Tariffs are a tax on the low and middle class. Upper income people will be fine with a 10-25% increase in cost of things they purchase. Regular income taxes are progressive. Tariffs are not.
There is a reason why rich prefer tariffs over a progressive income tax.
This is why their plan to eliminate income tax and make up the difference with tariffs is just hilariously evil. It's literally shifting tax burden from rich to poor.
It does, however, invalidate the original argument, which was that tariffs are being promoted by the rich because it's better for them than the existing income tax.
Since the existing income tax has lower rates for long-term capital gains than earned income, and the rich defer taxes in various ways or use various tax shelters so they're not even paying that, and payroll taxes (~40% of federal revenue) have a flat rate with an income cap, the conclusion then becomes completely the opposite. They don't pay the income tax as it is but they'd have to pay the tariffs like anybody else.
> They don't pay the income tax as it is but they'd have to pay the tariffs like anybody else.
As a percentage of their wealth they will pay a lot less than the middle class or poor do when it comes to any consumption tax or tariff. Because once again, the system is stacked in their favor.
Neither sales nor income taxes are "a percentage of their wealth" in any case. The issue is that in practice their declared income isn't inherently higher than their spending and it's often lower, so the argument that the existing income tax would collect more from them than a consumption tax is erroneous.
> It does, however, invalidate the original argument, which was that tariffs are being promoted by the rich because it's better for them than the existing income tax
If I were to steelman that argument, I'd say getting rid of income tax takes the wind out of the sails of the "wealth tax" / "tax the billionaires" / "fix the loopholes" argument which seem to be gathering steam.
That it kills or underfunds government social-safety programs is a secondary bonus, and using it as an excuse for decapitating safety/oversight/enforcement agencies who get in the way of higher profits via "overregulation" is a tertiary bonus for those that believe in starving the beast that is central government.
> If I were to steelman that argument, I'd say getting rid of income tax takes the wind out of the sails of the "wealth tax" / "tax the billionaires" / "fix the loopholes" argument which seem to be gathering steam.
The trouble there is that those arguments are incoherent.
If you invest in something and then sell the investment at a profit, the profit is a capital gain. You know how much it is because there was just a transaction, you can spend the money, it's currently in cash so you're not being forced to sell an illiquid or indivisible asset in order to pay the tax on it, if you're using an income tax then that's income.
If you invest in something and its value goes up, that's not income yet. You only have the asset, not its value in cash with which to buy anything or pay tax. The value could go back down at any time. There may not have been any recent transaction so there is no objective way to value it. How do you tax something of indeterminate value owned by someone who may not have any liquid assets? So it only becomes income when you sell it at a profit, and then never selling appreciating assets is a primary way the rich increase their net worth without having taxable income.
There hasn't been any sane proposal for how to do it otherwise. You have some startup founder -- and this is actually the primary vehicle for billionaires to exist -- who owns a company that is now maybe worth a billion dollars. Or they could go bankrupt next year, nobody knows. She doesn't have a billion dollars in cash, she just owns the company, which itself doesn't even turn a profit yet. The only place for the money to come from is to sell the company. To get from a million dollar valuation to a billion, a company has to double every year for ten years. If there is a 25% tax on the unrealized gain, the owner loses 12.5% of the company every year compounding which means before ten years they no longer control the company. Therefore every large company ends up being controlled by Wall St. or foreign investors. That seems like a bad outcome.
Ownership of the company is the thing the money then going to tax had been buying the taxpayer. It wasn't more yachts or houses, for that they'd have had to sell the shares and pay the tax as it is. So that's the primary thing the proposal would be changing about the economy: Corporate ownership moves from domestic individual founders to corporate investment firms and foreign nationals.
The real problem -- that there is a company the size of a country -- still exists, but now all of those companies are controlled by mercenary investment funds instead of only some of them.
The actual cash that went to the government didn't come from the owners nominally paying the tax, because they didn't have any cash. It came from the people buying the shares being sold, or holding the ones being devalued by increased selling, i.e. those Wall St. investment funds. But that's not their money. They get control of the companies when their fund owns them, but the money is from retail investors. It's everybody's 401(k) and pension fund. So that's who ends up paying the tax, because forcing the founders to sell increases the supply of shares which lowers the price which reduces the returns from everybody's retirement account.
The people making tax laws mostly understand this, which is why proposals like that haven't gone anywhere and hopefully won't. But wanting that to happen is the argument that moving this rake out of the way is bad because it would make it harder for someone careless to step on it and whack themselves in the face.
If there is a 25% tax on the unrealized gain, the owner loses 12.5% of the company every year compounding which means before ten years they no longer control the company. Therefore every large company ends up being controlled by Wall St. or foreign investors. That seems like a bad outcome.
Yes, if you pick silly numbers any policy can be made to look silly. A wealth tax would never use a 25% rate because that would eliminate most of the wealth in a few years. Wealth taxes are always very low rates, i.e., 0.15% in Belgium, 0.5% to 1.5% in France (note: France did see a temporary outflow of billionaires when they first introduced this tax, but as the tax is on global worth, only complete expatriation would eliminate the liability); Italy has a wealth tax on non-Italian wealth of about 0.75%.
Corporate ownership moves from domestic individual founders to corporate investment firms and foreign nationals.
No, the opposite is true, since wealth taxes would penalize ownership through holding companies (greater wealth), and a wealth tax would also apply to foreign nationals owning U.S. assets. The most likely implementation of a wealth tax would be progressive (like it is in France), which would harm greater accumulations of wealth, i.e., corporate holding companies.
The people making tax laws mostly understand this, which is why proposals like that haven't gone anywhere and hopefully won't.
America already has wealth taxes. In many U.S. states (and especially a number of so-called "business friendly" red states), businesses already pay the equivalent of a wealth tax on top of their property taxes (the name varies from state to state; in some states they are called franchise taxes, in others "business privilege taxes", some call them "fees"). The rates are all far below 1%.
> A wealth tax would never use a 25% rate because that would eliminate most of the wealth in a few years.
But we're talking about a tax on unrealized capital gains.
A wealth tax has entirely different problems. To begin with, there are major asset categories with no objective way to value them, so how do you even calculate it in the absence of a sale, or prevent those assets from being used as a tax shelter?
Then you're creating a large economic distortion because the tax isn't accounting for risk. A low-risk investment might have had an inflation-adjusted return of 0.1%, but now it's -0.4% and an institution that needs to maintain stability and avoid value loss is forced into riskier investments.
A low rate is also self-defeating. If you use 0.5% against typical assets with a 10% annual return, it's equivalent to an income tax rate of only 5%, but you're still incurring all of the administrative complexity and still have non-trivial perverse incentives. But if you raise the rate to the level that "pay their fair share" normally implies, the perverse incentives become exponentially worse.
> No, the opposite is true, since wealth taxes would penalize ownership through holding companies, and a wealth tax would also apply to foreign nationals owning U.S. assets.
So now you're back to applying the tax to everyone's retirement account and not just "billionaires" and have given domestic businesses a competitive disadvantage in attracting foreign investment.
You want foreign investors to give you their money because otherwise they invest in competing companies in other jurisdictions. What you don't want is for them to get a controlling interest in your companies at a discount.
> In many U.S. states (and especially a number of so-called "business friendly" red states), businesses already pay the equivalent of a wealth tax on top of their property taxes.
And those taxes cause existing problems for them, e.g. companies then avoid setting up capital-intensive businesses in those jurisdictions. See also Land Value Tax debate.
But we're talking about a tax on unrealized capital gains.
This isn't new ground that nobody has thought of before. A number of countries already have wealth taxes. Unrealized capital gains are wealth, not income. They would be subject to a wealth tax until realized, and only subject to a capital gains tax when realized. This is why wealth tax rates are so low.
there are major asset categories with no objective way to value them, so how do you even calculate it in the absence of a sale, or prevent those assets from being used as a tax shelter?
Your paragraph assumes something that isn't true. The problem of how to value assets for taxation is older than electronic computers, and decades ago tax authorities set forth rules/guidelines for valuing difficult-to-value assets. In a nutshell: there are a variety of ways to value such assets, and as long as the valuation of an asset is reasonable within the rules of the governing jurisdiction, the tax authority will accept it (or be forced to accept the valuation by a court).
If you use 0.5% against typical assets with a 10% annual return, it's equivalent to an income tax rate of only 5%, but you're still incurring all of the administrative complexity and still have non-trivial perverse incentives. But if you raise the rate to the level that "pay their fare share" normally implies, the perverse incentives become exponentially worse.
This also isn't true. Again...wealth taxes already exist, and they're administratively easier to implement then income taxes. They're also not intended to replace income taxes; they're intended to supplement income taxes by taxing the people who are wealthy enough that they don't need to earn income.
applying the tax to everyone's retirement account and not just "billionaires" and have given domestic businesses a competitive disadvantage in attracting foreign investment.
Yes, if you choose to implement a wealth tax on everything that would be true. It's a good thing that policymakers in the countries where wealth taxes already exist used their brains and decided to have minimum wealth thresholds for their wealth taxes.
> Unrealized capital gains are wealth, not income.
There have been proposals to tax unrealized capital gains as income. Those proposals are what the comment you replied to is arguing against.
> The problem of how to value assets for taxation is older than electronic computers, and decades ago tax authorities set forth rules/guidelines for valuing difficult-to-value assets.
"The places that attempt this have rules" is not actually a solution. The typical solution is to only apply such taxes to asset classes that are relatively easy to value, like real estate.
But that in itself creates a lot of nasty distortions, like exacerbating the housing crisis. Local government gets tax revenue from real estate, so they get more if real estate is expensive, so they're on board with raising the cost of construction to drive up scarcity. The higher taxes reduce investment (i.e. construction) until rents increase to cover the new higher construction costs in addition to the taxes, and now people are homeless and unable to afford housing. Meanwhile capital moves from local real estate construction and other local businesses that would have to pay the higher real estate costs into global capital markets, reducing local jobs.
And it still doesn't answer the question. How do you value a closely held startup that may grow or fail? How do you value bespoke art? How do you value a contract to pay $100,000 from a foreign company at risk of default? If it's subjective then it's a tax shelter. "Have the courts decide" doesn't explain how you expect them to make their decision.
> wealth taxes already exist, and they're administratively easier to implement then income taxes.
That's not saying much, income taxes are some of the most administratively expensive taxes to implement, and your argument is to use them in addition to rather than instead of income taxes, so the costs are cumulative.
> It's a good thing that policymakers in the countries where wealth taxes already exist used their brains and decided to have minimum wealth thresholds for their wealth taxes.
Your claim was that it would be paid by investment funds. Investment funds easily have enough assets to meet any plausible threshold, but they're owned by middle income people, so are you taxing them or not?
How is "progressive wealth tax" supposed to work for corporate entities? If a massive foreign conglomerate owns a minority of the shares of a tiny foreign company which owns shares of a domestic company, is the tiny entity subject to the tax? What if the foreign country doesn't make ownership structures public? What if the conglomerate doesn't own any part the tiny entity or the entity is a human but the conglomerate has a long-term options contract to buy the shares for a fixed price?
"There are rules for what to do" isn't an explanation. If the rules create tax shelters, you have problems. If the rules create perverse incentives in order to prevent tax shelters, you have different problems. There doesn't appear to be a sensible implementation.
I think the fundamental misunderstanding here is that your assumptions are based on not understanding how policy works in the real world. All of your strawmen problems have already been addressed and they're not serious issues.
What you've suggested for getting around the wealth tax amounts to various forms of tax fraud. That's a crime punishable by many years in jail on top of having to pay the tax avoided, plus penalties, plus interest. Most people aren't Wesley Snipes, and they're not going to risk their freedom to pay taxes. If they really don't want to pay taxes, they'll do what a number of French people did when the wealth tax was first introduced: they'll move to a country without a wealth tax.
(Also: courts can issue withholding orders, stop payments, etc., to domestic counterparties under their jurisdiction. This is a tried and true remedy that's been around longer than either of us has been alive.)
Yes, but it very much matters why you're doing it. Someone who doesn't have enough money to functionally retire, even if they're wealthy, is doing it to get closer to a retirement number. "Rich" people as described here, that make a majority of their money on investment ROI, are playing an entirely different ball game with the same mechanics.
A salaried person has to bootstrap a company using income-taxed money, whereas a business person can engage in creative accounting whereby an existing business can invest in a new business practically tax free.
If your average income tax is 35%, you're paying a ~50% premium to acquire the same assets as someone who rolls over money from business to business. This includes real estate and everything else.
And we need to reward this behavior SO MUCH that we'll drop more than half of the taxes?
People will invest as long as the taxes aren't worse than income taxes. We don't need this much "encouragement" because stock market returns are high enough already.
Free trade is one of those aspects of the game stacked in favor of the rich. It allows US companies to bypass all the protections for American workers and have things built cheaply overseas using foreign labor. There’s a reason the American left opposed free trade until five minutes ago: https://reason.com/2016/03/10/bernie-sanders-free-trade-myth...
> There’s a reason the American left opposed free trade until five minutes ago
I don't know on what scale your clock runs on, but Bill Clinton's "Third Way" campaign was 35 years ago. China's admission into the WTO was under the Clinton administration. If 5 minutes is a generation, America isn't 2 hours old yet on your clock.
It was bipartisan because the Democratic party swung rightwards (towards the center) on economic policy under Clinton with the said "Third way[1]", which combined being socially progressive with economic liberalism, i.e. cozying up to employers rather than workers, which was the Democratic party's former schtick until they lost a couple of presidential elections in a row through the 1980s.
It wasn’t quite bipartisan. Only a minority of democrats in the house (108 of 258) voted for nafta for example. Large swaths of the Democratic Party opposed free trade until Obama.
The rich are always behind every change that people don't like or understand.
The argument used to be that low tariffs enabled shifting work to where labor and environmental laws were weaker, reducing demand for American labor. Effectively subsidizing pollution and human suffering.
But then someone came along and agreed. Can't believe something that he agrees with.
The opposition to tariffs doesn't stem from a kneejerk reaction to a certain someone wanting them. It comes from economic consensus.
Implementing targeted tariffs in a way that spurs domestic labor and secures vital industries is common practice.
What's not common practice or beneficial are the broad tariffs we're levying, which come from a place of ignorance. The implementers literally didn't think retaliation would happen, but it is/will. All these are accomplishing is increasing the cost of goods.
> The opposition to tariffs doesn't stem from a kneejerk reaction to a certain someone wanting them. It comes from economic consensus.
Democrats think lots of things that are "economic consensus" do not accurately describe how the world works in practice, or fails to capture important values. "Economic consensus" also is that VAT is the most efficient form of taxation and that capital gains taxes are harmful.
To be clear about the above, I don’t think there’s anything wrong with that position. It’s fine to have policy planks that posit that experts are wrong about something.
