Tariffs for Taxes?

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Unleash Prosperity Hotline – Weekend Edition
Issue #1040
06/14/2024, 06/15/2024, 06/16/2024
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1) Tariffs for Taxes?

We’re not sure what to make of Donald Trump’s whimsical comment that he would like to use tariffs to replace income taxes. We’re undecided on the wisdom of the proposal, but a few things to consider:

* Tariffs were the number one source of revenues for the federal government. Then, the U.S. made one of its most grievous errors in history by adopting an income tax in 1913 via the 16th Amendment (which should be repealed).

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The idea of replacing the evil progressive income tax with rates that exceed 40% and at one point reached 91%, and replacing it with a 10% flat income tax, would be pro-growth.
* Tariffs are taxes on consumption. It is better to tax consumption than to tax saving and investment.
* Tariffs are, of course, taxes but a non-discriminatory revenue tariff on everything is far better than protectionist tariffs that try to prop up industry - cars, steel, solar panels, batteries, etc.
* We import nearly $4 trillion a year, so a 10% tariff could raise as much as $400 billion. That’s enough to completely replace what the corporate tax was raising before the Trump tax cuts.

It’s a good debate to have. There are many arguments AGAINST this idea. And we’re sure we will be hearing from readers enumerating what those are. We’re all ears.

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2) Modest Inflation Ahead – But for How Long?

Consumer prices are now officially up just over 20% since Biden entered office. This is a dreadful record of fighting inflation and it is no wonder that voters are angry and anxious. Biden's record on controlling prices is the worst since Jimmy Carter.

The good news is that price rises are finally starting to moderate, as reflected in the latest CPI report. Where are we headed?

We like to look at four key forward indicators of inflation and they are all pointing to inflation in the 3.5% range over the next year or so. Remember: the Fed target is 2%.
Commodity Index

This one is troubling. The real-time index of commodity prices shows the composite price of everything from copper to cotton to coal is still on the rise and near a 10-year high. This suggests that we are likely to see a worsening inflation picture in the weeks ahead.
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Ten Year Break Even Inflation Rate TIPS Spread

This remains low. It shows that investors believe that over 10 years inflation will be running at a tame 2.2% rate.
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Gold Price

The gold price had spiked up to above $2,400 an ounce earlier this year, but in recent weeks, has drifted down to $2,317. Still, this is near a 10-year high, suggesting that investors are still buying gold as a hedge against runaway inflation.
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Ten Year Treasury Yield

Investors are buying the Ten Year Treasury at an interest rate of 4.25%, which is down from a peak of near 5%, and suggestive of only moderate inflation on the medium horizon.
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3) Chicago Teachers Union Contract Negotiations Start Today

We hate to always pick on Chicago (and some of your editors still love the Windy City), but elections have consequences and boy are Chicagoans paying a price. Our friends at the Illinois Policy Institute note that the city is now negotiating a new contract with the Chicago Teacher Union.

Are you sitting down?

The union is demanding “at least $10 billion more in spending than the current contract costs.” This isn’t a settlement; it’s a ransom note.

Yesterday, we shared a chart showing national education spending rocketing upwards while student performance was flat. We also noted that pay raises only help kids when they are tied to PERFORMANCE. The Chicago Teachers Union wants pay for nonperformance.

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Will the mayor and the City Council stand up to these union thugs who aren’t teaching our kids?

Of course not. Mayor Johnson used to work for the union. If he had an ounce of integrity, he (and his office) would recuse themselves.

Elections have consequences.

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4) Javier Milei Continues To Prove His Critics Wrong
Wednesday was a good day for Javier Milei, Argentina and economic freedom.

The Argentine Senate ignored Antifa-type violent mobs who burned cars on the streets outside their chamber and passed Milei's basic reform package on tax cuts and budget reforms. This includes incentives for investment, the privatization of some state assets, and greater presidential power to deregulate the economy. The vote was 36 to 36, with Milei's vice president Victoria Vaillarruel casting the tie-breaking vote in favor.

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Milei's libertarian party controls only 10% of the Senate, so skeptics said he would never get his package through it. But Milei skillfully compromised on enough elements in his plan to eventually win over 36 of the 39 Senators who don't belong to the statist Peronist party.

It’s one man and the people against the machine. So far he’s winning.
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5) Prediction: The Green New Deal Is Now a Big Target in Europe

Green parties suffered sweeping defeats in last week's elections to the European Parliament. The Green caucus in the Parliament will be 25% smaller due to disastrous showings in Germany, France, Italy, and Belgium.

Green parties are already fretting that their losses will lead conservative parties to launch a full-scale assault on Net Zero – the European Union's goal to achieve zero carbon emissions by 2050.

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The revolt against Green extremism even reached young voters. "Greens in Germany lost significantly with younger voters. This is alarming," admits Daniel Freund, a Green Member of the EU Parliament. "Our campaign was not able to address these voters — to show them the urgency of our climate policy."

A big reason for public rejection of the Greens is simply the outrageous costs their agenda has created. A Eurobarometer poll of voters found that climate change placed only fifth among the issues that concerned people. Rising costs and inflation were the most important.

The next targets will be an EU law that bans the sale of beef, wood, rubber, coffee, and chocolate if they come from deforested land. It won’t be long before these modern-day Puritans call for banning sex.
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6) A Tale of Two Tax Plans
CORRECTION: In yesterday's HOTLINE we included without comment FOX coverage of our oil report describing $250 billion of "lost oil output," but that is the figure for lost GDP due to the war on oil and gas. Lost oil output has been $170 billion.

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