US President William McKinley, who held office from 1897 to 1901, promoted high tariffs which concentrated wealth in the hands of industrialists while workers were expected to earn low wages and commodity prices were kept relatively low. The earnings difference between those who were at the top of the food chain, as well as those of the new “Middle Class” of small business owners and professionals (doctors, lawyers, etc.)and the “Working Class” that even middle-class homes were expected to employ at least one “domestic” servant. That said the value of a US dollar was (domestically) significant (I have one of my grandfather’s payroll books from his electrical contracting firm in 1912 and his electricians eared $5 a week, but he was earning $15 a week at the time.
The1913 Revenue Act began the process of replacing the high tariffs of the late nineteenth and early twentieth centuries with an income tax, thus shifting the burden of funding the treasury from ordinary Americans through tariffs to wealthier Americans through what became a “progressive” income tax.
I live in New York City, which is blessed with a triple income tax (Federal, State, City), which makes it the most highly taxed spot in the US. Back in the late 1980’s and 1990’s, when I was financially “banging them out of the park” my effective total income tax rate (after massaging in the allowable legal deductions) was something like 42%-44%. I just finished doing my income tax filing and, with nominal earnings the same order of magnitude (though I’m sure inflation has reduced its purchasing power) my effective total income tax rate was about 28%.
In addition, with some exceptions (i.e. most food other than candy, etc., clothing under $110, medicine) there is a 9% sales tax on purchases of all goods and services. This has been our local approach to the way most other countries tax purchases which is by incorporating a VAT (value added tax) where a portion of the purchase price is an included tax (depending on country, generally between 10%-17%). This is a form of taxation which would normally be a target by “progressives” who would (accurately) point out that the wealthy buy a much smaller portion of their income than the “average” wage-earner.
(Tongue in cheek, sarcastically:)
We have two financial problems in this country – our national deficit and that pesky, hugely annoying (in my case 28%) income tax. This was a “gift” from a series of federal administrations, significantly helped by Congressional action during the previous Trump administration as a “temporary” cut in tax rate.
We live in an environment which has been heavily “social engineered” by a dependence for “news” on social media where people seem willing to “religiously” believe any line of garbage which is fed to them. In a land where most either didn’t take economics in school, forgot what they “learned” or learned it, but through a form of “double-think” choose to ignore it. Tarriff saree NOT a tax paid by the source of the good, but rather are no different than those VAT taxes – with the exception that they are almost a random portion of the price (the price of those Levi jeans would be different if they were made in, say, Bangladesh or in Indonesia), but would only bring their production back to a US factory if they could be made in highly automated domestic factory for less.
So, the government claims that they will collect “trillions” of dollars based on the tariffs. Let’s say they are correct. That means that the population has largely been dupped into believing that the VAT which was just announced is a just punishment against “those countries which have, for years, taken advantage of us”, rather than simply a sales tax until one of two conditions are met:
A factory is built in the US which is able to produce the commodity at the same price or less
By pledging fealty (and paying enough) to the current political regime to “carve out” that particular slice of the tax
So, what will the government do with this sudden windfall of tax money? Well, the priority for the movers and shakers is using the money (along with the recent “saving” accrued by the carving up of Executive department agencies) to continue those wonderful tax breaks for the wealthy. In a “perfect world” the balance should be used to pay down the national debt, but my guess is it will be used to fund new methods for the “job creator” class to skim off the balance.
In the meantime, my guess is there will be a major effort to reduce the value of the US dollar. While there are many reasons why this might be advantageous, my concern is that their method will cause the USD being used as the sole trade platform to be weakened to the point that US debt will no longer be mandatory (to the same extent) to be held by other countries – causing financial chaos in international (and US) markets. (Recent gold price moves indicate that I may not be the only one to recognize this risk).
The ride is about to become “interesting”.
Jeff