That certain someone embraced Bernie's views on the three major points he has most been correct about: immigration, free trade, and the self-serving administrative state. And now a large swath of the other side sounds like Reagan republicans on those points.
any country that doesn't incentivize investment will quickly languish. what the usa should do is allow pre-tax income to be invested, so poor people can also take advantage.
I’ve often seen an equivalence made on this forum between levying higher capital gains taxes and discouraging investment. While they are certainly related, rates of capital gains taxes aren’t the primary driver of productive investment.
We have observed close to two decades of rapid asset price inflation that can very reasonably be argued outstripped actual productive activity. Rent seeking isn’t something that should be incentivized either and is ultimately a very corrosive behavior in our economy, politics and society.
Interestingly, some do. The thought of making some money by buying a small amount of some high-growth stocks, with fractional investment being a thing for several years, energizes many small-time users of Robinhood and similar services. It's still a better gamble than buying lottery tickets, which many poor folks do a lot, sadly.
Poor people are people like us (or sometimes are us), some are quite prudent and would love to make an investment that pays, even if it's small.
>any country that doesn't incentivize investment will quickly languish
And yet the US is pretty unique amongst countries in treating capital gains as wholly different from earned income, and taxed significantly less if at all.
Even as someone who benefits from it, I've yet to see a good argument as to why a working stiff should pay more taxes than someone who makes their income from investments. That's inherently regressive.
because investments result in growth, which results in revenue which results in more being taxed in the net.
consider all of these VCs throwing away money on things like uber. would it be better if they just kept it in a savings account (because of no financial benefit of investing)? most investments don't pay off, so you need a push, the push is that long term capital investments are taxed less.
Again, I don't mind VC's being rewarded, I do mind them paying far lower effective tax rates than the average working guy. Income is income. Maybe we have a carve out that says you can make up to the median household income in capital gains and that's taxed at a low rate, but much beyond that should be taxed just the same as if you earned it working.
I'd need to see a convincing breakdown of the numbers indicating that tax incentives make the difference between risky investments being worth it or not worth it. My suspicion is even if capital gains were much higher, there still isn't anything better to do with your money than invest it.
Also pretty sure savings interest is taxed as capital gains.
I don't think it does invalidate the argument. As a cohort, wealthy people spend a much lower percentage of their total wealth than middle or lower class people do. Any spending-based tax (sales tax, tariffs) will be much better for wealthy people than the equivalent income or wealth based tax.
"The rich" are really two separate groups. The majority of "the 1%" isn't billionaires, it's cardiologists etc. making mid six figures rather than nine, and those people do actually spend most of their income. They buy a big house and a new luxury car every two years and a boat and eat at fancy restaurants every night, and make enough to do that but not enough to do that and have much left over.
The people who don't are the billionaires or nearly billionaires, but they also don't pay the existing income tax because they have teams of tax lawyers and deploy international shenanigans. And then an "income tax" which they pay on $20,000 of declared income is not actually taxing them more than a consumption tax at the same nominal rate on all the cars and boats the billionaire buys the same as the cardiologist does.
Not entirely. Non rich people own houses. If your average person buys a house for 200k, it goes up to 400k and then they have to move to an identical house also costing 400k, getting a bill for 200k of income is going to annoy them. Just one example why gains are taxed differently.
Most rich people have very substantial income. It's just that they also have a lot of capital gain. As an example, most CEO have the biggest salary in the company, but also get other capital comp like stocks.
There is ofc the loan loophole, but it doesn't mean that they don't get any other income, on which they are taxed on.
It is just that, if you calculate their total package, compare to an average worker they pay significantly less taxes *proportionally* because a disproportionate amount of their "income" (some of which could hardly be called income but that is another subject) are in some form that are taxed less.
No that is my point exactly. Ask anyone not in the 1% and 2M$ salary would be huge, life changing, and put them in the "rich" category. So rich do have a huge income, it is just that their other gain are just disproportionately huge compare to "traditional" income.
A number of executives used to make a point by assigning $0 as their salary, and only making money by appreciation of their shares. Better yet, you can borrow money with your stock as a collateral, and cut even more off your taxes by repaying with pre-tax gains: [1].
You were getting downvoted but you're right and I was wrong so I upvoted you. I was thinking a large portion of his compensation would have been in options, but it looks like they're all some form of stock units.
Over time, though, the lions share of Sundar's increase in wealth will come from appreciation of his stock, which will be in the form of capital gains. "Average" people don't have this luxury because they simply need to spend much more of their money to live, and thus most of their income (or increase in wealth) comes from a job.
FWIW I think a much fairer system would be to tax capital gains at income tax rates, but index the basis to inflation.
No, it's not. You can take a loan against your stock and don't pay any taxes. Very common strategy. Elon Musk, Mark Zuckerberg, Larry Page, Jeff Bezos, etc. all use this strategy to fund their lifestyles without selling stock.
This is only true for founders who had inherent ownership in the company to start with. Your average dev getting comp'd with RSUs is taxed the same as if that was straight income.
Ok. I don't mind those folks getting large rewards. I do mind when they effectively pay far lower taxes than the common man. You take out a loan on assets? It should be treated the same as if you sold and took capital gains. Capital gains should be taxed as normal income above $medianHouseholdIncome.
first, yes, it is taxed as income, because it is income.
so what - the loan has to be paid off, and the stock will inevitably be sold and taxed. there is no scheme to get away from paying taxes forever without dying, and that scheme (that one that involves dying), is the same one that benefits an average person w.r.t estate tax.
> is the same one that benefits an average person w.r.t estate tax.
No, it's not. 2 points:
1. Average people don't pay estate tax, because only a teeny portion of estates make over the exemption amount.
2. I realize point one is a separate issue from what you're referring to, which is the step-up in basis at death. But that tax strategy of taking out loans to cover your lifestyle so you can pass on appreciated assets with a low basis is only possible for people with a huge amount of assets to begin with (i.e. people who already have enough to completely love off their assets without working).
OK, so you should advocate for changes in the estate tax. When that inevitably fails, because no parent wants all of their money to be taken by the government, we can come back to this thread.
> When that inevitably fails, because no parent wants all of their money to be taken by the government
I only think it fails because Democrats have horrible messaging. Republicans branded it a "death tax", when I think it should be called the "aristocracy prevention tax".
Your average person has no idea how the estate tax works (i.e. they think it applies to them). In the late 1800s/early 1900s the UK implemented what is perhaps the largest nonviolent transfer of wealth by instituting large estate taxes on their aristocracy and landed gentry.
> OK, so you should advocate for changes in the estate tax.
Haha, good one. Good luck with that, you’re up against the most powerful and influential people and their lobbyists. Others have already tried. Maybe if the U.S. were a democracy instead of a plutocracy.
They will pay zero taxes, only low interest on the loan (below 2% typically). It's called "Buy, Borrow, Die" strategy. When they die, their heirs inherit the assets, but here’s the magic loophole: The heirs get a "step-up in basis" which means the cost basis of the asset is reset to its current market value. This erases all capital gains taxes that would have been owed if the assets were sold during the billionaire’s lifetime.
Average person can't get 1-2% loan against their stocks (if they even have any).
Conveniently, there's no mention of the 0.1% in there, and the historical data comparing the tax contribution of the top 1% to the total tax base doesn't include any information on income and wealth growth of the 1% over that same time period. Weird!
But given that the organization who published that was founded by a Newsmax board member, I'm sure they're trying to paint a clear and unbiased picture of things.
400 families own the same wealth as 160 million Americans, so they better be paying far more in taxes. In fact, given how much taxes eat into basic living expenses for the bottom 50%, the rich should be paying even more in taxes.
True of the very rich, but not the average rich. Consider how a SWE may be “rich” compared to a barista. That SWE is probably earning $200k/yr and is paying that income via W2.
> Let’s say you make $1 million per year and your net worth is $20 million.
Then you are unambiguously extremely rich.
Yes there are people orders of magnitude richer, but yes you are orders of magnitude richer than the median American. Money is no longer a daily consideration to live a 100% comfortable and healthy (to the extent money can pay for it) life.
I am well aware of how much more obscenely wealthy the ultrawealthy are. That doesn’t make a $20MM net worth or $1MM/yr household middle class.
It makes them effectively have similar societal power as the middle class. They don’t have anywhere near enough money to wield institutional power and at most exert control on the lives of a handful of employees or tenants or whoever. They can’t get their names on institutional buildings.
They could retire immediately and live on that net worth but their standard of living would be greatly impacted by doing so rather than continuing their income-generating activities.
They could face major financial consequences by spending their money frivolously or losing it in a lawsuit. They have a low enough amount of money that they could gamble it away or lose it all in a bad business investment.
I think that makes them much closer to the middle class than the truly wealthy who cannot lose their fortune even if they tried their hardest and have essentially no feasible way to have their standard of living lowered. For example, if Twitter shut down after Elon bought it, there would be no detectable difference to his lifestyle or buying power. There is no amount he could gamble at a casino where he would lose his fortune.
This really is splitting hairs anyway. There’s a good argument that the median income of the US is very rich.
I take rich/wealthy to mean a much higher social class than $1 million in annual income. That type of income would be like a husband and wife who are doctors working as employees with a boss bossing them around and working long hours.
If you’re a W2 employee like that I don’t think you are rich/wealthy.
This is false. Rich people do pay income taxes. I consider anyone in the top 10% of america to be rich. Perhaps when you say rich you only mean billionaires? Which would be a hilariously narrow view. There are tens of thousands of people in the technology industry alone making 750K+ W2 income. that's rich to me.
it's sad that HN is privy to propaganda and misinformation as well. ask anyone on the street if 500K income is rich, and they will say yes.
You can structure your income to be more tax efficient if you aren't a full time employee. Most people in the top 10% of wealth will be structuring their income in such a way to avoid as much tax as possible.
Umm. Tim was taxed there for selling his shares. Not a salary. His Salary I don't think is mentioned in the article you linked. As of 2022 it was $3,000,000, he was getting ~$47 million that year in stock compensation, which I doubt he gets taxed on unless he sells it.
Only when they are sold, or if you receive dividends. If he doesn't sell them he doesn't pay tax on them.
He can then leverage those stocks BTW to receive loans, which he won't pay taxes on as they are a debt. Then he can make use of the stock without selling it, and then use that extra income to invest in other things that will generate him additional income/capital or whatever.
There are even more tricks you can do at that point, where on paper you are technically making a loss and never pay a cent in tax.
"*Only*" That is a lot of money for most people. How the other half live!
> The threshold to enter top 10% is only 180K
Yes. I was doing it when I was earning less than that as a contractor in the UK. I can tell you how it generally works in the UK:
* You set up a LTD company.
* You pay yourself a minimum salary where you pay the bare minimum tax this is approximately £13000 the last time I checked. I think you can pay any other "directors" this as well, you basically make your significant other one.
* Anything related to work becomes an expense e.g. parking tickets, mileage on your vehicle, laptop, computer software etc. So you don't pay this, the company does and thus you get a tax relief.
* You pay yourself dividends from your LTD company. You pay yourself the bare minimum and leave as much as possible in the company. These were taxed at a far lower rate that the equivalent money if you worked perm.
* You pay your pension via the company (this is tax free upto £60,000 IIRC).
In the US how it is exactly done will be of course different as the taxes are structured differently but I know for a fact that people are doing similar in the US.
This has nothing to do with being rich, tons of middle class people in the U.S. apply these strategies. It is a benefit of being in business for yourself, which is offset by higher risk and higher direct costs for things like healthcare and services and equipment (because bigger companies get volume discounts).
A person paid on a W2 can’t do these things no matter how big their salary is.
I know it has nothing to do with being rich. I know middle class people do this in the US. He was asking how people could avoid it, the simplest way is to become a contractor/consultant/freelancer rather than a full time employee so *you can* restructure your tax.
I can tell you that you cannot do this if you derive your living from a W2 income. as a contractor it's obviously different, but your experience is not really indicative of anything.
That is why many people become contractors/consultants/freelance when they are in the higher tax bands. Which was the point I was making, if people are being smart they will try to avoid the tax.
It's also insane. Outside of a few smaller, undeveloped nations, there aren't any countries that derive a substantial portion of their revenues via tariffs.
That's how the US got most of its income until 1913, when federal tax income was introduced.
But it doesn't work in a real market economy, for many reasons already stated. It doesn't just hurt our people but the world economy as a whole.
Tariffs can be good, but you wont find politicians using them correctly. They can be used to protect newly growing businesses from foreign competition - but they are often used in the opposite, protecting large businesses.
I'm trying to refrain from "evil" language, but I'm honestly interested in how anyone can defend some of these policies from a moral perspective. E.g. the purported House plan aims to make huge corporate tax cuts by essentially eliminating Medicaid. I would honestly like to hear someone who thinks that's good (and moral) policy and their rationale.
serious question - why do people believe the rich don't pay their fair share when the top 10% pay almost 3/4 of the income taxes. there's no way the top 10% receive 3/4 of the services, thus they're paying proportionally more, no? I am not saying this is good or bad, just trying to understand the rhetoric.
it seems to me that rich people already pay plenty:
> there's no way the top 10% receive 3/4 of the services
Why not?
A highway between Illinois and Ohio doesn't help me. It does help say the CEO of Walmart.
When you're invested into large parts of the USA, anything the government does helps your bottom line. When you're not then majority of the services the US does doesn't help you.
I'm not sure "top 10%" is all that useful of a grouping. In the table you present, $178,611 is the income split point, defined as "the minimum AGI for tax returns to fall into each percentile". $178k does not make you rich in almost any part of the US. You're not struggling if you live in a low cost of living area, but treating these folks the same as your Pichai, Ellison, Bezos, Cook, etc. is severely misleading to me. I think that's a core problem with our current tax bracketing -- seven just isn't enough for the absolutely massive income spread of American workers.
You didn't mention them by name. You mentioned the top 10%, which naturally includes everyone I named. It also includes folks making $178k MAGI.
You said "... why do people believe the rich don't pay their fair share when the top 10% pay almost 3/4 of the taxes... "
I'm suggesting talking about the top 10% is misleading because when people talk about the rich not paying their fair share, they're not talking about the master electrician in your home town that broke $180k working overtime. You conflated the rich with the top 10%, but your grouping includes a whole lot of people that most of us wouldn't consider rich.
To answer your question about why people believe the rich don't pay their fair share, you either need to look at a different figure than the top 10% (which invalidates the 3/4 of the taxes portion) or you need to say everyone (including married couples filing jointly) making $178k MAGI is rich. I don't think people at large agree with the latter, so the rest of your question is premised on the wrong set of numbers. That may answer the question you posed initially.
my point stands even if you use top 1% or top 0.1%. no matter what you use for [income tax], the group size and revenue generated in income taxes by them will be far disproportionate. this is an inherent property of the distribution.
Yes, but it's OK for the top 0.1% to shoulder a greater than 0.1% of the burden.
Why?
Because that enormously expensive army we're maintaining is protecting mostly their stuff. Setting aside the fact that, say, poor people, have no money; why should the poor pay an equivalent share to protect the wealthy person's property?
