to raise extra capital to increase reserves and to stabilize the bond market where, otherwise, the Treasury might have to increase yield rates to attract buyers, then we could offer (or require in exigent circumstances if necessary and absolutely needed) an alternative where the importer while still paying their 10 percent tariff charge, could buy with another say 5 to 10 percent of their sales, Treasury bonds with (1) the U.S. “shaving” anywhere from 1 to 2 percentage points off their 10 percent tariff charge with (2) the importer keeping all the yields they make on their bonds and with the option to, at any time, to sell their bonds on the open secondary bond market (just like any other bond buyer and at hardly a loss) should they need the extra capital for any reason–business or otherwise.
For example, say an importer is having imported goods in the amount of $100, 000 ($100 thousand) being shipped and delivered to the Port of Long Beach, the tariff being 10 percent of that or $10,000 ($10 thousand.) Now, if the importer then buys $5,000 ($5 thousand dollars) worth of bonds, the government would “shave-off” say one percent “off” the $100,000 ($100 thousand) of imported goods shipped or $1,000 ($1 thousand) off the $10,000 ($10 thousand dollar) tariff they would otherwise owe, thereby now only owing $9,000 ($9 thousand instead.)
The importer could then keep the bonds and collect a yield of the say 4-5 percent (the current yield rate as of early June) where such yields are periodically paid out every 6 months or immediately sell these bonds on the secondary bond market say at a 5-10 percent loss and suffer say a $250-$500 loss but because the government “shaved” $1,000 ($1 thousand) off the 10 percent tariff charge of $10,000 ($10 thousand) the importer would come out $500-$750 ahead.
Now, if this was put into actual practice, experts who know what they’re doing, I’m sure, would have different figures than this, but the point is, if importers bought bonds when the Treasury needed “quick cash” to “make ends meet”, I’m positive, “the powers to be” would “come up with a formula” that would make it profitable (maybe more (or less) profitable) than the example I just gave here but still worthwhile enough for importers to take the Treasury “up” on its offer to buy bonds!!
Also, by the way, if the importer kept their bonds and yield rates went down, then their bonds with the higher yield rates would be worth more but if yields went the opposite way and went up, their bonds would be worth less and FYI–that’s exactly what happened as we noted earlier here when Trump launched his April 2nd Liberation Day tariff “attack” and the stock market “took a tumble” but instead of the bond market yield rates remaining steady or going down which is the usual case when the stock market goes down, bond yield rates, instead, went up amid rumors that China and Japan were contemplating “dumping” bonds (on the open market) due to fears of a “projected” future instability of The Dollar as a result of what Trump had just done!! Fortunately for Trump, the stock market now has recovered but there’s still a “certain amount” of uncertainty as to how Trump’s tariffs especially with recent court rulings, are going to “play out” and how nations we’ve tariffed are going to react. So, we’ll see. But anyway>>
In closing, the above strategy to offer bonds would increase the Treasury’s additional available reserves by 50 to 100 percent from $270 Billion to $380 Billion per year (with only straight-up tariffs) to as much $540 Billion to $760 Billion–a half to three-quarters of a Trillion to cover the Treasury’s (1) pay-outs and government expenditures coming due (2) decrease the amount of sell-offs or future non-purchases of bonds by current bond holders (or future bondholders) further stabilizing the bond market and as a result, Treasury reserves and (3) keep Treasury bond yield rates under control and not skyrocketing up as in the days of Carter when interest and yield rates soared to 18 to 20 percent which would cause our current debt servicing costs now close to $1 Trillion to go up even further to an unimaginable, ridiculous 3-4 Trillion!!
And lastly, having a balanced budget would undoubtably solve the problem. But as discussed, it takes so much more now-a-these days to adequately protect society, provide for a proper defense and for our retired seniors. It just does! Fortunately, other countries especially G7 and G20 nations, are facing the same problem and are also running “above budget.” It’s not just us! So—the only other solution, right now and for the time being, is to maintain a solid bond market—(1) being able to attract fresh debt money to handle old debt becoming due and (2) to handle our budget overruns and (3) to keep debt servicing costs (yield rates) at a minimum but still high enough to attract those buying bonds and, “to sum it up”, what I’m proposing here seems the best and only PRACTICAL, REALISTIC “way to go” for now.
