Tariffs and Taxes Debate Continues

On Thursday, Treasury Director Scott Bescent asserted that tariffs should not be classified as taxes, which goes against the conventional economic understanding of these key trade instruments used by President Trump.

During a Senate Finance Committee hearing, Senator Katherine Cortez Masto (D-Nev.) challenged Bescent’s viewpoint while discussing the federal revenues generated from Trump’s trade policies.

“Let’s get to the point,” Cortez Masto asked. “Do you believe customs duties are taxes?”

Bescent hesitated, responding with, “Sorry?”

“Do you think tariffs are taxes?” she pressed again.

“No,” he replied firmly.

She reiterated her question, “Isn’t that what they are?”

Again, he responded, “No.”

Tariffs, essentially, are fees imposed on individuals or businesses importing certain goods as determined by the federal government through Congress and the President.

While there is some debate among economists about the overall effectiveness of tariffs as trade policy, it’s generally well-accepted that they act in a tax-like manner.

The U.S. Customs and Border Protection agency refers to these charges as “duties,” which is often synonymous with taxes. In reports about the revenue they generate, the terms are essentially interchangeable.

According to the Congressional Budget Office, Trump’s tariffs are projected to generate between $2.4 trillion and $2.8 trillion in federal revenues over the next ten years. This figure closely aligns with the amount that recent Republican tax and spending reductions are expected to add to the U.S. deficit—a connection Bescent dismissed as “not a coincidence, not causal.”

For months, Trump has highlighted tariffs as a significant revenue source to finance tax cuts for Americans. He has even suggested that tariff income might be used to offset income taxes entirely.

In an April statement, Trump said, “We could potentially make a full tax cut. I think tariffs are enough to cut all income taxes.”

Many economists, however, remain skeptical.

Jesse Solis from the Tax Foundation noted that “Individual income taxes outpace current tariffs by more than 27 times,” highlighting the disparity.

Businesses frequently argue that tariffs are, in fact, taxes, which are ultimately passed on to consumers as prices increase. Yet, companies can also absorb these costs by adjusting profit margins or changing production plans.

An economic researcher at the Peterson Institute for International Economics remarked earlier this month that “In most cases, tariffs will raise the cost of imported goods at full tariff charges,” affirming that the marginal costs for imported items will rise with tariffs.