Hawley's Tariff Rebate Bill Is Nonsensical
Ending the Trump tariffs is the best way to help Americans
Recently, Donald Trump floated the idea of “a little rebate” to Americans because of increased revenue from tariffs. As is often the case, little detail was provided. However, Sen. Josh Hawley (R-MO) has taken the idea and run with it by introducing the American Worker Rebate Act, S. 2475.
The American Worker Rebate Act would provide a direct payment of $600 per adult and dependent child. There are income limitations. Joint filers who have an adjusted gross income (AGI) of $150,000; heads of household with an AGI of $112,500; and other filers with an AGI of $75,000 would see the value of the direct payment reduced by 5 percent.
Oh, there are so many things to say about this.
First, although revenues from tariffs are $52.4 billion higher than the estimate for FY 2025, the federal government has run a budget deficit of $1.339 trillion through the first three quarters of the fiscal year. June may have been a surplus revenue month, but that’s because of a timing shift for outlays. If that timing shift doesn’t happen, June would have seen a $71 billion deficit.
Second, during his speech to a joint session of Congress in March, Trump said, “[I]n the near future, I want to do what has not been done in 24 years — balance the federal budget, we’re gonna balance it.” Look, I laughed when I heard those words. That was four months ago, and the budgetary picture has only gotten worse. Considering Congress just passed a bill that will increase deficits by $4.1 trillion over the next ten years and Trump’s refusal to touch Medicare and Social Security, it’s impossible to balance the federal budget.
Third, this is almost a tacit admission that businesses in the United States and American consumers are bearing the brunt of Trump’s tariffs. Inflation went up by 2.7 percent over the past twelve months.1 If the administration doesn’t delay the imposition of “reciprocal” tariffs planned for August 1,2 prices are likely to increase. Trump has also floated the idea of increasing the baseline tariff rate for all countries from the current 10 percent to as much as 20 percent. 3That will also bring upward pressure on inflation.
Additionally, nearly every so-called “trade deal” that the administration has agreed to has a baseline tariff that importers will pay when products from those countries reach the United States. The tariff for Japanese imports is 15 percent. It’s also 15 percent for the European Union, although steel, aluminum, and copper will remain at 50 percent. The baseline tariff for Vietnam is 20 percent. Businesses may absorb some of the costs, but the remainder will be passed on to consumers.
Fourth, pumping more money into the economy at this time could lead to more inflation. The fiscal policy response to COVID-19 was one of the factors contributing to the inflationary pressures that began in February 2021. Between March 2020 and December 2020, Congress passed five bills that pumped $3.1 trillion into the economy.4 Trump signed those bills.5 There’s also the monetary policy response by the Federal Reserve, which also contributed to inflation. The Keynesian theory posits that, during an economic downturn, increased disposable income will stimulate demand.6 However, the United States’ economy isn’t in a downturn and is close to full employment, so supply may not be able to ramp up enough to meet demand. Thus, we see higher prices. It’s bad policy.
Finally, although we don’t have any estimate of the impact on the deficit that this proposal would have, it won’t be cheap. For example, the Joint Committee on Taxation estimated that the direct payments under the CARES Act of 2020 increased the deficit by $292 billion. Hawley’s proposal is structured similarly, although I can’t say that the price tag is comparable. Still, it comes on the heels of the so-called “One Big Beautiful Bill Act,” which will increase deficits by $4.1 trillion over the next ten years. There’s also a push to extend the enhanced Marketplace subsidies that were included in the American Rescue Plan Act of 2021. The permanent extension of those subsidies would cost $335 billion. It’s possible that those enhanced subsidies could stick around at least a little longer if a bipartisan healthcare bill comes to fruition.
My point is that the cost of financing this debt adds up. Interest payments on the share of the debt held by the public are already the second-largest expenditure of the federal government. Continuing to add to deficits and debt when Congress should be modernizing programs that are contributing to these problems and creating a tax system that’s broad-based while encouraging investment.
As far as Hawley’s bill is concerned, it’s just nonsensical. If he’s concerned about Americans getting hit in the wallet by higher prices, perhaps the better route is to push for Congress to reclaim its Article I, Section 8 authority over tariffs. Otherwise, Hawley is making a tacit admission that Americans are getting hit by Trump’s tariffs.
Excluding food and energy, core inflation was 2.9 percent.
The notion that these tariffs are reciprocal is patently absurd.
This particular tariff went into effect on April 5. It’s separate from the so-called “reciprocal” tariffs and hasn’t been paused.
I realize Biden gets most of the blame for inflation, largely because he was in office when it occurred, but inflation began inching up about a month before H.R. 1319 became law. About 70 percent of the fiscal policy response took place under Trump. This doesn’t absolve Biden for contributing to it.
While I haven’t reviewed the data since before the pandemic, most people saved what they received from direct payments in 2001. The personal savings rate also increased in 2008, 2020, and 2021. None of this is to argue about any stimulative effect.