President Donald Trump’s much higher-than-anticipated tariffs have crushed stocks but could raise a substantial amount of revenue, while shrinking the economy in the process. The import taxes could generate $700 billion a year in revenue. That could help clear the way in Congress for bigger income tax cuts, though the tariffs would also be the equivalent of a massive tax hike on consumers.
Wall Street suffered a massive case of sticker shock when President Donald Trump unveiled his latest round of tariffs on “Liberation Day,” wiping out $6 trillion in market cap.
But the flip side of the much higher-than-anticipated duties is a potential revenue windfall that could help clear the way for getting bigger tax cuts passed in Congress.
Lawmakers have already taken a key step toward that end. Early Saturday morning, Senate Republicans approved a framework to extend Trump’s tax cuts from his first term, add new cuts like ending taxes on Social Security income, and slash spending.
Some fiscal conservatives in the GOP have balked at the massive deficits and debt more tax cuts could bring. But economists at Citi Research said in a note on Thursday that the aggressive tariffs “may now become a justification for larger tax cuts.”
It’s unclear if tariffs will remain as high as announced (Chinese imports face a 54% levy) or for how long, as Trump has suggested he is open to negotiating rates lower while his authority for imposing them could also face legal challenges.
Tax cuts could help ease the impact that tariffs will have on the economy, which is increasingly seen slipping into recession.
On Friday, JPMorgan analysts said they expect GDP to shrink by 0.3% this year, reversing a prior view for an expansion of 1.3%. The unemployment rate is also seen climbing to 5.3% from the current level of 4.2%.
Source: Fortune
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