Yes, you implicitly did, because the top 10% definitionally includes the top 1% (and the top 0.01%).
I'm not really sure what you're trying to argue for/against here. Yes, people in the top 10% of income-earners collectively pay the majority of income taxes, dollar for dollar, and yes, we've been hearing variants of what Jonathan Chait called "The Stat" for years: the highest-earning 1% of taxpayers pay 40% of all income taxes.[1] As Chait points out, "'The Stat' is literally true, but it is deeply misleading." For instance, FICA is not a progressive tax; it's a flat tax that stops being collected at around at around $150K of income. Somebody making $80K pays way, way, way more FICA as a percentage of their income as somebody making $800K does.
While I'm not suggesting we need a wealth tax, start burning down mansions, etc., etc., it's at least worth considering the possibility that America has a tax system which disproportionately favors the wealthy. That multimillionaires and billionaires pay, dollar for dollar, more taxes than the shift manager of your local Jersey Mike's does is not some kind of slam-dunk argument against said possibility.
what exactly is your point, are you suggesting the data is wrong? if the link had a 0.1% bracket it would show that the even smaller group pays an even higher percentage of the total income tax revenue relative to their size.
I'm suggesting that the dichotomy is "earns wages from labor" vs "earns income from assets". The difference of someone on the 2nd decile vs someone on the 1st decile is that the former looks at the price on the supermarket while the later doesn't need to. But the difference between someone on the top 1 percentile and the top 0.1 percentile is much starker.
> if the link had a 0.1% bracket it would show that the even smaller group pays an even higher percentage of the total income tax revenue relative to their size.
That's exactly the point: in absolute values, if you have a lot of concentration of wealth, those will come out to be most of the tax base. That doesn't mean that proportionally they are paying the same. As a matter of fact, someone that makes 100k being taxed 20% is actually more onerous than someone that makes 1M being taxed 20%. This is why most countries try to have a progressive tax system.
As you move up the ladder, more of your income is increasingly derivative of society as facilitated by the state and its spending. For example, businesses are dependent on sufficiently educated employees to run them and need a sufficiently affluent population to buy their products. Usually products are delivered via roads, the Internet, or other public infrastructure. Most businesses use electricity from a public grid even if they have a private company that they pay their bill to. Because of this, rich people may receive more than 3/4 of the benefit of the services provided by taxes.
I'm not talking about specific rich individuals (e.g. top 1000). I'm talking about rich people in general, e.g. top 10% furthermore I am only talking about income tax, which is why I gave my context link.
When people are talking about "the rich not paying their fair share", it is typically about the income class that makes most of the income not from "working", but from "owning" (capital gains, profit from owned assets). This is exacerbated by the fact that those kinds of incomes are often taxed less (percentage-wise) than peoples salaries.
The cutoff for this is probably more in the top 1 to 0.1% range.
This notion is not something that only poor communists subscribe to (out of selfinterest/delusion), see e.g.
this doesn't really make any sense. forget billionaries - look at the bottom 50% compared to the cut off to be in the top 10%. The person in the top 10% making a mere 180K pays an order of magnitude more taxes.
of course, this is how a progressive tax system works inevitably. thus, my point and question is, how are rich people not already paying their fair share? by all data available with respect to [income taxes], they already pay a ton, no?
> I say this in terms of value to society. Is having some extremely, extremely rich individuals of value to the US?
yes. restated, is it good or bad that the USA has rich people? clearly it is good. if it were bad, then there would be evidence that countries with no rich people are better, but there is no such evidence.
> yes. restated, is it good or bad that the USA has rich people? clearly it is good. if it were bad, then there would be evidence that countries with no rich people are better, but there is no such evidence.
That's not the question. Having rich people is one thing; having extremely, extremely rich people is another. We're talking about people that are worth the entire annual economic output of entire medium-sized metropolitan areas of the US and Canada, not the guy you knew from college who became director of sales at a software vendor and lives in a neighborhood with a golf course.
Obviously does not follow. It’s like saying that torrential rains that flood your home are actually a good thing, because having no rain at all would be worse. Most things are best in moderation.
A "fair" share is in my view (at least) a fixed percentage.
I'm not sure what "fairness" means to you? A fixed amount, per capita?
Would you then throw everyone not making the cut into some kind of debtors prison, or working camp?
I'd argue that income is a decent enough proxy for how much utility a person derives from tax expenditures: Just protecting that income would be pretty much exactly proportional in a full anarcho/wild-west civilisation (can see this in unstable countries, where you often have a scale between "have to regularly pay off someone" to "need a private militia" to keep your gains).
The top 10% also have somewhere around 70% of the wealth, so the tax burden isn't quite as disproportionate as it seems. Feel free to compare income numbers if you're able to find them.
That said, why should we expect a direct relationship between increased tax burden and services received? You're not paying for services like a vendor, you're paying "society" in a sense.
again, I am only talking about income taxes, which can be appraised and assessed easily. taxing wealth introduces complications beyond the scope of discussion.
there is no objective way to calculate and appraise all wealth, so such discussions are meaningless inherently, the touching of said assets would immediately change its value, which would require recalculation, which would change the value again, etc.
the only true way to do it is to tax upon realization, which is already what happens.
This is a bizarre argument. You can can throw your hands up and say it’s too hard or actually do something. Property tax, property sales tax, taxing capital gains, etc.
> there's no way the top 10% receive 10% of the services.
Depends on how you value the service of protecting that wealth. Prooperty rights enforced by the state, and the more property one has, the more one benefits from that.
I think you misunderstand. The comment your responding to was arguing against this assertion:
> no way the top 10% receive 3/4 of the services
I think the argument is that the main service USA taxes pay for is defending property and keeping order (via force and infrastructure) such that property rights are honored. The rich have disproportionate property, so they receive disproportionate service.
you keep bringing in property but that's irrelevant to begin with, as that's a wealth construct and I'm only talking about W2 income. if you make more money, you will pay more taxes regardless if whether or not you own any property, so your point is moot.
all 50 states already levy property taxes on real estate so that's already accounted for separately
Property is not just real estate and state property tax is not what is keeping the american billionaire class safe and growing richer.
If you've asked this question in good faith, perhaps isolating and over-defining "income" or "property" is limiting your understanding of the broader question we're responding to: do rich people pay more or less tax compared to the value they get from government? Most here seem to be in agreement that rich get more value from our government than poor do because they have more at stake.
When people say "the rich" they're usually referring to smaller percentiles than the top 10%. The top 10% is a cohort the size of New York, Los Angeles, and Chicago combined.
The top 10% income bracket is a household income of 234k. For a couple both making $150k each in salary, they are top 10% and paying out probably 40% of that in taxes. Elons stock probably added $200B to his net worth in the past year. He did not pay anything on it, however is able to use it as collateral to borrow against (that way he doesn’t even have to pay capital gains). The upper middle class pays most of the tax burden. And your point about services???? Elon may not take advantage of the head start program for his kids, but he sure benefited from government subsidies for electric cars (just like CEOs benefit from favorable legislation and regulation)
> however is able to use it as collateral to borrow against (that way he doesn’t even have to pay capital gains)
I really don't understand how borrowing against shares isn't counted as realizing the stocks. I mean, apart from rich people lobbying against it and such.
If I buy some stocks for $100 and sit on them until they're worth $1000, if I sell them for $1000 or take a $1000 loan against them, I've realized the $900 gain and I should pay taxes on that either way.
Because you paid taxes on something that's worthless, which is the argument against this kind of tax: the value is too dynamic and hard to determine.
If paid $1000 for the stock, then took a loan and paid interest on it, then paid taxes on the $900 gain, and now the stock is worth $0. Now all I get to take is a loss on the $100. Bad deal.
No, you also gambled that they'd keep or increase in value, potentially to get even more out of them in the future.
Again, if you didn't want to accept that risk you could have just sold the stocks instead of taking a loan.
This isn't much different from taking a loan against a house, and then due to external circumstances the house drops in value, say a landfill next door. You're not getting back the property tax you paid.
> Again, if you didn't want to accept that risk you could have just sold the stocks instead of taking a loan.
I could have reasons for not wanting to sell it. Maybe I don't want to boost up my income for the year and be subject to even more taxes or loss of benefits (i.e. ACA). Or maybe I want to keep the dividend stream.
It any case it's already overcomplicated, and I don't think we need to make it moreso by giving the govt another opportunity to take yet another slice of a transaction they had nothing to do with.
Not to mention, the lender that gave me a loan has to give the govt a slice of their income, which comes from me.
> This isn't much different from taking a loan against a house
The difference is that houses rarely lose 100% of their value. Normally they hold their value or thereabouts.
The richest people are not paying the “income tax” your link refers to. They often have trusts and things and do daily expenses from loans and other tricks.
This link is only referring to income taxed, and I am only talking about income taxed. Your wealth comments are irrelevant to my point and to the data presented.
I have not seen anything resembling a revenue projection. I have not seen any projections on how much import substitution we can sustain. Trump has persistently insisted that exporters pay tariffs. He calls trade deficits subsidies. I have seen no indication or intimation that he actually understands anything about trade policy. This entire thread is more thorough debate than is happening in the White House.
And mind you, they are simultaneously going to gut the IRS so they can file a mountain of paperwork, that at the end, says that magically they only owe $400, and we won't have enough IRS personnel to really challenge it.
It's grimly fascinating that Biden lost so much support for inflation that was largely not under his control, so we replaced him with someone pushing policies that will raise inflation. Will we learn anything this time?
I'm not a fan of Trump but I don't think you can let Biden off the hook on inflation either: Biden should've reversed course on tariffs, and not added his own, but didn't - likely a political calculus to avoid appearing "soft on China". Lifting tariffs would've immediately provided relief to both businesses and consumers.
They do have a cooling effect on the economy though, so perhaps the other motivation for keeping them around was to prevent run-away inflation. While Tariffs can raise the cost of goods, they do not in-and-of-themselves create inflation unless you attempt to pump money back into the economy to repair the damage being caused by your tariffs.
This whole fear of being "soft on" whichever perceived enemy is probably the cultural element driving us deeper into isolationism.
We get into fights with a family member and don't want to look soft so we punch them back and then avoid them. We create more and more distance and relationships fall apart and then we get more lonely.
So as it hurts personal relationships, it hurts political-economic relationships. We want to punish China with tariffs, and it's like punching our enemy in the face and hurting our own hand. And then they punch us back and hurt us and their own hand. Self- and other-defeating attempts at solutions.
I'd say the weaker approach is to punch and/or run. The stronger approach takes the punches and still tries to work with the other person, recognizing how we help each other.
I completely agree that this is a problem, but what can we do? We’re so divided that we fail to see the real people pulling the strings behind the scenes.
I recently posted about how tariffs are a sneaky way to introduce VAT—a system that ultimately hurts the middle class—and my post was heavily downvoted. Why? I assume it’s because certain media outlets push the narrative that VAT is good and tariffs are bad (I love how they say Norway has VAT so it has to be something great), while others claim the opposite.
In the end, no matter which side wins the debate, it’s the middle class that pays the price.
I wish someone would build some sort of PAC that pushes politicians to fix issues both sides agree are issues. Keep them on actually fixing solvable things, with agreeable solutions. The pendulum swing is tiring. Some of it feels like contrarianism for the sake of it.
I'm not sure who these rich are who like tariffs apart from Trump? Mostly rich people like low tax and low meddling with trade. I think it's the politicians who like tarrifs as it gives them a way to meddle.
Perhaps that was badly put, but I'm quite certain that the interests in the US who advocate for tariffs are among the wealthy. It would not be accurate to imply that all of the wealthy advocate for tariffs, yes.
Tariffs in agriculture, automotive, and all sorts of other things have benefitted corporations and people with a lot of money and cost people who need to buy those things. (I hope I can say that without getting into whether those tariffs also serve the greater good)
> Mostly rich people like low tax and low meddling with trade.
That's imprecise. America's rich are often unmoved when it's pointed out that their employees pay more taxes than they do as a percentage of income. I'm sure that they like it when their taxes are low.
Not to challenge the notion of tax but to seek an answer: what would be a better solution to the deindustrialization of the US then? China has 350X of the shipping building capacity than the US. We couldn't even produce masks fast enough so we had to buy BYD's during the Covid. GM's factory looked like a WII-era run-down workshop compared to BYD's fully-automated factory. DJI took more than 99% of the drone market. Another question how we deal with imbalanced tariffs, like China and Europe could place higher tariff on some products than we do to them.
Another worry is losing talent. Industry know-how is a living being. It is symbolic with the people who actively work in an industry. On the other hand, real demand produces real talent in mass. Again and again in history, a small town or a small area could produce enough generals and politicians to rule an empire. A few city states could lay the foundation of modern science and civilization. Americans in the midwestern invented so many things and built so many great companies during the industrial age as well, even though they've been suffering greatly in the past few decades.
> what would be a better solution to the deindustrialization of the US then?
Unfortunately, given the geopolitical necessity, the question is moot. The people of the United States, regardless of what they might claim, do not actually want reindustrialization. It's easy enough to prove: are Americans willing to either accept wage decreases in line with non-Americans, or accept price increases that would cover the cost of paying American wages? The answer is definitively "no", and thus reindustrialization cannot happen. (But machines, you say. Those machines work just as well in China as in America, staffed by Chinese techs who will work for less. This solves nothing.) Americans want to eat their cake and have it too, and unfortunately this is not how reality works.
But no politician ever got elected by telling the electorate that what they want is incompatible with reality. No, if the electorate wants a pony, you promise them a pony, and then when the pony fails to show up you blame it on... let me check today's notes... woke DEI communist pony salesmen.
> are Americans willing to either accept wage decreases in line with non-Americans, or accept price increases that would cover the cost of paying American wages? The answer is definitively "no", and thus reindustrialization cannot happen.
The answer is not "definitively" no. Trump ran on tariffs and definitively won. And I know many people (myself included) who would happily "accept price increases that would cover the cost of paying American wages". Most of these people are low/middle income Trump voters. Trump won the $30k-100k voters a year. Harris won all other income brackets.
The prominence of the inflation narrative and outrage over egg prices indicates otherwise. Nobody would be happier than me to see my country, my state, and my city all have healthy manufacturing sectors for locally-sourced essentials, but import taxes won't do that unless you're also willing to strategically subsidize industries for 20 years or more, and nothing about the current admin shows they have any grasp of long-term strategy.
There is no strong evidence to suggest tariffs were a major cause of the recent (starting in 2021) inflation, just read the wiki on it [1]
Trump started his first bout of tariffs in 2018, long before any surge in inflation.
The TLDR cause was the pandemic. Basically supply chain broke down and didn't recover as fast as demand did.
The surge in egg prices is due to bird flu. Again, nothing to do with protectionism.
> but import taxes won't do that unless you're also willing to strategically subsidize industries for 20 years or more
Again, if you just open your mind and read the actual history in America on this topic, you can see that tariffs did indeed bolster American industry, again just read the wiki on it [2]
It’s just the latest memo that went out to neo-“liberals.” Obviously the rich favor free trade. That’s why American liberals consistently opposed free trade until Clinton’s third way approach.