HOPEFULLY one day, A.I. will revolutionize and increase the productivity of our economy also increasing our tax revenue. But to achieve a Balanced Budget and to keep our National Debt from growing, if the Democrats re-take the Whitehouse and Congress, to help balance our budget (as our tax revenue alone is not enough), would be to repeal Trump’s 21 percent corporate tax rate but instead of reimplementing the original 35 percent rate, raise it somewhere halfway back to 28 percent or just as an example, say to 25 percent. The reason being to do this would be to find the corporate tax rate level that best generates the highest income (for business) and total tax revenue (for the government) per Arthur Laffer’s Theory of Supply-Side Economics.
Basically, to pick the exact, right corporate tax rate a study would have to be done looking at how much additional total tax is collected for each 1 percentage point “drop” in corporate tax rate versus how much tax is collected had there been that no I percentage point reduction from that particular corporate tax rate.
For example, if more tax is collected at 25 percent versus lowering the corporate tax rate to 24 percent taking into account all the extra tax revenue generated from the extra production created by that extra 1 percentage point “drop” to 24 percent including any other additional business taxable activity generated as a result thereof and all the taxable income coming from the extra hourly wages paid out and from any additionally hired employees’ wages even taking into account any additional profits made in the stock market and it’s still not as much as what was collected at 25 percent, then the ideal corporate tax rate for most tax revenue generated should be set at 25 percent and not 24 percent.
But again, all this can only be found out by doing an extensive statistical study. For example, a similar comparative study would have to be done to see whether more tax revenue, in toto, is generated from a 26 percent corporate tax rate versus our 25 percent rate and for a 27 vs. 26 percent and so forth and so on until we find the corporate tax rate that generates the most income and total tax revenue.
And in our example here, if, instead, a 24 percent corporate tax rate generated more income and tax revenue vs. keeping the corporate rate at 25 percent, then we’d need to see if 23 percent would generate more income and tax than at 24 percent and if that proved to be true then another comparative study between 23 and 22 percent would need to be done and so on and so forth until we found the corporate tax rate that, indeed, proved to be the one consistently generating the most income and tax revenue!
Also, what should be done would be to reimpose the 39.6 percent maximum rate on high earners (without increasing taxes on incomes under $400,000), put a 25 percent minimum tax on billionaires and impose a 28 percent tax on capital gains (on those higher earners.) And re-hiring enough IRS agents to conduct the audits necessary to motivate honest filing thereby increasing tax revenue should be done as well.
Additionally, on the lower end of the wage scale, the federal minimum wage could be raised from $7.25/hr to $15.00/hr—this would also generate additional tax revenue by doubling the federal income payroll tax deduction for those minimum wage earners, these minimum wage earners still coming out ahead despite the extra tax being levied and collected because of the literal doubling of their wages from $7.25/hr to $15.00/hr!! Plus raising the minimum wage would also help with the following>>
And for social security retirement and Medicare funding, raise the Medicare portion of those making over $400,000 from its current 1.45 percent to 5 percent This will certainly help with Medicare funding, but experts also think raising everyone’s social security payroll tax by 2 percent regardless of income level including those making under $400,000, increasing their Medicare payroll tax portion by 2 percent as well, would solve social security, Medicare funding FOR THE NEXT 75 YEARS!!!
And lastly, having a balanced budget would undoubtably solve the problem. But as discussed, it takes so much more now-a-these days to adequately protect society, provide for a proper defense and for our retired seniors. It just does! Fortunately, other countries especially G7 and G20 nations, are facing the same problem and are also running “above budget.” It’s not just us! So—the only other solution, right now and for the time being, is to maintain a solid bond market—(1) being able to attract fresh debt money to handle old debt becoming due and (2) to handle our budget overruns and (3) to keep debt servicing costs (yield rates) at a minimum but still high enough to attract those buying bonds and, “to sum it up”, what I’m proposing here seems the best and only PRACTICAL, REALISTIC “way to go” UNLESS HOPEFULLY “one day”, A.I. so revolutionizes and increases the productivity of our economy also increasing our tax revenue that despite our many expenses and crippling budget overruns, we are finally able to achieve a Balanced Budget and our National Debt FINALLY stops growing and “AT LONG LAST”, FINALLY—“things are copacetic” and “under control”!!
And as that old fairy tale goes, “and everybody lived happily ever after . . .”
