Trump is plotting the biggest tax increase in global history

The final details of Wednesday's "Liberation Day" are still to be hammered out. But the White House appears to be planning steep new tariffs on all of America's trading partners. On Fox News, Peter Navarro, one of the main proponents of the tariff policy, said that imposing tariffs on auto imports would generate $100 billion a year for the federal government. What's more, he estimates that a full-blown tariff would bring in $600 billion a year.

Economists and trade experts will no doubt argue about the exact amount of possible increases. Never in more than a century has the U.S. government imposed tariffs on such a scale.

Part of the burden may be absorbed by foreign firms. For example, state-owned Chinese companies may choose to accept these tariffs because they are more interested in increasing market share than making money. In other cases, production may shift from Stuttgart to San Francisco, or from Lyon to Louisville, turning imports into domestic products.

But most likely, most of the increased costs will be passed on to consumers in the form of price increases. Either consumers are forced to pay more for imported goods, or prices generally rise because, protected by tariff barriers, U.S. companies have less incentive to increase productivity.

If the tariffs do lead to an increase of $600 billion a year, it is not a small amount even for a huge economy like the United States.

For reference, the U.S. government collects $4.9 trillion a year in tax revenue, so if Navarro is right, the tariffs would increase that total by less than 15 percent. That would be more than the $424 billion a year the government collects from corporate taxes. Tariffs will be the third-largest source of government revenue, behind federal income taxes (a little more than 50 percent of the total) and Social Security or payroll taxes (about 30 percent).

In fact, it would be the largest tax increase ever implemented by any president and trigger a huge shift in the way the federal government raises money.

President Trump and his team have occasionally talked about replacing income taxes or other taxes with tariffs. To be fair, this is not a completely ridiculous idea. Turn the clock back 150 years, and tariffs are indeed the primary way the US government, like most of the world's governments, raises money for itself (in 1850, tariffs were 90% of revenue).

But here's the problem. The government at the time was much smaller and needed to collect much less money. Even if we assume Elon Musk manages to cut the budget by $1 trillion or more, the tariffs would have to be at least five to six times higher than any currently proposed to pay for Washington's annual spending. They would need to be at least 100 percent, and possibly simpler, to replace a federal income tax.

Tariffs at such rates would be out of bounds and would do great damage to the global trading system. What is clear is that if trade falls to zero because of tariffs, then tariff revenue will also be zero.

Even worse, the president, and perhaps more importantly, the team around him, got the issue wrong. If tariffs are imposed, they should be immediately offset by spending cuts elsewhere. For example, corporate taxes could be eliminated, or at least 1/5 income taxes cut, or social security contributions significantly reduced, or a combination of all three.

This would be a shift in the tax base and one that can be argued rationally. Instead, the president, while imposing tariffs, is talking vaguely about what may or may not be a tax cut at some point in the future. This is not an acceptable form of government.

So Trump is about to impose a massive tax increase, and the plain truth is that like any other tax increase, it will destroy the American economy.