US tariffs are an arbitrary and regressive tax

By Jason Furman, Katheryn Russ & Jay Shambaugh. Excerpts:

First, the abstract

"Tariffs – taxes on imported goods – likely impose a heavier burden on lower-income households, as these households generally spend more on traded goods as a share of expenditure/income and because of the higher level of tariffs placed on some key consumer goods. This column estimates the tariff burden by income group and by family structure using a new dataset constructed by matching of granular data on trade and consumer spending. The findings suggest that tariffs function as a regressive tax that weighs most heavily on women and single parents."

"Many overlook the fact that like any tax, the tariff burden does not fall uniformly across goods, but falls more heavily on particular goods and the populations that purchase them."

:For the US, we calculate conservative estimates, assuming that protection via tariffs does not induce domestic producers of similar goods to raise their prices at all. These estimates show that the poorest 10% to 20% of households in the income distribution pay about $95 a year due to tariffs, middle-income households pay roughly $190, and the richest 10% about $500."

"the burden is substantially higher for poor households than for the richest relative to their income."

They have a graph which shows that the highest decile of household income before taxes pays less than 0.3% in tariffs while the lowest decile pays more than 1.5% (so the burden is 5 times greater for the poor than the rich). They also don't assume that domestic producers raise their prices because of the tariffs, which they probably would, hurting the poor even more.

"If tariffs were raised by 10 percentage points across the board, the cost of households’ 2014 consumption bundles (all else equal, including exchange rates) would have risen by $301 and $307 for the lowest two income deciles, $611 and $716 for the fifth and sixth income deciles, and $1,462 for the households in the highest income decile, assuming the full tariffs are passed through to consumers and have no additional impact on domestic prices."

"Economists often think of tariffs in a stylised way, as though they are applied uniformly to broad swaths of the economy, or simply targeted to protect only the most deserving or vulnerable sectors.  In fact, there is enormous variation in tariffs at the disaggregate level for reasons that sometimes are due to careful targets, but alternatively may favour some groups or products over others for reasons that are not always obvious. For example, for a family doing their back-to-school shopping, backpacks of man-made fibres carry tariffs of 17.6%; ballpoint pens 0.8 cent each plus an additional 5.4%; non-mechanical pencils and crayons about 4.3%; markers 4%; mechanical pencils 6.6%.  The tariff code thus penalises students more for using ballpoint pens and mechanical pencils than markers.  Meanwhile, there are no tariffs applied on imports of cross-country snow skis, sailboards, or archery equipment (USITC 2016: Chapters 42, 95)."

In the next to last paragraph above, it looks like the rich would have paid more if tariffs went up 10%. But, according to the census bureau, the top 10% have an income that is about 12.2 times the bottom 10% (actually, that is comparing the 10th percentile limit to the 90th, so it seems that they are comparing the lowest income to get into each percentile). The top quintile has a mean income about 16 times the bottom quintile. My guess is that the ratio is even larger just doing deciles.

If I used the mean income for quintiles for 2015, we would have 300/12,457 = .024. For the top quintile 1462/202,366 = .0072. The difference will actually be larger since the mean income for the lowest decile would be lower than 12,457 and the mean income for the highest decile would be more than 202,366.

So if we do .024/.077 = 3.333. So that 10% increase in tariffs would be at least 3.33 times the burden on the poor as the rich.