> Not to challenge the notion of tax but to seek an answer: what would be a better solution to the deindustrialization of the US then?
You can simply nationalize manufacturing in critical industries. If you're not willing to go that far then throw incentives at failing industries to compensate for the higher cost of labor, so they can still compete on US soil.
This was Biden's philosophy with, say, Intel.
The benefit of nationalization (or at least subsidies) is that it doesn't need to pass the tax on to the consumers, and you can pay for it with a tax on oher things (e.g. billionaires) instead.
> You can simply nationalize manufacturing in critical industries
I'm not sure if this works. If anything, I'm strongly against it. Below are my data points:
- Chinese dynasties never managed to breed those amazing horses as European did. Since the Song Dynasty, despite government-run horse breeding programs that imported Ferghana horses, these amazing steeds degenerated into those typical Asian stunt horses within just a few generations.
- Look at China before 1980s. Everything was stated owned, and all the sectors were miserably corrupted, inefficient, and there was no innovation whatsoever. In fact, Soviet Unions managed to do the same. Yes, they had amazing researchers to make engineering and scientific breakthroughs, but ultimately they could manufacture efficiently. I hate to say this, but the reality was that nobody took China seriously at that time.
- Look at Britain. They ran their industries into ground, especially their auto industry, with a semi-state-owned approach.
- Look at how the US ran its defense industry. And look at Boeing. Or how expensive it is to build a battleship. It is not even state-owned, but just state-paid with cost-plus pricing.
In the end, state-owned industries will fail to incentivize its workers.
Maybe I'm alone in this, but despite being able to afford to, I'm just not going to be buying as much non-essential stuff to avoid funding these tariffs.
But are there any locally produced Windows laptops? No company is going to spin up local production for some tariffs that Trump might decide to reverse next week (a-la-Canada).
The explicit points of the Trump tariffs are to raise revenue (which contradicts your point), and to encourage the revival and development of US business in the relevant sectors - which cannot physically happen in any short timeframe.
It’s an extremely regressive tax policy too. Not only is it a flat rate for everyone regardless of income, the wealthy spend less as a percent of income than the poor, so less of the income is taxed this way in the first place.
There are other mechanisms than revenue generation at play. That's not to say I'm supporting the tariff, but people who don't want to pay income taxes will support just about any other model regardless of the other effects.
In theory, tariffs have the potential to bring back jobs to a highly industrialized nation like the US, benefitting the poor with more and better jobs. Income tax can't do that.
Nobody is going to build a manufacturing plant knowing that Trump is only using the tariffs as leverage and they will be rescinded next week. Most of the tariffs he signed in are already gone.
And even if they stay during Trump they might get killed in two or four years if the gov shifts sides.
Progressive taxes are usually one of the worst and attacks the success, it limits poor people to become middle-class earners, or middle class to get wealthy.
Taxes are already a certain percent. It doesn't make any sense to tax more or less percent to people over certain amount of money.
At the end, poor people dont want to work because they will lose all benefits and get taxed. Middle class people don't want to earn more than certain amount because they will get taxed more.
Because progressive taxes are reliant on certain income (value) or wealth, inflation makes people to pay more taxes over time.
The population being taxed via tariffs instead of income/capital gains is a net gain for wealthy people always, because they spend a much smaller fraction of their income, and a significant portion of the "tariff-base" is fixed-cost like.
Consider an iphone or a washing machine: Basically everyone is gonna pay those tariffs once, it does not matter if you work a construction job or own a whole city block.
The rich favor free trade. It effectively allows them to outsource production to cheap foreign labor and increase their domestic profits. You’re incorrectly assuming a static system where production doesn’t shift to domestic sources.
Yes, tariffs increase prices somewhat for consumers. But they encourage domestic production and domestic jobs. Ask yourself—are Americans better from importing cheap Chinese crap than they were in the 1960s when stuff was made in America?
In a progressive tax system, the poor end up paying a lot of the taxes of the rich, because the rich tend to own businesses and real estate and they just pass all their income taxes onto the poor in the form of price increases.
If you are a middle class person with a salary in the US you are likely paying upwards of 80% in taxes if you include second- and third-order taxes.
Your rent could be $1000 instead of $2000 if your landlord's income wasn't taxed so much. Your Chipotle meal could be $6 instead of $12 if the franchise owner and their commercial property landlord weren't taxed so much, let alone the workers.
The point of a progressive tax structure isn't just lower taxes on the poor and "middle class". It's also to incentivize the wealthy to keep their money moving instead of hoarding it. High tax rates on the wealthy and businesses during the mid-20th century are the reason why the US was an economic powerhouse. It forced companies to invest in capital and labor, and therefore report "lower" income and take capital investment tax write-offs, instead of stock buybacks.
How do the wealthy "hoard" money today? It is not like they store piles of copper or warehouses of grain. Maybe having multiple homes they rarely use is a form of hoarding but most wealth is invested in stocks, bonds, and other things that grow the economy. Some heirs of wealth might just be living on yachts spending down their inheritance doing nothing productive but that does not last long.
> they just pass all their income taxes onto the poor in the form of price increases.
The rich don't pay income taxes. They have capital gains.
Corporations pay taxes on income. If you don't charge corporations income tax, then you have to charge workers even more income tax to make up the difference. I guess that's better for "the poor" somehow?
> if you include second- and third-order taxes.
This is a phoney concept.
> Your rent could be $1000 instead of $2000 if your landlord's income wasn't taxed so much.
More likely your rent would stay $2000 and your landlord would keep more of it.
> The rich don't pay income taxes. They have capital gains.
This is ridiculous. Plenty of people who most Americans would call "rich" pay income tax.
If you earn, say a $300k - $1MM/yr salary, you are rich compared to most Americans in most areas, and you pay tons of income tax and potentially zero capital gains depending on how you manage your finances.
It's very obvious I wasn't talking about salaried rich. I was talking about "generational wealth" people.
If you earn $1m/year you have high income and a path to become wealthy quickly. But you aren't actually wealthy in my eyes unless you have the asset portfolio to match.
> Yeah no shit, by circular definition of "doesn't pay income tax."
Ah so then you did get my meaning the first time. Which means pointing out that some people who may or may not have assets also pay high taxes on their salaried income was unnecessary.
> That's obviously not the same word as "rich."
High income isn't rich. "Rich" is someone who has a lot of assets and wealth. That's literally the dictionary definition of the word.
What you tried to do was move the definition of "rich", i.e. the target of ire, to way, way, way above what most Americans consider rich.
"Rich and paying no income tax" -> largely the top end of the top end. The vast majority of rich people pay lots of income tax.
I'll go out on a limb and guess that you land in the category that most Americans consider rich, but you think attention should really be directed towards the ultrawealthy. Totally reasonable and capital gains obviously needs to be the center of that discussion, but let's not try to get there by just moving the line of what "rich" is and helping people delude themselves into thinking $300k+/yr is middle class.
> the definition of "rich", i.e. the target of ire,
There's ire directed at high income earners who pay high income taxes? This is news to me. Why exactly?
> just moving the line of what "rich" is
Again that's the dictionary definition of rich. But never mind that. This segment of the "rich" (if you want to call them that) is already well-taxed on their salaried income - we both agree. What's left to say about them?
>There's ire directed at high income earners who pay high income taxes? This is news to me. Why exactly?
Standard arguments about inequality? CEOs for instance attract much ire from their pay, often in the form of comparisons to their pay relative to the janitor working there or whatever.
In all these discussions the term "rich" slides around from "slightly more wealthy than I am" to "doesn't even include Elon".
It's a useless discussion - the questions should be what needs to be done, and THEN figure out how to pay for it, if necessary.
After all, an easy argument against the OP is that if my "blue collar job" is saved by a tariff, I won't CARE that I'm spending 10% more on laptops, as I still have the job!
> Your rent could be $1000 instead of $2000 if your landlord's income wasn't taxed so much. Your Chipotle meal could be $6 instead of $12 if the franchise owner and their commercial property landlord weren't taxed so much, let alone the workers.
Trickle-down economics aka Reaganomics. Companies don’t change based on cost, they charge based on what the market will accept. If the market has people willing to pay $12 for a burrito and their costs lower, they’re going to charge $12 for burritos and keep the profits. Fast food restaurants will often have discount meal wars, but notice that it’s only promotional pricing that’s changed — promotions end when they’re not useful anymore and regular menu prices largely move in one direction. If costs and availability are unpredictable, like they were with fresh produce during the pandemic, they’d probably just stop selling the product rather than having to repeatedly raise and lower the cost, which is why McDonald’s got rid of salads.
The rental market in the US is increasingly dominated by larger corporate players that leave units to sit empty rather than lower their prices because lowering a price on one unit lowers the market value overall, which makes other nearby units less valuable. Rent maximizing platforms are even doing this among independent landlords and they’ve been criticized by the FTC for doing so.
Reaganomics is just a plausible ruse to get non-rich people to support policies that largely benefit the rich and large corporations.
That is not how it works. You assume that the rich people can get as much net profit if income tax is higher due to progressiveness, which is not true. Also if there is a way to get more (gross) profit, they will use it regardless of the tax.
Profit of a company is small percentage of the moving money. Like 50c of $6 chipotle meal is profit and not all of that goes to the owner. Taxing owner at 50% rate instead of 25% would only increase cost a few cents. Same with landlords, there are fixed costs and loan costs that reduce profit. 100% of paid rent is not direct profit...
Actual issue of the progressive tax is truely rich people using tax evasion tactics to avoid it by structuring their income so that it belongs to some other tax category that doesn't have progressive tax.
This seems high to me. Assuming single, 100k salary, and the standard deduction.
* ~14k in federal income tax
* ~6k in state income tax (varies by state)
* ~6k for social security
* ~3k for property tax (varies by location and property value)
* ~1k for medicare
That's 34%. It's hard to imagine another 46% on sales tax, tariffs, usage tax, car tag, etc. You could argue for another 7k (7%) in second order payroll taxes, but I don't know what you could consider a "third-order" tax. Please enlighten me.
The minimums that companies/landlords will charge is at least partially based on taxes (as one of the costs).
A landlord who rents to you at BELOW the cost of the mortgage + property taxes + maintenance may have his reasons (appreciation) but overall that's not a sustainable activity.
Perhaps the most obvious is gas taxes or CRV taxes on cans, those get passed along directly. If you doubled gas taxes tomorrow, the price paid at the pump would rise - it wouldn't just be absorbed by the company.
Now conversely, when you drop taxes, that doesn't necessarily immediately get passed along, but if there is competition, it eventually will.
How much gasoline are you using? I'm paying $0.75/gal combined state+local. This is about ~1/5 the current gasoline price. If we assume an average drive distance of 13,500 miles/yr, and an average mpg of 26, and my local 75cents/gallon, the average American spends $390/yr on gas tax. Honestly it seems exceedingly fair for roads.
How much do you pay in rent? The majority of that is going towards paying your landlord's taxes. Those are your second-order taxes.
How much of that is left over for your landlord to spend? When they spend it, how much of that money is going towards paying yet other peoples' taxes? Those are your third order taxes.
For every $1 you make, about 3 steps down the spending chain, only $0.2 is in the hands of the people and $0.8 is in the hands of the IRS. That's what I meant by an 80% taxation rate.
If taxes were lower, all of your stuff including rent could be vastly cheaper.
This feels true, but the name "third order taxes" does not clearly point to this phenomenon. I think of second order taxes as "my employer paid pay roll tax, so I get less money" or "this good was tariffed, so I payed more for it even though it was imported through a middle man and not directly paid by me."
I will say that what you spend your money on has a huge impact of how much the IRS gets at the end of the day. For an extreme example, if you give the money to a 501c then it's not taxed, and there are several ways the 501c could spend the money that wouldn't be taxed....
Oh the bullshit they brainwashed you with. What infrastructure? Non-existent healthcare? Non-existent public transportation? Non-existent fiber to the home? Non-existent policing of crimes? Schools that look like jails? Homes built of shitty wood? Power outages, fires, disasters all the time?
There are countries with far better infrastructure that have less taxes. The US loves spending tax dollars on a bunch of inefficiencies and meddling in the affairs of other countries I will never live in, with my money.
> Your rent could be $1000 instead of $2000 if your landlord's income wasn't taxed so much. Your Chipotle meal could be $6 instead of $12 if the franchise owner and their commercial property landlord weren't taxed so much, let alone the workers.
That's assuming those things are sold at cost rather than a significantly higher market value.
> Your rent could be $1000 instead of $2000 if your landlord's income wasn't taxed so much. Your Chipotle meal could be $6 instead of $12 if the franchise owner and their commercial property landlord weren't taxed so much, let alone the workers.
I'm a landlord, and lol no, that's not how that works.
The rent my agent decides to charge on my behalf is decided by what the market will tolerate. They're always pushing to raise it, until there's nobody around who wants to pay the higher number. It's very much a number-go-up dynamic — I even had to explicitly tell them not to raise it during the pandemic when they wanted to, when the UK cost-of-living crisis was in the news.
The tax I get charged doesn't change what my tenants pay at all.
It's what rich people say lol. Don't tax us, we'll pass it on. Don't tax us we'll move states. Don't tax us we'll move countries. Don't tax us we'll pay CPAs to cheat taxes anyway. Don't tax us we refuse to pay them.
If you want to go that far, you could argue that almost every dollar in circulation eventually goes through the tax system at some point, so taxation is nearly 100%! Of course, this is nonsense that doesn't tell you anything useful.
> Where does the money the landlord pays in property tax come from?
From the landlord's bank account, hopefully.
It could have gotten there in any number of ways. Rent is the most obvious, but there's also the landlord's own paycheck, their spouse's paycheck, other investment income, social security payments, alimony and child support payments, gambling winnings, inheritances, loans.
> If that tax doubled next year, what would happen?
If it's a tight property market, rents go up. If housing is plentiful, or the local job market is in decline, the landlord eats the loss.
> Upper income people will be fine with a 10-25% increase in cost of things they purchase. Regular income taxes are progressive.
This is assuming you are buying goods that are outside of the country. Most consumption weekly is things like food, drink, disposable items and not things like computer hardware which is refreshed every few years normally.
> There is a reason why rich prefer tariffs over a progressive income tax.
I am not rich and would prefer Tariffs over income taxes (I am in the UK). I would rather save the that gets taken every month from the taxman and I could afford to buy myself a nicer property. I could also make the conscious decision to make sure I purchase items produced in the UK which presumably for food, drink (at least) I would wager is produced in the UK and thus would be cheaper than things produced outside of the country.
As for progressive taxes they actually make it more difficult to earn more money even at a near minimum wage. When I worked at a super store (Tesco) many years ago, If I worked a few hours overtime, I would go over income band for that month and it effectively made working that shift a waste of time. I am including my time to commute which was a 30 minute cycle and not wanting to have to stack onions. So I didn't bother working overtime as a result. Neither did many of my colleges. Granted I normally would get a check back at the end of the year from HMRC as I would have over-payed for the year, but when you are living month to month, I would always prefer the cash in my pocket as the end of the tax year is an eternity away in comparison.
