Tariffs

Hyper-Partisan Economics

February 22, 2026

Tariffs are essentially a national sales tax. The U.S. has never imposed a national sales tax. Here, sales taxes are a principal source of revenue for many state and local governments. In a federal system like that of the U.S., state and local governments have to find their own sources of revenue. Sometimes that means state and local income taxes alongside the federal income tax, which was authorized by the 16^th Amendment to the U.S. Constitution ratified in 1913.

The U.S. first imposed a federal income tax in 1861 on a small percentage of incomes over $600 to help finance the Union Army in the Civil War. It was deemed temporary and repealed in 1872. Congress later enacted another income tax in 1894 (two percent of incomes over $4,000), but it was quickly declared unconstitutional by the U.S. Supreme Court.

National sales taxes are often imposed by foreign governments in the form of ``value added taxes,’’ or VATs. A VAT is added to the cost of a good at each stage of production and paid by consumers who purchase the good. The VAT is a ``regressive’’ tax, since it does not depend on the income of the consumer. Rich and poor pay the same amount of tax depending on the price of the good. The U.S. Income Tax Amendment was ultimately ratified in 1913 at the peak of the Progressive Era, when liberal reforms like a progressive, or ``graduated,’’ income taxes (graduated by income) were widely favored.

The principal source of tax revenue for the federal government prior to the income tax was tariffs on foreign imports. Tariffs (essentially ``external revenue’’) were collected by the Collector of the Customs, later succeeded by the Internal Revenue Service. President Trump said last year that he would ultimately like to replace the revenue from the federal income tax with tariff revenue (i.e., a less progressive form of taxation).

Donald Trump has always been a deal-maker. That is his essential skill. His best-selling book, The Art of the Deal (1987), brought him fame and wealth and defines his essential formula for success in politics as well as real estate. Trump understands tariffs as an essential tool for making deals with other countries.

As President, Trump does not seem to fully understand how the U.S. constitutional system of checks and balances works. The genius of the U.S. Constitution lies in the fact that it doesn’t just create power; it also limits power. It mandates several institutional checks on presidential power, each of which derives its authority independent of the president: Congress, the federal courts and the free press (whose independence is guaranteed by the First Amendment).

President Trump seems to regard checks and balances as interferences on his deal-making prowess. He was merciless in his criticism of the two Republican Supreme Court justices that he nominated but who opposed him on the tariff issue (Neil M. Gorsuch and Amy Coney Barrett). ``The Democrats on the Court are thrilled,’’ Trump said after the Court announced its tariff decision, ``but they will automatically vote no.’’ President Trump – an extreme partisan in a hyper-partisan era – said of the Democratic appointees, ``No, you can’t knock their loyalty. It’s one thing you can do with some of our people.’’ Apparently, President Trump expects the same loyalty from his judicial nominees that he requires from the people he hires for jobs in his Administration. ``I’m so proud of him,’’ the President said of his nominee Justice Brett M. Kavanaugh, whom he called ``a genius.’’

Trump said the three Supreme Court justices who ruled in his favor on tariffs were happily invited to attend his State of the Union Address – supposedly a non-partisan event -- but as for the justices who ruled against him, ``They’re barely invited. Honestly, I couldn’t care less if they come.’’

With this president, the tradition of bipartisanship is dead. Even on issues of foreign trade.