President Donald Trump with CIA Director John Ratcliffe and Secretary of State Marco Rubio
Donald Trump is now apparently planning to request a $600 billion increase in annual military spending starting in October, financed by another huge jump in import taxes (tariffs). I said “apparently” since it’s not clear that he thinks he has to request authority for this spending increase or massive tax hike from Congress.
Under the Constitution there is no ambiguity on these issues. Congress has the power to tax and authorize spending. However, Donald Trump and the Republican Congress have not shown much respect for the Constitution in Trump’s second term and it’s not clear the Supreme Court has any greater level of respect. So, who knows if there actually will be requests for Congress to vote on, or whether he will just do it with no legal authority.
Anyhow, apart from the mechanism employed, this would be a massive increase in spending, coming to just under 2 percent of GDP. It would also amount to a massive tax increase if Trump actually offsets the spending, as he claimed he would, rather than just increasing the deficit.
Taken over a decade, a $600 billion increase in annual taxes would come to $6 trillion, roughly $45,000 per household. It is real money. It would be difficult, but not impossible, to raise this much money through tariffs.
Our imports currently come to just to over $3.2 trillion annually. A straight calculation would imply that an across-the-board tariff increase of 19 percentage points could cover the cost of Trump’s military buildup. But the increase in the tariff rate on most items would end up being considerably higher for two reasons.
First imports would fall sharply in response to a tariff of this size. Let’s say they fall by 15 percent, this would put imports at $2.7 trillion, which would mean a tariff increase of 22 percentage points would be needed to get to Trump’s $600 billion.
The other reason that the tariff on most items would likely be higher is that Trump will presumably exempt some items other for policy reasons or in response to payoffs at Mar a Lago. In the first category, much of what we import are intermediate goods used in manufacturing finished products like cars or planes. High tariffs on these inputs will hurt industries that Trump is ostensibly trying to foster.
The other part of the story is that we have seen many executives make the pilgrimage to Mar-a-Lago, most notably Apple CEO Tim Cook, and walk away tariff exemptions on items they import. This trek will be more widely traveled when CEOs are looking at tariffs two or three times their current levels.
That means the import tax on many products will have to increase in the neighborhood of 30 percentage points to hit Trump’s revenue targets. That will be a big hit to many households’ budgets, as we know that the bulk of tariff revenue gets passed on to consumers in the form of higher prices. That doesn’t sound like much of an affordability agenda, but Trump was never really into that word anyhow.
The other side of the story is that this massive increase in military spending will mean a huge diversion of resources from productive uses. Scientists who might have been developing better computers or software for civilian uses will instead be working for military contractors. The same is true for researchers developing new drugs or medical equipment.
This will also be the case with millions of less-highly educated or narrowly trained workers. Instead of working as teachers or in various areas of healthcare, such as physical therapists or home healthcare assistants, they will be employed in the sort of jobs needed by military contractors. That’s a huge drain for the economy and corresponds to the reduction in purchasing power as a result of Trump’s massive tax increase.
If there was some clear argument as to why we needed such a massive increase in taxes and diversion of resources, as when we confronted the Nazis in World War II, perhaps this hit to the economy could be justified. But no one made such claims, not even Trump in his 2024 campaign, until Trump invaded Venezuela and decided it was fun.
It’s good to see an old man suffering from dementia enjoying himself, but it would be much cheaper and less deadly if we just gave him a good video game.
Dean Baker is a senior economist at the Center for Economic and Policy Research and the author of the 2016 book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer. Please consider subscribing to his Substack.
Reprinted with permission from Dean Baker.
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