> This is assuming you are buying goods that are outside of the country. Most consumption weekly is things like food, drink, disposable items and not things like computer hardware which is refreshed every few years normally.
Trying really hard to refrain from a snarky response, because this analysis is 100% incorrect. First, where do you think a substantial portion of food, drink and disposable items in the US comes from?
More importantly, though, the entire economic rationale of import tariffs is to allow domestic producers to charge more. It doesn't matter if you just "buy American", because if the competition that American producers face is now 10% more expensive, these producers will raise prices. Or, if more charitably, foreign goods were making American-made products uncompetitive, American producers can now come in and make those goods, but only at the higher prices.
Again, the entire point of tariffs (at least from the perspective of "we want to bring production back to this country") is to raise the price of goods across the board so American producers can be competitive.
Also, you misunderstand how progressive taxes work. When you make more and go into "the higher income band", you're not taxed more on ALL your income, just the portion that is in the new band (at least in the US). Yes, there have been cases in the US e.g. with welfare where if people made above a certain amount their welfare was cut off, but those have all been highlighted as examples of poor tax policy that have largely been fixed.
> When you make more and go into "the higher income band", you're not taxed more on ALL your income, just the portion that is in the new band (at least in the US).
applies in the UK too where GP is (source: my own repeat self assessments).
Yes I know. But often it is not worth going into the upper band at all unless you towards the top of that band. I am equating my own time, stress etc into this calculation and not just monetary amount.
> Trying really hard to refrain from a snarky response, because this analysis is 100% incorrect. First, where do you think a substantial portion of food, drink and disposable items in the US comes from?
I was talking about how a similar policy would affect me in the UK where far more food is domestically produced.
> More importantly, though, the entire economic rationale of import tariffs is to allow domestic producers to charge more. It doesn't matter if you just "buy American", because if the competition that American producers face is now 10% more expensive, these producers will raise prices. Or, if more charitably, foreign goods were making American-made products uncompetitive, American producers can now come in and make those goods, but only at the higher prices.
You can adjust your consumption much more easily than you can adjust your income tax. If you want to be in the lower band of progressive income tax.
> Also, you misunderstand how progressive taxes work. When you make more and go into "the higher income band", you're not taxed more on ALL your income, just the portion that is in the new band (at least in the US). Yes, there have been cases in the US e.g. with welfare where if people made above a certain amount their welfare was cut off, but those have all been highlighted as examples of poor tax policy that have largely been fixed.
I do already understand this. You don't understand what I was telling about how it affected my wages that month. Once I went over the band, the increase in tax was enough to make working the overtime not worth it, as I would maybe get a few hours of OT. It would only be worth it, if I was working lots of OT ... which I couldn't do because I was studying.
It also stops me from bothering to get a higher salaried job. I am at the highest pay before you go into the 50% band. So if go from £55,000 to 65,000, that £5000 of the extra £10000 will be taken by the taxman. A £65,000 job has a lot more expectations than a £45-55k job. The extra stress and hours that will be expected isn't worth the extra £5000 which over the year is an extra £415 month.
Dude, none of your economic analysis makes any sense. I mean, you say "A £65,000 job has a lot more expectations than a £45-55k job." Welcome to reality. Yes, the amount only above the band cutoff will be taxed at a higher rate. For you, it may not be worth it. And that's fine, lots of people are cool with lower stress for less money. But obviously for a lot of people it is worth it.
All you've done is describe the tradeoffs in whether working harder is worth the extra money to you.
Yes it does if you understand the context. We are comparing having similar tariffs with 0% income tax to the current situation which is income tax and some Tariffs.
If the income tax didn't exist at all, I would keep all of the £65,000 and it would be totally worth working those hours. The extra £13-16k a year would allow me to pay off my current apartment in 3-5 years, not 10-15 and then I could get a lower paying job anyway and work less sooner. So the trade off IMO would be totally worth it.
~98% of the United States' natural gas imports come from Canada, as well as ~60% of our crude oil, which makes up ~10% of our natural gas demand and ~25% of our crude oil demand. In addition ~25% of our uranium imports come from Canada.
This isn't even getting into stuff like steel and aluminum, and other core manufacturing goods.
Good luck opting out of all that to avoid the tariffs.
The US can be energy independent and was IIRC under Trump's first term. The point of the tariff is to increase domestic production, which is entirely possible.
That doesn't account for steel, aluminum, vehicles, etc. We import $12B of aluminum alone, $51B of vehicles, etc. etc. etc.[0] The large majority of stuff we import is raw goods that you can't just avoid as a consumer.
Re: energy independence, US was not "energy independent" in that we didn't import any energy. We were (and still are) energy independent in that we produce more than we consume, much of which is exported (which makes money for US corporations). Tariffs threaten those export relationships, and it's not trivial to just ship electricity wherever it's needed. It's far easier for us in the North to get electricity from Canada than to ship it in from the desert or something.
> That doesn't account for steel, aluminum, vehicles, etc. We import $12B of aluminum alone, $51B of vehicles, etc. etc. etc.[0] The large majority of stuff we import is raw goods that you can't just avoid as a consumer.
The biggest issue I have when having these discussions is that people assume that the situation currently is what will always be. Part of rationale behind the Tariff is that you increase domestic production. Obviously it isn't going to happen over night, but the cure for high prices, is high prices as this will create the incentive for people to domestically produce.
> Re: energy independence, US was not "energy independent" in that we didn't import any energy. We were (and still are) energy independent in that we produce more than we consume
Right so you could meet the energy needs right?
> Tariffs threaten those export relationships, and it's not trivial to just ship electricity wherever it's needed. It's far easier for us in the North to get electricity from Canada than to ship it in from the desert or something.
It may not be. However the entire point is to create a incentive to solve these problems domestically.
No I did not. It will be something that can be solved. It isn't going to be solved tomorrow, sure. But the world isn't static. If the right incentives exists, a solution will be found. The whole point of tariffs is to create the incentive in the first place.
I literally started off my previous reply by prefacing my frustrating around discussions of this type where people assume the current situation is going to stay in place as is. Sure in the short term things maybe negatively affected however in the long term there are benefits, one which is often over looked is a more robust domestic supply chain, which was a real problem back in 2020.
I work in electronics and deal with electronics manufacturing.
The tariffs are about as annoying as a mosquito. Not great but also not bad enough to bring the party inside.
To reach parity with manufacturing electronics in the US, tariffs would have to be on the order of 500-1000%. I could be paying double right now for the stuff we have made in China, and it would still totally blow the socks off domestic quotes. Never mind that domestic capabilities have been crumbling, meaning you spend way more to get a lower quality result, churned out by equipment that is 40 years old.
This is why tariffs only work in cases where you already have a strong local production that you're trying to protect (Japanese rice farmers, Florida orange growers) or where you want to force foreign companies to set up factories locally (Toyota, TSMC, etc.) but the latter only works for really high volume and high revenue items.
It does _not_ work to resuscitate long-dead manufacturing industries.
A first step might be recognizing the opportunity, the chance, of having low costs at the inputs of one's own economy. Lower cost steel, electronics, cars is not a bad thing. It's a great thing. It's an opportunity. Instead, understand your own economy and what actually makes sense to produce locally. Of which there is plenty - really the US economy is doing pretty well.
The US might achieve again local low cost electronics manufacturing eventua... wait, what? Was the US ever the place for low cost electronics manufacturing? No it wasn't. At any rate, the US can try and promote whichever industry they want - but surtaxing its entire economy in the meantime is insane (plus a significant part of the rest of the planet along the way.)
There's more at stake than cost. Steel, electronics, and vehicle production are strategic capabilities, essential to fighting a long war. And even if no major war ever happens again, importing the inputs to an economy leaves the country vulnerable to sanctions or to being undercut when the nation providing the inputs moves up the tech stack.
For too long Americans have preferred immediate profit over long-term capacity.
> Instead, understand your own economy and what actually makes sense to produce locally. Of which there is plenty - really the US economy is doing pretty well
I'm curious what you're referring to here. It seems to me that China is catching up in most of the industries where America is still competitive (e.g. computing, pharmaceuticals, vehicles).
I'd say our economy is mostly floating on our military strength and the financial system it protects, but that won't last without a tech or manufacturing advantage.
- You can maintain a strategic capability without destroying your economy along the way. See for example the heavy press program. A strategic capability, very specific, hard to rebuild. You could certainly apply that to some level of local steel production (which does exist last I looked) - the way US navy ship-building competence is carefully maintained for example. You don't have to inflict that cost on most of the steel used for, say, building and bridges construction.
- You can want to run your entire economy on a "self-contained" basis but that goes against all the work that has been done for now decades in the name of economic efficiency. Such an idea will cost you dearly in the final output: standard of living. (For a small country it would be hopeless but both China and the US are large enough that they could aim for complete know-how.)
- Everyone is free to compete with anything. And yes, China is large enough that it can try and be effective at everything. Even that, does not negate the benefits of trade.
- (The US competitive on civilian vehicles?? Doesn't matter, this is a detail at this stage.)
- I don't expect very much of the US military vehicle production - in final assembly or in subsystems - comes from China. What little there is, you could import from Europe.
- The US economy "floating on military strength"??
> The US economy "floating on military strength"??
Yes, it's our military strength that makes investors trust our currency and allows us to maintain the world's largest trade deficit. Not just our own, but the weapons we provide to friendly governments (mostly dictators) around the world.
The rest? You're just ignoring the possibility of either sanctions being imposed on us (cutting off the free trade which, I agree, increases standard of living while it lasts) or fighting a major war (in WW2 the entire civilian production capacity was redirected to the military, a limited "strategic capability" will not be sufficient).
In fact, even the recent (very limited) war in Ukraine was more than our current production capacity for ammo could handle.
> Yes, the US is still the second largest producer of civilian vehicles
Isn't that mostly for internal sales? The US export some civilian vehicles, that's true. But my impression is that much of the local production is due to threatening and begging in exchange for somewhat less difficulty for selling within the US. So, "competitive" would be arguable.
I'll concede that recent years have shown that stockpile and production capability in particular for ammo is low for an era where - after all - there are circumstance where a lot of ammunition gets expended fast. And THAT very much won't be solved through tariffs. Not even for guidance electronics.
Long term and stable support through various targeted subsidies. Biden did this for some manufacturing industries and we're already seeing results with increased production and private investment that far outpaces the public investment that kicked it off. One key issue is that these industries and the supporting resources and expertise take a long time to develop so the support needs to be consistent. Blowing up trade deals and flip flopping around on tariffs every few weeks is the opposite of what will help. Trump talked a big game on manufacturing his last term but accomplished absolutely nothing; I expect this term to be worse.
There would probably be near zero electronics and machine manufacturing in the US without military spending. I really cannot emphasize enough how many shops out there are kept alive by military contracts stipulating domestic manufacturing.
This is also why the defense budget never gets cut, by dems or repubilicans. It's the backstop for a gazillion jobs and domestic manufacturing capability.
As much as I dislike the US' militaristic identity and especially its foreign policy, and would like nothing more than to slash the military budget in half and use it for something beneficial, when it comes to the economic benefits of the military-industrial complex, you're absolutely right.
But a big problem, especially when it comes to competing with China, is that you need your supply chain to be local too. The main reason manufacturing is so affordable in China is not just labor costs, which are now lower in some other countries than China, but because you have the entire supply chain right at hand.
Its true that one purpose of a tariff is to protect domestic production. Another purpose is to hurt specific trading partners; when we impose an xx% tariff on China, companies who were previously importing goods from China may domesticate some production, but they may also just turn to e.g. Vietnam or Japan. A further third reason for tariffs is simply as a bargaining tool, as we've seen with Canada recently.
Sometimes you can tell what the real purpose of the tariff is based on what is being tariffed, and from who. For example, putting a tariff on Canadian energy: Canada is an ally of the United States who we generally don't have geopolitical interest in fighting with, and the United States has very, very strong domestic energy production and domestic energy consumption; so, the purpose is less about harming Canada, and more-so about protecting the domestic industry from being undercut by international partners. However, when it comes to electronics and microchips, we don't have the domestic production capacity, so the purpose is more aligned with: Yeah, we'll try to build that up, but we're most concerned about simply weakening China. If that production were to instead get built up in Vietnam or Japan because labor is cheaper, we'd have to see how the administration would react, but I suspect: there's a reason why we haven't levied similar tariffs against them.
Much of this I assume is due to labor costs. We're already seeing some basic techs start to return back to higher-tech, higher-labor-cost countries (like the US Gulf Coast) because of automation improvements. So now things that have historically been low-hanging fruit for countries trying to industrialize (and therefore able to provide the labor cheaply) are being taken away from them, because now one systems engineer can oversee, say, an entire textiles or smelting or wiring facility. It's only a matter of time until this bleeds further up the ladder, in my opinion, and electronics isn't too far up the ladder from wiring.
That's part of it for sure, but really the killers are that China has an insane electronics pipeline from component manufacturing to distribution, insane investment in electronics manufacturing R&D, and a supply a fresh young heads to keep things moving forward. They also do insane volume and can buy everything in quantity 10 billion (exaggeration- sort of, but economies of scale to the max).
The US has basically no domestic component manufacturing, no central hubs of electronics parts distribution, no young talent entering the field, and no new shops entering the market with cutting edge automation/capabilities. And it doesn't make much sense from a financial POV either. A team of one writing an AI wrapper "electronic parts picker" SaaS app will pull more money than a team of 50 building a board house, and they don't need $50 million upfront for capex.
> Shipping is extremely cheap these days. You can move any manufacturing you want, if you're determined to do so.
Sure, this works when you know exactly what you want. If you're prototyping or looking for a replacement component, those who can walk/drive to visit 10 potential suppliers' factories in a day have a competitive advantage versus waiting 10 business days for the samples to arrive.
Having a concentration of jobs in one place also results in having a concentration of domain experts in that place; forming a self-sustaining ecosystem. A lot of local governments the world over have tried and failed to replicate Silicon Valley, but without the critical mass of academia, technologists and VCs. Trying to replicate Shenzen without the machinists and injection mold greybeards is equally fruitless.
Manufacturing in Shenzen was economical, just not as maximally profitable as it is now. Economies of scale are a thing.
Apple, and Google could have been formed anyway on earth, but there were advantages of being in Silicon Valley that compounded the growth into the behemoths they are now without worrying about where to source talent.
It's not, it's network effects/economies of scale. Everything is highly automated already.
> We're already seeing some basic techs start to return back to higher-tech, higher-labor-cost countries (like the US Gulf Coast) because of automation improvements.
