This just in: Tariffs generate less revenue and more efficiency losses than income taxes.*
“While income taxes have been the cornerstone of U.S. federal tax policy since the early 20th century, the Trump administration is shifting tax burdens away from income taxes and toward import taxes. Kimberly A. Clausing of the University of California, Los Angeles, and Maurice Obstfeld of the Peterson Institute estimate that a U.S. effective tariff rate of 20% would generate roughly $300 billion in revenue per year, which amounts to less than one-sixth of the revenue raised annually by personal income taxes. Tariffs also generate considerable deadweight losses—expanding import-competing sectors and shrinking export and non-traded goods sectors—that will amount to approximately $113 billion per year, or more than one-third of the revenue raised by the tariffs.
“The authors further note that tariffs (which resemble a consumption tax) are regressive, as individuals at the lower end of the income distribution save less and consume more than higher-income individuals. On a macroeconomic level, the authors emphasize that tariffs—especially those on input goods—and trade policy uncertainty will reduce investment, compress real income and consumption, and create upward price pressure, all of which will reduce overall economic activity.”
This paper is forthcoming (March 2026) in the National Tax Journal. We [the authors] thank Greg Auclair, Olivier Blanchard, Nell Henderson, Mary Lovely, Marcus Noland, Andrés Rodríguez-Clare, Ernest Tedeschi, Nicolas Véron, and participants in the UCLA School of Law colloquium and the PIIE research seminar for helpful discussions. We thank Nolan Jones, Serra Pelin, and Shane Ball for helpful research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications. © 2025 Peterson Institute for International Economics, circulated with permission. All rights reserved.
*National Bureau Of Economic Research
- NBER Working Paper Series -Tariffs As Fiscal Policy
- By Kimberly A. Clausing and Maurice Obstfeld
- Working Paper 34192
- http://www.nber.org/papers/w34192
Thanks and a tip of the AutoInformed hat to the authors and the Peterson Institute, the Hutchins Center on Fiscal and Monetary Policy and the National Bureau of Economic Research – AutoCrat.
About Ken Zino
Ken Zino, editor and publisher of AutoInformed, is a versatile auto industry participant with global experience spanning decades in print and broadcast journalism, as well as social media. He has automobile testing, marketing, public relations and communications experience. He is past president of The International Motor Press Assn, the Detroit Press Club, founding member and first President of the Automotive Press Assn. He is a member of APA, IMPA and the Midwest Automotive Press Assn.
He also brings an historical perspective while citing their contemporary relevance of the work of legendary auto writers such as Ken Purdy, Jim Dunne or Jerry Flint, or writers such as Red Smith, Mark Twain, Thomas Jefferson – all to bring perspective to a chaotic automotive universe.
Above all, decades after he first drove a car, Zino still revels in the sound of the exhaust as the throttle is blipped during a downshift and the driver’s rush that occurs when the entry, apex and exit points of a turn are smoothly and swiftly crossed. It’s the beginning of a perfect lap.
AutoInformed has an editorial philosophy that loves transportation machines of all kinds while promoting critical thinking about the future use of cars and trucks.
Zino builds AutoInformed from his background in automotive journalism starting at Hearst Publishing in New York City on Motor and MotorTech Magazines and car testing where he reviewed hundreds of vehicles in his decade-long stint as the Detroit Bureau Chief of Road & Track magazine. Zino has also worked in Europe, and Asia – now the largest automotive market in the world with China at its center.
Negative Consequences – Trump Tariffs on Input Goods
This just in: Tariffs generate less revenue and more efficiency losses than income taxes.*
“While income taxes have been the cornerstone of U.S. federal tax policy since the early 20th century, the Trump administration is shifting tax burdens away from income taxes and toward import taxes. Kimberly A. Clausing of the University of California, Los Angeles, and Maurice Obstfeld of the Peterson Institute estimate that a U.S. effective tariff rate of 20% would generate roughly $300 billion in revenue per year, which amounts to less than one-sixth of the revenue raised annually by personal income taxes. Tariffs also generate considerable deadweight losses—expanding import-competing sectors and shrinking export and non-traded goods sectors—that will amount to approximately $113 billion per year, or more than one-third of the revenue raised by the tariffs.
“The authors further note that tariffs (which resemble a consumption tax) are regressive, as individuals at the lower end of the income distribution save less and consume more than higher-income individuals. On a macroeconomic level, the authors emphasize that tariffs—especially those on input goods—and trade policy uncertainty will reduce investment, compress real income and consumption, and create upward price pressure, all of which will reduce overall economic activity.”
This paper is forthcoming (March 2026) in the National Tax Journal. We [the authors] thank Greg Auclair, Olivier Blanchard, Nell Henderson, Mary Lovely, Marcus Noland, Andrés Rodríguez-Clare, Ernest Tedeschi, Nicolas Véron, and participants in the UCLA School of Law colloquium and the PIIE research seminar for helpful discussions. We thank Nolan Jones, Serra Pelin, and Shane Ball for helpful research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications. © 2025 Peterson Institute for International Economics, circulated with permission. All rights reserved.
*National Bureau Of Economic Research
Thanks and a tip of the AutoInformed hat to the authors and the Peterson Institute, the Hutchins Center on Fiscal and Monetary Policy and the National Bureau of Economic Research – AutoCrat.
About Ken Zino
Ken Zino, editor and publisher of AutoInformed, is a versatile auto industry participant with global experience spanning decades in print and broadcast journalism, as well as social media. He has automobile testing, marketing, public relations and communications experience. He is past president of The International Motor Press Assn, the Detroit Press Club, founding member and first President of the Automotive Press Assn. He is a member of APA, IMPA and the Midwest Automotive Press Assn. He also brings an historical perspective while citing their contemporary relevance of the work of legendary auto writers such as Ken Purdy, Jim Dunne or Jerry Flint, or writers such as Red Smith, Mark Twain, Thomas Jefferson – all to bring perspective to a chaotic automotive universe. Above all, decades after he first drove a car, Zino still revels in the sound of the exhaust as the throttle is blipped during a downshift and the driver’s rush that occurs when the entry, apex and exit points of a turn are smoothly and swiftly crossed. It’s the beginning of a perfect lap. AutoInformed has an editorial philosophy that loves transportation machines of all kinds while promoting critical thinking about the future use of cars and trucks. Zino builds AutoInformed from his background in automotive journalism starting at Hearst Publishing in New York City on Motor and MotorTech Magazines and car testing where he reviewed hundreds of vehicles in his decade-long stint as the Detroit Bureau Chief of Road & Track magazine. Zino has also worked in Europe, and Asia – now the largest automotive market in the world with China at its center.