China is better at automating electronics manufacturing than the United States and has a decade or two lead on us. They also have policy advantages the US can't dream of, like building a new set of factories in 3 years instead of 5-7, with housing for all the workers and centralized water/power/gas utilities. The government is also capable of writing blank checks and forcing the finance industry to fund things that they otherwise wouldn't.
The current administration is not smart or agile enough to address the root causes of the decline in American electronics manufacturing and motivated by individual greed instead of national dominance.
Look at the Chinese auto industry to see how they're able to mobilize sectors much faster than anyone else. The US cannot hope to compete using a 20th century model of globalized economies where we pretend China is only competing with sweatshop labor. That has not been true for 25 years.
> The current administration is not smart or agile enough to address the root causes of the decline in American electronics manufacturing and motivated by individual greed instead of national dominance.
It's naive to think that China's politicians are not motivated by individual greed. American politicians are, on average, about as greedy as politicians in other countries.
We're not talking about your average American politician, we're talking about Donald Trump and his inner circle. They are demonstrably more corrupt and greedy than the average American politician. Tangentially, they're a lot stupider than the average politician in the world, and whether they're as corrupt as they act or just incapable of severing personal and professional/institutional gains is unclear.
> We're already seeing some basic techs start to return back to higher-tech, higher-labor-cost countries
Is there a place where I can look up what's being brought up back to North America? Last time I tried searching for it, all I found was:
1) TSMC et al. building big factories over here (which, I think, is a bit different because of subsidies, and realpolitik)
2) People complaining in pro-manufacturing Twitter posts how nobody wants to automate the existing factories
I was a kid but I remember Brazil had huge tariffs on electronics to "protect the national industry". That actually set the country back a decade. I remember people talking about the "new" 386 processor in 1995-ish (it started mass production in 1986).
That's not even remotely comparable to the US situation but it gives me pause when countries enact tariffs to protect anything.
Tariffs protect domestic companies against competition from more innovative foreign companies. Because they remove incentives for domestic companies to improve their products or reduce their prices, tariffs gradually reduce the competitiveness of domestic firms; the longer and higher the tariffs, the more likely domestic industries are to turn into rent extractors, only able to sell their products because foreign competition has been handicapped.
If a country wants to have globally competitive, innovative companies, that is not compatible with tariffs.
I could maybe imagine supporting tariffs that were legitimately tied to these goals. For example, if there was a tariff against a particular industry in a particular country that would be dropped the moment that the country in question implemented some environmental regulation.
The danger is even if tariffs are implemented for good reasons, they still incentivize domestic firms to just become rent extractors.
Same deal in Australia. We had tariff walls up until the early 1990's. The trajectory of the economy was plainly obvious it triggering a speech by the then treasurer saying Australia was at risk of becoming a "banana republic". They then went about a wholesale re-arrangement of Australia's economy. They did a lot of things, but the major one was tearing down the tariffs. During the re-arrangement a lot of people lost their jobs, and it triggered a major recession. It was a painful time.
But that was the last recession we had. It's been 30 years of growth thereafter.
I suspect the younger Australians have forgotten the lesson, but it the word "tariff" still frightens my generation. In the USA, you have no one who has lived through tariff's for near a century (Smoot-Hawley in 1930). The economists and academics will be advising anyone who would listen what the effect of rasing tariff walls would be, and it seems like the USA politic did a reasonable job of listening to them for the last 40 years or so. But now the current mob running the place got there by championing not listening to elites.
Reagan put tariffs on Harley Davidsons and steel in the 1980s.
These gave HD a little breathing room to restructure which helped them to bounce back (for maybe 30 years), but couldn't cure the natural limits of selling a nonessential vehicle for over $20k to middle-aged men who bought a hog only to fulfill their bucket list.
But Steel didn't benefit as much as HD, since the economics of pivoting giant ossified corporations like USX take decades -- especially when hampered by old men in gray flannel suits and self-destructive unions that had no idea how unsupportable their benefits already were.
The question remains whether tariffs really accomplish anything lasting, other than attract votes in the short term, for re-election.
So if people buy an acer laptop, acer makes more profit? Quick math - if a laptop is retailing for 1000 and acer makes it for 500(just a random number), due to the tariffs, acer has to pay 550(10% extra) to bring it to the US and now sells it for 1100 due to 10% hike?
profit before = 1000-500 = 500
profit now = 1100 - 550 = 550
So the company is making more profit from you now? What am I missing?
> So the company is making more profit from you now? What am I missing?
You are probably missing that what people pay for their computers is still a function of the market and competition. If everybody goes up with their prices by exactly 10%, then maybe it would play out like that. Most likely though there are segments of the market where prices matter a lot to the customer and they won't be able to increase their margins. On the top of the line products it might be possible. On average I think they might slightly improve their margins, but it might also just be a wash.
Companies used the very real inflationary pressures to increase the cost of their products well beyond what those inflationary pressures alone would require.
There are 2 reasons IMO that led to this working:
1. If every company does it, the normal competitive market pressures to reduce prices don't operate. Normally, every company will only raise prices due to collusion, which would be illegal. But when there's a broad based increase in cost, every company will also raise prices beyond just the absolute values of those costs independently, because companies are judged by their margins more than they are by absolute numbers. This is not illegal but the effect is the same.
If in your example, Acer sells 1000 laptops, they originally made $1mm in revenues, with $500k in costs, leading to $500k in gross profits and a gross profit margin of 50%.
If their costs increase by 50%, they need to increase their selling price by $100 to maintain those margins. $1.1mm revenue, with $550k costs, leading to $550k gross profits for a gross profit margin of 50%.
If, however, they increase their Selling price only by the cost, their new selling price will be $1050, for revenues of $1.05mm, costs of $550k, gross profits of $500k, but gross profit margins declining to $500/$1050 = ~47.6%.
The decline in gross profits will hurt their stock price and their valuations (if private) significantly.
2. Consumer pressure. The other reason companies do not easily increase prices with higher costs is negative publicity. Pandemic related inflation, and now tariffs, give them an easy way to explain the reason for the price increases to their consumers and avoid facing any backlash directly.
What did surprise me with the pandemic, which will likely be true with the tariff increases, is that once the companies did increase their selling prices after the pandemic, even though their costs then subsequently dropped, they did not drop prices, across the board.
And the result were the record breaking profits companies have been declaring.
> What did surprise me with the pandemic, which will likely be true with the tariff increases, is that once the companies did increase their selling prices after the pandemic, even though their costs then subsequently dropped, they did not drop prices, across the board.
Prices will only decrease when demand decreases. If your competitor offers a higher-value product and attracts more customers, you'll need to decide whether to increase the value of your product or lower your prices to remain competitive.
If the market can support your current prices there's no reason to lower them.
Businesses are also very conservative - if you go to the Big Boss and say "we should increase our price 20%" you're likely to be shot down unless you can show WHY it must be done or you go bankrupt.
This means that competitive prices will be "lower" than what the market clearing amount should be. So when they are "forced" to raise them, they then find they're still selling, and will be slow to bring them back down.
Which does occur, but first as sales, then perpetual sales, and then a new product size that's coincidentally cheaper.
Businesses are constantly doing a price sensitivity analysis to see if they can raise prices and by how much. Economic factors like tariffs allow you to raise prices more than your usual price sensitivity would allow because you can blame it on factors out of your control.
Except they really don't, because each aisle of your grocery store only has two actual companies making 90% of the products, and coke does not compete with pepsi on price
If Pepsi doubles in price but coke does not, you will not see most pepsi drinkers switch to coke, you will see a small amount of pepsi drinkers abstain, a small amount of pepsi drinkers switch to coke, and the majority of pepsi drinkers just grumbling about paying more.
We've had decades of shrinkflation at this point. I can't use a recipe from twenty years ago because it calls for 15.5oz cans when we've already moved to 14.7oz cans of that product. I can't buy a competitor's version because they use the same can and same can sizes.
A great demonstration of this is something I've been bitching about since "inflation" happened. Lays (the same company that owns pepsi) massively increased chip prices. So did their competitors. Our regional store brand DID NOT (because potato prices did not increase for over a year!). Our regional store brand is comparable to basic chips from other brands. Predictably, people just paid the higher price for lays and the competitors who also raised their prices.
The past several decades, companies realized that consumers have WAY MORE stickiness to a "brand" than ever realized. People still buy craftsman tools, including my father the contractor, despite them being cheap garbage for decades now. Companies don't compete on prices because there is only one competitor in each market segment, and they love the sky high profit margins too. It's not worth it to gain an extra 5% of the market by lowering your price significantly, which is what it would take to get the extra market share. Consumers aren't rational, they are tribal. Nobody drinks pepsi or coke, or prefers red vines to twizzlers, because of some rational evaluation of product merits.
What DID switch people from pepsi to coke was not price, but marketing!
Yes, they are likely making more per unit, but less profit in aggregate, since the increase in price means they will likely sell less laptops than before. The aggregate loss in value here is known as dead-weight loss.
Yes. Most companies target a profit percentage, not a fixed amount. So if their costs go up, their profits go up. But since everyone does it, they end up still being competitive in the market.
Less laptops will be bought even if profit per laptop goes up overall profits will go down. Money is finite and these are durable goods. People will now look at other options like the second hand market.
What you are missing is that they can't import the product for $500. They have to sell it to the "USA" for 1000 and pay 100 in tariffs. They can't "pocket" the profit in the USA. Look up https://en.wikipedia.org/wiki/Transfer_pricing
The value of the product when calculating tariffs isn't necessarily the manufacturing cost, it could also be the "market value". I tried to find a source for how to calculate the value on a complete laptop but a quick search failed me.
But, for example, when bringing wine into Ontario Canada, the duty is calculated on what the Ontario Liquor Board would sell the bottle for, not on what I pay for it. This isn't the US of course, but it gives you an example that tariffs are not always paid on manufacturing costs.
They’re making more profit in absolute dollars, but the return on investment (ROI) is the same. ROI is what matters because investors trade cash for shares and seek a return on that cash.
For example, if you invest $1,000 and earn $100, your ROI is 10%. But if you invest $10,000 and earn $200, your ROI is only 2%, even though the dollar return is higher. Investors focus on percentage returns because they invest different amounts and receive profits proportional to their ownership.
Investors prefer higher percentage returns, even if the dollar amounts are smaller. For example, making ten separate investments that each return a smaller dollar amount but a higher percentage would be more attractive than one large investment with a lower ROI.
Lower ROI also comes with an opportunity cost. Capital tied up in a low-return investment can't be used for higher-return opportunities. Investors aim to allocate their money where it can generate the best possible return relative to the risk, rather than just chasing higher dollar profits.
In the example above Acer had to risk more capital and got the same percentage return on that capital.
Shareholders demand it, even. If your costs increased but your profits stayed constant after your price increase, then a small business owner might be perfectly happy with that. But it's a decline in profit margin so investors would go ballistic.
The catch is that it costs them more to acquire the laptops so (in theory) they can't acquire as many of them to sell if they start from the same amount of money. Which is ok on the surface, but makes them a worse investment because they return less money back to you for the same amount put in.
Ex. If they only have $1M to spend, the tariffs mean they can only buy ~1800 laptops to sell instead of 2000, so if the profit of $500 stayed the same then the company is making less money than it did before. If they instead bump the margin for each laptop to $550 then they make the same amount of money as before even though they're selling less laptops.
Of course in an actual version it's messier because the math doesn't work out that cleanly. If it costs $800 to make a laptop you sell for $1000 then it now costs 880 with a 10% tariff. To keep the 20% margin the new price would be $1056, only a 5% increase in the final price.
That's the same percentage profit. And there would likely be some reduction in sales due to the increased price, so the absolute profit wouldn't increase as much as you suggest. Obviously lots of other factors involved.
Why do you assume their costs are going up the same percentage? It's not clear from the linked article, but maybe their costs per your example are going up 12% from 500 to 600, and they're only raising prices by 10% to 1100 to keep the same margin.
Of course I doubt this would actually be the case (because capitalism), but that's the one of the assumptions you're missing in your example.
It changes the entire economics when your random example number keeps things well within the realm of profit whereas the actual tariffs eliminate the entire current profit margin for almost every product in the category we are talking about.
You appear to appreciate the value of direct feedback. I hope you appreciate this direct feedback.
You could have made your point more effectively if you'd said something like "your math is correct, but it's important to keep in mind that the actual tariffs eliminate the entire current profit margin for almost every product in the category we are talking about."
Instead you began with a personal attack. It's hard for a discussion to recover from that.
Come on. Biden wanted the Ukraine war to weaken Russia which is why he never mentioned ceasefire. Gitmo is a scare tactic to stop immigration. NB people are not recognized but they can choose a gender. All This simplifies a huge number of issues.
You can argue that he should be spending time on such matters. And for that I would be with you. But what about ism is not a response to a tariff increase.
Funny how you don't mention what Ukraine wants. They're not interested in a ceasefire, never have been, because they know that just gives Russia the advantage and means Russia will eventual take all of Ukraine.
People like you would have us negotiating with people who steal and defraud us as to how much they get to keep, instead of seeking actual safety and justice.
I wonder what it is about the liberally minded that causes a marked preference for death and decay.
Stopping people from two closely related cultures from killing each other is "dooming". Fighting until the last Ukrainian is "supporting".
Why can't Gaza be more like Dubai? Are you saying its people are somehow inferior and must depend on your handouts forever?
Cleaning up Oakland is "gentrification" but letting criminals run the show is "cultural sensitivity". You have a dim view of the culture you are supposedly protecting then, no?
> Stopping people from two closely related cultures from killing each other is "dooming". Fighting until the last Ukrainian is "supporting".
It won't really stop anything, and it justify the unprovoked aggression of a country toward another and reward them for it. Something the U.S stood against when Irak invaded Kuwait, so it is clearly not about "the people".
> Why can't Gaza be more like Dubai? Are you saying its people are somehow inferior and must depend on your handouts forever?
Because they are nothing alike ? Gaza doesn't have a large access to a limited and desired resources worldwide. It have an decade old embargo preventing its growth.
> Cleaning up Oakland is "gentrification" but letting criminals run the show is "cultural sensitivity". You have a dim view of the culture you are supposedly protecting then, no?
>>I wonder what it is about the liberally minded that causes a marked preference for death and decay.
It's the exact opposite - as a Pole, any kind of appeasement of Russia will cause more death and decay in the long term. The whole "oh we just need to stop fighting now to prevent more death" is stupid if Russia's intentions haven't changed. But that's just not my rambling - even Russia's generals and advisors think that conflict with NATO is "inevitable" in the next 10 years. European countries towards the EU's eastern borders also say that it's extremely likely that Russia will enter a direct conflict with NATO in 3-5 years.
If that's your point of view(and it certainly is mine) - why wouldn't you keep fighting? Why wouldn't you arm Ukraine to the absolute teeth and kick Russia out with such decisive force that that it would cripple them for a long long time financially? Negotiating a shitty "peace" deal right now sure, will stop some deaths now, but will allow Russia to re-arm, recharge, built some more alliances and in few years come up with another bullshit reason to attack Ukraine again - and maybe this time they push into Poland too, because why not. And who knows if NATO will be around to save us if needed, maybe Eternal President Trump will say we haven't spent enough GDP to deserve being saved, or that he spoke with Putin and it's all good and we should just stop resisting. After all just few days ago he was asked if Russia should keep the land they took and said that well they lost a of men fighting for that land(!!!!!!!).
It's terrifying. It's not a "liberal" mind - it's a mind of anyone whose country has been invaded by Russians in the past and can see where this is going.
Notice how I don't advocate for attacking Russia - but granting Ukraine a decisive victory, where Russian forces are absolutely decimated and pushed out of the country entirely would hopefully make Russia think twice about attacking any other neighbours in that direction. If they are allowed to basically keep what they took already then it's the same as giving them a full victory - they generally don't care about loss of life, so if they keep the land taken it's the same as winning.
Because Russia also has nukes. Nuking Russia will lead to it using them. If your goal is long-term minimization of death and destruction, that's not the route to take.
Because Russia also has borders, and violating that changes the game from a defensive war to an offensive one. The international calculus changes in a way that makes it less of a principled stance — opposing Russia because it does this stuff is a pretty defensible position.
It does lead to shipping a few divisions of “advisors” to Ukraine, but that’s not here nor there.
Ah yes. What would the ever-benevolent American corporations do if we stopped shielding them from competition?
We already know what they'll do from when the same thing happened to Japanese cars in the 60s... American companies will change nothing and then jack the prices up to just below tariff increases.
Would the subsidies be funded by the tariffs? If so, perhaps having the government print the vouchers ans have buyers apply for the vouchers 90 days before procurement by filling out the TF-1735 form, get the voucher, supply it to the importer who returns it to the Customs officer at point of importation, and the tariffs and vouchers will then be reconciled. Those who fail to get vouchers ahead of time can make claims in their tax filing for the current tax year. /s
System76 laptops are built in China by a Taiwanese company (Clevo).
They did have plans to at least assemble laptops in America from Chinese parts (like they do for desktops), but it hasn't materialized yet as far as I know.
Their desktop chassis and keyboard mechanics are made in the US. Where are they getting the motherboards, CPUs, RAM, storage devices, microcontrollers, etc. from? Do you think System76 runs their own silicon fab?
And even for the parts they do acquire from domestic sources, tariffs will still drive their cost of goods up. Taxes on steel and aluminum will drive the price of steel and aluminum up in the domestic market, regardless of where it was shipped from.
Could you cite something that goes into a bit more detail?
The only claims for country-of-origin I see on that page are the "US-Sourced Materials" heading which clarifies "..using aluminum sourced from US companies."
>Thelio desktops and Launch keyboards are designed, engineered, and manufactured at our factory in Denver, CO using aluminum sourced from US companies.
I'd expect pretty much all the internals are not from the US. Most of them seem to have AMD chips and NVIDIA graphic cards. I'd be shocked if the motherboards, RAM, drives, etc. are manufactured in the US.
It seems one of the least complicated parts of the system, the case, is actually made in the US.
From their design files, it looks like the only things manufactured in the US are the case and the PCB for some of the I/O modules. That's absolutely commendable, it's no small feat and certainly better than nothing, but it's not "mostly" Colorado and the US by any stretch.
Plus, since the main material they use is aluminum and they try to source everything locally, tariffs actually make it more expensive to operate, and unlike in Acer's case it's coming straight out of their profits rather than adding to them through some consumer pricing gymnastics.
Edit: just to be clear, I'm not trying to belittle System76 here. 40 years of "self-regulation" have steadily eroded the US industrial base to the point where there's not much substantial expertise in this field anymore, so they're impressively close to have practically started from scratch. It's an important first step if their long-term plan is to assemble everything from locally-sourced material.
Where does that page say anything about the components?
(As an aside: there is a special place in Web Developer Hell for people who break the ability to middle-click a link to open it in a new tab, that page being an egregious example.)
The chassis is made in the USA and what essentially is a fan controller circuit board.
Everything else is foreign components it looks like to me.
Not super exciting really. An aluminum case is nice and all, but really not material to the overall PC as a whole. It’s at least a start and better than nothing, but you’re talking 5-10% of total system cost at most.
Tariffs on the high-productivity PC-using sectors of the US economy, in order to subsidize the nascent US sector of people assembling plastic components by hand.
Just as the theory of comparative advantages prescribed.
Or increasing taxes on the domestic industries that use steel and aluminum, in order to prop up the orders of magnitude smaller domestic steel and aluminum industries. The likely result will be a net loss of jobs and a net negative to GDP.
If the companies are interested in protecting their margins, I think we will see prices higher than the % increase in tariffs e.g. many grocery stores have a 1 - 4% profit margin, so a 25% increase would mean they have to increase more than 25% because the overall profit margin will decrease. $1 with a 4% profit margin means it make 4 cents, but $1.25 with a 4% profit margin is 5 cents. So that means they'd have to raise it like 27%.
The vast majority of products at grocery stores are not imported from overseas. And even when they are, the cost of the good is only a part of the total cost to the store. For example no tariff would change the price of intra-USA transport of imported goods (well besides oil…). Labor and real estate need to taken out as well.
Obviously if you increase a cost the price is going to go up, but it’s not anywhere near 27% for groceries specifically.
Now pure imports, like most of the crap on Amazon or Temu, is another story.
> I think we will see prices higher than the % increase in tariffs
Pretty much. Most consumers (and even a lot of purchasers) don't know about the individual tariff rates per good, so it's safe to assume that you can optimize pricing to maximize your margin where possible.
I am curious how all of these economic decisions play out. Are these even well thought out economic strategies? I acknowledge that I am living through this experiment, and feel less in control about my destiny compared to a few years ago.
1. make players in the room happy - tax cuts and deregulation
2. make his voters happy - tariffs and immigration control
3. enjoy the power - memecoin and cola button
and there are indeed some 'well thought out' economic strategies behind tarrifs
> "In theory, tariffs would be a shrinking ice cube. That you would tariff a country and then as the production comes back to the U.S. the income tax - the corporate revenues and the paid income tax - goes up and the tariff income would go down."
I think the main purpose of tariffs is to serve as a 'stick', to (supposedly) punish other countries for not doing what they're told. Trump has no concept of 'constructive engagement' or negotiation. He thinks in black and white -- do what I want or else. Tariffs are 'else', despite the fact they'll likely hurt America more than help.
> there are indeed some 'well thought out' economic strategies behind tarrifs
but that's not what's happening here
these are retaliatory tariffs used to get other concessions out of countries -- look at Canada and Mexico
besides, as you pointed out, what domestic laptop manufacturing industry is there to protect?
Even if Trump were employing tariffs as intended, I'm not sure how many industries the US have that could benefit? Maybe lumber, computer chips (force TSMC to open factories here), car batteries (?)
> Are these even well thought out economic strategies?
Have any of Trump/Musk's actions in the past month seemed particularly well thought-out? It's sharp-elbowed bullying by people who will never see any consequences for their actions.
We live in a world of freely floating currencies. In such an environment, tariffs are like trying to nail a jelly to the wall.
Tariffs reduce imports and thus lead to a higher exchange rate for the currency. Nevertheless, tariffs lead to higher prices in the supply chain. Expensive currency and high procurement costs endanger the export industry in the medium term.
The introduction of tariffs is the poor man's monetary policy. Nations that understand this find sharp weapons against it.
Like others have said, tariffs are just a tax on the people. However, the more important thing, similar to how prices of any other item in the grocery store, these prices once they go up are never coming down. This is a huge opportunity for businesses. All of them can increase prices without thinking of competition since all of them are in the same boat.
The only way that a 10% tariff could bring jobs back would be if the difference between paying someone in the US to do it is less than 10% more than paying someone outside the US to do it. Otherwise it will still be profitable to do this outside the US, and this is just a tax hike on Americans, who don't generally seem to understand that tariffs are taxes.
Would IMO need significantly more tariffs to effect significant shifts (and, even more importantly, some certainty that those tariffs are going to stick for the next decades, which is hard to provide).
Chinese mean manufacturing wage is ~$25k/year (purchasing parity adjusted, $15k unadjusted, for an average 49h/week of work). If you want domestic products to be competitive, you basically need the difference paid by consumers/taxpayers in tariffs or subsidies.
I don't think current tariff level is going to move lots of manufacturing jobs into the US (and I would personally argue that most Americans don't even want those jobs as they are currently). Instead, I'd expect a slow shift towards countries with favorable local wage/tariff combination (India, Vietnam, etc.).
One thing we can do is to lower the cost of housing and other big bills. If we have universal basic income in the form of housing, food and clothing for everyone, a lot of people might just won't need to move into privately held properties (i.e. renting from private landlords).
Even if you had free housing/food/etc-- how many somewhat qualified people in the US are willing to work for 6-10$/hour? And those additional social services would need a big budget, which the current government is never gonna grant.
Higher tariffs won't do it alone. Time is needed, as well. The current tariffs are likely seen as temporary.
If you start a factory to produce on shore, you would have to recoup capital costs off the margin available due to undercutting offshore factories while tariffs are higher.
When the administration or whims change, the tariffs go away and your factory loses that margin and isn't as profitable.
And probably government support too? I'd wager a lot of the initial manufacturing capacity in China was jump-started by some amount of government support (cheap loans, tax incentives, etc.).
If you make $600 component + $200 laptop ($800) from outside the US cost say $8k through a 1000% tariff, you could assemble in the US for $1,000, buy the components for $6000, and sell for $7k.
That's what the american people seem to want to happen.
A lot of people do not understand economics, and think that tariffs are somehow fees charged to foreign countries rather than taxes levied against domestic consumers and businesses. I've had this exact discussion more than once, and have heard people change their tune once they understood what tariffs actually are.
Trump made it quite clear that he was going to dole out tariffs like Oprah giving away cars. This wasn't hidden, they specifically voted for higher prices.
A surprising number of Trump voters do not understand how tariffs work and believe the exporting country pays. They are intentionally ignorant, so they'll tell you inflation is not the outcome they wanted, even though it's an obvious first order effect of the policies they support (see mass deportation)
Bringing it all back to North America isn't going to help much, since its almost impossible to locally source every single component that goes into a modern computing device. There there is the cost of labor.
Tariffs have various long term effects that are useful. One is shifting where that manufacturing is done and in the longer term it could bring it back, depending on the cost of doing it in a different, non China, country. But another long term effect is geopolitical - China is in a more difficult economic position than the US and tariffs will make it difficult for them to keep building their military and difficult to envision war. It will also weaken their authoritarian government, which has an interest in annexing Taiwan and also in undermining the US, Europe, and other free societies. The other benefits of tariffs matter - it isn’t just about the short term effects (of inflating costs or whatever).
> One is shifting where that manufacturing is done and in the longer term it could bring it back, depending on the cost of doing it in a different, non China, country.
Unfortunately, the taxes in question are also targeting imports from Canada and Mexico, two countries that are firmly in the US sphere of influence, and the beneficiaries of these new taxes will be countries in SEA which are increasingly in China's sphere of influence. This is a geopolitical own-goal from an administration with no coherent strategy.
> Unfortunately, the taxes in question are also targeting imports from Canada and Mexico, two countries that are firmly in the US sphere of influence
It is a negotiation tactic with those two countries. It is meant to get changes on issues like border security, but also fairness given existing tariffs are often unbalanced. But also, there are a lot of imports from those countries that are basically Chinese tariff evasion.
> It is a negotiation tactic with those two countries.
It is an incoherent and amateur negotiation tactic. If the US can't secure the southern border on its own, what makes anyone think that Mexico is going to be able to do a better job at that? Naturally, we are ignoring for the moment that the majority of illegal immigration does not happen at the border in the first place. As for fairness, maybe Trump should have addressed that when he timidly rubber-stamped NAFTA 2 during his first term. And you're not going to beat "Chinese tax evasion" in this way without charging these taxes on every country on Earth.
These import taxes are performative posturing. Please stop trying to paint them as part of some brilliantly motivated campaign.
I think that bullying mostly works when you don't have a potential consumer base that's bigger than the bully. I know it's not going to last long, but over the night shift from "America good, China bad" to "well, China at least doesn't belittle us every minute, so screw the states" has been very interesting to watch up here in Canada.
Grabbing territories by force or economic coercion seems like a despotic thing to do, doesn't it. Even threatening to do so would probably make people trust you less and be less likely to cooperate, I would think.
Indeed, undermining elections in Europe and other free societies is bad too. Doing so might ruin any business and other longstanding relations you have with those countries!
If current American government cared about weakening authoritarian governments, it would be supporting them less. If it cared about not undermining Europe, Canada, and other free societies, it would not be attacking them.
It does not seem like Canada wants to be 51 state nor it seems like Europe feels empowered after Trump started to support Putins expansion.
> How much of a price hike can actually being more assembly jobs back to North America? Or are they already brought back?
And at what cost even if they did/do.
Washing machine tariffs resulted in a pass through cost greater than 100%. The employment effect (1800-2000 jobs) but the cost to the public of those jobs was $800,000+ each:
Looking at it from the "national security" perspective, they aren't exactly wrong:
> Democratic countries’ economies are mainly set up as free market economies with redistribution, because this is what maximizes living standards in peacetime. In a free market economy, if a foreign country wants to sell you cheap cars, you let them do it, and you allocate your own productive resources to something more profitable instead. If China is willing to sell you brand-new electric vehicles for $10,000, why should you turn them down? Just make B2B SaaS and advertising platforms and chat apps, sell them for a high profit margin, and drive a Chinese car.
> Except then a war comes, and suddenly you find that B2B SaaS and advertising platforms and chat apps aren’t very useful for defending your freedoms. Oops! The right time to worry about manufacturing would have been years before the war, except you weren’t able to anticipate and prepare for the future. Manufacturing doesn’t just support war — in a very real way, it’s a war in and of itself.
There's the old saying about WW2: The Allies won [against the Nazis] from British intelligence, Russian blood, and American steel. The silliness of the current situation is that American can't go it alone anymore, but allies are now being alienated.
So bringing back manufacturing jobs wouldn't be a bad thing, but what do you have to do to accomplish it? If China is designated as a 'country of concern' ("enemy"), perhaps target them, but why 'go after' your nominal friends?
As others here have said, an increase of only 10% or 20% will do nothing, not even motivate other countries to blink. They'll just reciprocate with tariffs of their own which will add inflation across even more products. To motivate structural change, you'd need tariffs of 100% to 500% -- forcing a new business model.
The real objective of Trump's mindless minions (e.g. Musk) is to create bragging points that will motivate bloviate-receptive voters to believe something was done by the administration to 'fix' problems, thereby increasing support for the party without actually doing anything useful.
What drove labour intensive assembly jobs away from the USA was wages that are a fraction of what the USA has, and correspondingly lower standing of living.
If sustained long enough tariffs will fix that. Costs will rise in the USA, exports will drop because the price of everything made in the USA will go up, the dollar will then drop, living standards will drop, and eventually comparative wages will start to approach those in Asia. Once that happens, assembly jobs will naturally migrate back to the USA.
The USA has avoided that outcome for years by manufacturing very high margin products. Think Intel, SpaceX, vaccines, and the software giants like Microsoft, Google and Meta. That came at the cost of bifurcation of the economy, with tech sector jobs paying outlandish wages compared to what someone manufacturing a car could get. It seems that pissed so many people off they elected Trump.
Trump probably thinks is the fix, but changing is coming no matter who is in power. As China, India in particular, now even those "high brain power" jobs are under price stress. Chip manufacturing has almost gone, the software companies are paying 1/4 or 1/10 the price of engineering talent by hiring overseas, India has become the pharmaceutical manufacturing powerhouse of the world.
So you don't need lower tariffs to fix it. The fix is coming regardless of who you vote for. All tariffs will do is accelerate the process. But if there is one process you didn't want accelerated, it's this one.
It's not all doom and gloom. Look to Canada, Australia and Europe to see what the final outcome will be like. It's not so bad, is it? You probably don't want to end up like the Britain, as that would mean a few rich with most of the USA ending up at the living standard of Mississippi.
The goal of tariffs is to gradually replace (or supplement) income taxes with a Value-Added Tax (VAT). In the current political climate, implementing a flat 20% VAT all at once would be unrealistic. Instead, economists are introducing it incrementally.
Is VAT a better system? Arguably, yes—given that the majority of countries worldwide have adopted it as their preferred taxation model.
VAT is what Americans call sales tax (yes I know it's slightly different, but not for the purposes of this discussion). Imported goods into the US are subject to sales tax too, if the sate where the buyer lives has sales tax. Quite amazing that people on HN are swallowing the disinformation on this.
What disinformation are you talking about? Part of VAT is paid during import (rather than after production for domestic goods) and applied to the item. These values could be different whether produced or imported, right?
But while VAT is an "honest" sales tax (meaning it's transparent to users), tariffs is a "dishonest" sales tax (consumers don't realize they're being taxed).
The problem is that Trump is telling voters that he is _decreasing_ their taxes, whereas he's actually _increasing_ them.
The sad thing is that even if this is undone, most companies won't bring their prices back down. CEOs have learned how to pretend that "stuff is just this more expensive for us to make" while raking in record profits.
The last reliable laptops I had were IBM T40 (my first one) and IBM/Lenovo W500. I ran a bootstrapped software company and they didn't fail me. After that I briefly had a Samsung ultrabook (that was semi-reliable) and then a Dell XPS 13 that one day had a screen crack when I opened it. Then I switched to MacBooks when M1 came out: first keys got stuck in my M1, then the screen bezel spontaneously cracked on an M2 just when the warranty ended and I was in Europe. Apparently now Apple laptops are luxury items, you have to wipe the keyboard from dust before closing the lid.
I do not care about cost, I just need something that won't suddenly break when I am abroad and need to do something important. I miss those American IBM ThinkPads.
How is this relevant to the article? I had a look at my Thinkpad T42 and X201 and both were manufactured in China. I looked up a picture of the T40's bottom case and it was manufactured in China as well. I think the differences in durability you're noticing are more because the majority of laptop buyers value the laptop being thin and light over being durable, so companies moved their product lines to suit these tastes. In fact, you seem to be a part of that segment. If you really value the laptop being durable over all else, why did you buy a Samsung ultrabook, a Dell XPS, and a MacBook (all thin-and-light ultraportable laptops) instead of a current generation T or P series ThinkPad or a Panasonic Toughbook?
I'm very happy with my Acer Aspire Nitro 5. It was cheap. And it looks cheap. It's mostly plastic. And it'll slightly bend if you carry it on one edge. Plus I took it apart once to upgrade the internal SSD. But it has survived 3 years of frequent travel including 10+ international flights. I run Pop!OS on it so that it's all encrypted in case I ever lose it. And a Syncthing daemon in the background to securely backup all of its data.
I know it's often heresy on HN, but I've found Macbooks to be fairly reliable. I've used my Macbook air for a decade now at this point - first as a Mac and later switching to Ubuntu.
I have a 2018 with the emoji keyboard where said keyboard obviously failed, and then the display cable (i think, because it wasn't worth repairing) failed too.
That generation was mostly defective by design. The keyboard is too dust sensitive and uncleanable, while the display cable is simply too short.
I still have two apple laptops made before the 2018 and one made after that are working perfectly.
Helping Mexico build a wall on it's southern border will certainly help reduce the number of Venezuelan and Guatemalan immigrants entering Mexico or the USA.
The irony is that build a wall and have Mexico pay for it makes a degree of sense. As long as we are talking about the MEXICAN southern border.
The dumbass in charge cannot figure this one out though, as diplomacy and discussion is beyond their abilities.
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Biden was making a degree of progress here. Mexico wants fewer firearms leaving Texas into the hands of Mexican gangs. But otherwise seemed open to the idea of we could cover more cross border issues. I don't believe we can create tighter gun control regime in Texas though, but these are the kinds of things Mexico wants.
Discussion to find a more politically realistic exchange is the point of diplomacy. Maybe we never find anything, but the hope of a mutually beneficial solution is closer than you might think.
Tariffs were the central political issue from Reconstruction (1870s) until WW1 (1910s). It was the main source of income for the federal government prior to the propagation of the income tax during WW1.
We actually learned a lot about tariffs during that time and the conclusion is not unambiguously bad as many would have you believe.
The argument for tariffs is that the United States became extremely self sufficient and eventually produced the cheapest products in the world. Also, the jobs that come with this.
The argument against is that "products for the American consumer would be even cheaper with free trade".
The counterfactual of slightly more expensive products in the short run is worth being self sufficient and having better jobs. Especially since history shows products can actually be very cheap for countries with high tariffs and a strong manufacturing base.
This was a view shared by pretty much every great American politician by the way. Washington, Jefferson, Hamilton, Monroe, Clay, Lincoln, T Roosevelt. The politicians that argued against it were pretty forgettable.
Also, the first Trump tariffs were by and large maintained by Biden, precisely because the long term effects are beneficial.
> United States became extremely self sufficient and eventually produced the cheapest products in the world
100 years ago
> a strong manufacturing base
if the US had a strong manufacturing base, your argument would be relevant to today
The time when tariffs would have worked would have been around the time that China was trying to build up its manufacturing capabilities, as it would have made it more attractive for US companies to keep their manufacturing onshore instead of offshore. That time is long long gone.
That would have been a good time, but actually the opposite of what America did (successfully) in the 1800s.
Britain had pulled far ahead in manufacturing, and only afterwards did America institute a policy of protectionism. The result was America caught back up and surpassed Britain.
But today's problem is a different one. American countries have outsourced their production and therefore the supply chains and even the skills needed to perform the work, have dissipated over the past decades. Bringing that back onshore is a herculean effort that some relatively minor tariffs will not fix. For that you would need sustained subsidies and much more aggressive protectionism than 25% tariffs. And a lot of American companies who can't make the switch would go out of business, not to mention the high prices in the meantime when you're supposed to be "lowering prices".
Even if I was pro-Trump, I can't see this strategy working economically. And I don't think Trump does either. But it is an effective populist mantra (like Mexico paying for the wall) and the threat of tariffs can be a useful cudgel to get other countries to do your bidding--unless those countries are willing to call your bluff, which you can be sure China will (which makes them not so useful; China is willing to endure much more pain than the US, is much more willing to play the long game, and doesn't have to worry about the votes of its citizens).
You're asserting it's a herculean effort to onshore production. I disagree.
It seems we simply disagree about its feasibility. America is a huge country full of hardworking people, and we've done it before. It's actually very possible. All the naysaying that comes from the left is so... lame.
We already have onshored production (quite a bit) in the post pandemic period.
Active dismantling from the current US administration is another:
US President Donald Trump has made it plain he’s not a fan of the $53 billion CHIPS and Science Act that funds semiconductor manufacturing and research on American soil – and now it appears he’s decided to make substantial staff cuts at the agencies that administer it.
Significant cuts to CHIPS staff could hobble the agency's ability to deliver on its mission of distributing funds to subsidize the construction of semiconductor fabs in the USA and funding domestic R&D, all of which is supposed to help the country rely substantially less on foreign factories. Both of those goals had bipartisan support when the CHIPS Act passed, we note.
Good. When new designs for new laptops come out, they will be looking at where to get their supplies. And often times it will be local. The effect will be felt in 3-5 years. And it won’t be with reduced prices. It will be with better job prospects.
Tax the wealthy. Provide jobs for the poor. A Natural distribution of wealth.
Tariffs result in higher prices, resulting in less demand, resulting in less consumption, resulting in less production, resulting in fewer greenhouse gases produced resulting in saving the planet? Trump is saving the planet? /s
I'm skeptical of tariffs in general, but it seems like there's a clear strategic case for tariffs on a country whose market may become unavailable entirely when they begin their long-promised invasion of their neighbor.
You're looking at a derivative and confusing it for the underlying metric. Trade between the US and Russia remains heavily restricted - what the US government is "chomping at the bit" for is a negotiation, not yet materialized, that would remove many of those restrictions in exchange for peace in Ukraine.
But one key piece of leverage the US has in these negotiations is that they don't need Russian trade. 3 years of heavy restrictions hasn't really changed much in any American's daily life, and I think the public would happily accept 5 or 10 years of the same if it were necessary to achieve some important geopolitical objective. The public would not accept 5 or 10 years of a collapse in the computer hardware market.
Reducing trade with China (and sure, tariffs work for that purpose, why not?) is one of the only things I agree with as far as policies Trump has actually taken action on (both terms).
... I think it'd be more effective and less painful if we weren't signaling to other liberal democracies that we're an unreliable trading & security partner at the same time, but hey, it's something.
Biden maintained the tariffs against China and many companies were moving out of China to other countries like Vietnam, India and of course Mexico. When suddenly Trump wanted to put tariffs on Mexico it took some of them off guard. Labor costs in Mexico are lower than China from what I heard. The problem has been that in many cases Chinese companies have been moving their production to those other countries. But even that could have been solved with cooperation and incentives to these countries.
Yep, exactly, you want a united front to make it effective, especially when you're dealing with an economy as large as China's. That's why it'd be nice if we were focusing mainly on that, and not also on weird low-value games with other less-abusive and more-ideologically-aligned trading partners.
As the only tax without deadweight loss, a LVT is fundamentally different from a tariff. And in fact the devastating economic effects of tariffs are one of the primary reasons the LVT gained traction a bit more than a century ago.
No constitutional basis at the federal level, and ad valorem taxation is already implemented at the state level (as a pragmatic approach, without being rooted in incoherent ideologies like Georgism).
The Librem 5 USA phone is made in the US, and costs $1600. That might seem reasonable compared to the $1000 iPhone 16 Pro, but if you look at the spec sheet it's clear that it's closer to a $100 phone than a flagship. That's not a 20% premium, that's over 1000% premium.
It is not really a fair comparison between an iPhone and the Librem because the Librem is catering for a completely different market.
The phone itself is quite different in some respect to other mobile phones e.g. parts of the phone that would be on the SoC are on removable M.2 cards. It is a niche product, meant for a particular audience. You are going to be paying a premium even if it was manufactured in offshore.
I pay a premium on any add-on/upgrade card to my Amiga. These products are made in smaller batches and thus cost a lot more than simply getting an ARM chip and emulating it. I accept that because my use case is extremely niche.
This is my opinion as well, not knowing OP, but getting to know myself well enough. And by looking at other loud minorities on the internet, like the "don't preorder video games" crowd. I doubt the companies ever noticed the difference financially.
It's actually funny how I feel the opposite right now since a few months ago. And I'm not saying one way is wrong, the other way is right, but it's funny how quickly one can be polarized (me in this scenario) in a very short period of time.
I worked for a company that sourced all custom built assembly parts with-in the US state it was started in. PCBs and enclosures. After Texas VCs bought they company, they shipped it all overseas to Asia. Those proud patriots did anything they could to save a buck and maximize their own profits.
This year I learned they are maximizing their profits again and close in the branch that handles assembly and shipping. Moving to a more economic location to save a buck.
Your ideology goes against the nature of greed for those that have money and use it to maximize their own profits and harming those that help start and drive the business.
I have no doubt they will argue the price increase as a result of tariffs, but market prices are and will always be about what the market will tolerate and rarely nothing else. This is why many other companies will segment the market with what often is the same product under different prices.
Acer is not selling laptop based on the cost of raw resources and then adding a fixed markup. Most costs are in development. A large shared of a high end laptop is share components among all of their products. Depending on specific, their most expensive laptop can be a loss or profit per when accounting for development, research and marketing. Flagship products are generally not about selling individual units.
Looking at Acer profit as a company, one can not add import tax to the end number.
For the vast majority of laptops that aren't made by Apple all profit margins are entirely erased (and then some) by these tariffs. So yeah the manufacturers could eat the cost... as long as they don't mind losing money on every sale.
Out of those, components and assembly is the unit cost. If the cost of components and assembly are greater than sell price then every sale is a loss. Tariffs impact this cost, and they are not close to erase the difference between sticker price and unit price. The estimated per-unit profit margins for a company like Lenovo, Acer, Dell and so on is in the range of 25-30% per laptop, through the exact numbers do not get published. In comparison, Apple is estimated to be around 60% per laptop.
It is when you then add Software & Licensing, Research & Development, Marketing & Branding, and static costs, spread out on all sold units, the profit margin goes down to 5-10% (with Apple here having a margin around 40%). Some of that margin get significant increased with added services like extended warranty and payment plans.
Tariffs will decrease profits. In order to get the same profit as before tariffs they can increase prices, but it risk decreasing sales. If sales drop then the static costs is spread out over fewer sold units, which mean they would need to increase prices even more to cover the lost sales. If they increase it too much, sales drop below viability and they go bankrupt. Alternative they could decrease price (compared to the competition) in order to increase sales, covering the increased unit cost by increasing sales volume. The best strategy is to have a price that results in the highest combination of price and sales volumes.
If they currently have a 5% margin and their costs go up, they either
1) Go bust
2) Increase prices
This isn't a situation where supply is constrained (say in housing), where you will charge the same no matter the costs. If you charge too much then a competitor will increase supply and undercut you and you lose business.
Tarrifs means that your competitor can't undercut you, until it becomes cheaper to build entirely in the US, which will me far higher tarrifs and far higher prices that the end consumer pays.
Are you saying, if the supplier's cost goes up by 10-25% due , they should absorb it, and sell the product at the old price? Is that what you would do if you were building a product to sell?
> I have no doubt they will argue the price increase as a result of tariffs, but market prices are and will always be about what the market will tolerate and rarely nothing else.
Only in a market where sellers (either a single seller or a cartel) exercise monopoly power; in a competitive market, market clearing costs are driven down toward zero economic profit by competitive pressure.
There is a reason why rich prefer tariffs over a progressive income tax.