Karoline Leavitt says tariffs are ‘a tax cut.’ Economists say they aren’t

When Associated Press reporter Josh Boak asked about tariffs in the White House press briefing March 11, the exchange with White House Press Secretary Karoline Leavitt quickly became testy.

It also produced a sentence that left economists’ heads spinning: "Tariffs are a tax cut for the American people," Leavitt said.

After Leavitt said that, Boak responded, "I'm sorry, have you ever paid a tariff? Because I have. They don't get charged on foreign companies. They get charged on the importers."

Leavitt pushed back, calling his question "insulting."

"Ultimately," she said, "when we have fair and balanced trade, which the American people have not seen in decades, as I said at the beginning, revenues will stay here, wages will go up and our country will be made wealthy again."

Boak had asked about President Donald Trump’s pursuit of wide-ranging tariffs on Canada, Mexico, China and other countries during his first eight weeks back in the White House following months of promising Americans that he would cut their taxes.

The stock market has reacted unfavorably to the prospect of a global trade war. Trump’s decisions to enact tariffs, then delay their implementation, prompted additional market stress. By March 11, the S&P 500, a broad market index, had fallen more than 9% in about three weeks.

Standard economic theory argues that tariffs are indeed a tax on the consumer, if not fully, then at least to a large degree. Most studies of Trump’s first-term tariffs showed that consumers were hurt, and the second-term tariffs he’s proposing would be more far-reaching than his first-term tariffs were, with potentially even bigger negative economic impacts.

We asked the White House to explain Leavitt’s assertion, but its response didn’t directly answer our question. 

"In his first term, President Trump implemented his America First economic agenda of tariffs, tax cuts, deregulation, and the unleashing of American energy that resulted in historic job, wage, and investment growth with no inflation," White House spokesman Kush Desai said. "In his second term, President Trump will again implement an America First agenda to reindustrialize the United States and revitalize working class prosperity."

When we reached out to an ideologically diverse group of economists, they were unimpressed by Leavitt’s assertion.

• "The statement that tariffs are a tax cut is nonsensical," independent libertarian economist Daniel Mitchell told us.

• "I cannot think of any direct way in which a higher tariff is a tax cut," said Steve Fazzari, an economist at Washington University in St. Louis. "Tariffs are taxes. Higher tariffs are higher taxes."

• "I simply think there is a fundamental misunderstanding about who pays the tariff that is perpetuated by the White House," said Ross Burkhart, a Boise State University political scientist who studies international trade. "It is the importing company who imports the goods from the targeted country that pays the tariff and then passes the cost of that tariff down to the consumer, who pays the raised price for the product, and any sales tax associated with that product."

• "Honestly, it sounds like everything is being put on its head," said Tara Sinclair, a George Washington University economist. "Economists don't agree on much, but we agree tariffs are taxes on consumers." 

In 1990, 2000, 2011 and 2021, researchers surveyed members of the American Economic Association, a professional group for economists, to gauge consensus among the group’s members on a range of economic propositions. One proposition asked whether "tariffs and import quotas usually reduce general economic welfare." In each of the surveys spanning three decades, 94% to 95% of economists surveyed agreed that tariffs reduced general economic welfare.

So what’s going on here?

We asked economists if any amount of squinting at Leavitt’s statement could produce an economically sound argument. 

The answer: Not really. But here are the best cases.

Trump’s supporters might argue that while tariff hikes could cost consumers money up front, the revenue that tariffs generate for the federal government could allow tax cuts down the line.

However, such a scenario would not guarantee tax cuts for typical Americans. At best, it could become a wash for consumers if the money saved from tax cuts roughly equaled the added consumer purchase costs. 

There’s good reason to believe that the costs from tariffs would exceed the gains from the tax cuts they enable, economists said. 

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Maine Gov. Janet Mills said, “If (President) Donald Trump stops federal funding to Maine, we the people of Maine will take out federal taxes from all paychecks and no taxes will be paid to the federal government.”

"President Trump has sometimes suggested that tariffs could replace income taxes, but no unbiased analyst believes that outcome is remotely possible," Fazzari said.

In fiscal year 2024, the federal government spent $6.4 trillion while the nation imported $3.3 trillion worth of goods, Douglas Irwin, a Dartmouth College economist who once worked on the staff of President Ronald Reagan's Council of Economic Advisers, has written. As a result, he wrote, "even a 100% tariff on all imported goods would not be enough to finance the federal government, and any tariff on that level would also severely cut imports, dramatically reducing U.S. revenue and inflicting enormous costs on the economy."

Another problem: Shifting federal revenue generation from taxes to tariffs would be regressive, meaning lower-income Americans would be hit harder than wealthier Americans, Irwin said. That’s because lower-income people spend a larger share of their income on purchases than upper-income people do. In addition, in recent years, about 40% of American households paid no federal income tax, so they wouldn’t see gains from federal income tax cuts. About 60% of non-payers make less than $30,000 and another 28% make between $30,000 and about $60,000, the Urban Institute-Brookings Institution Tax Policy Center found.

Primarily relying on tariffs to generate federal revenue "is simply substituting a higher and inefficient consumption tax for a lower income tax, and both of those moves are regressive," Irwin told PolitiFact.

Commerce Secretary Howard Lutnick has argued that Trump’s quick changes on imposing or delaying tariffs serve as a negotiating tool.

"When you’re negotiating with someone and they’re not paying attention and they’re disagreeing, the president, who’s the best dealmaker ever to sit in that chair, he’s going to say, ‘Here’s my response,'" Lutnick told CBS News. "And then all of a sudden, shockingly, they respond."

If tariffs were simply negotiating tools in order to improve the U.S. position, and weren’t actually imposed, it could boost domestic industrial production and economic growth enough to cut taxes down the road, Irwin said.

However, this is a risky, complicated bet, one that might pay off many years later, after significant economic damage has already occurred, economists said.

Tariffs may be able to boost domestic industrial production, Irwin wrote, but in the modern era, when robots can do many tasks that workers once performed, it doesn’t mean that workers will benefit.

Also, tariffs tend to pick winners and losers. Placing tariffs on products such as steel "can actually work against the creation of manufacturing jobs," Irwin wrote. He cited research by economists Kadee Russ and Lydia Cox showing that for every new job created in a U.S. steel mill that benefited from tariff protection, 80 workers in industries that use steel would be hurt. That’s because the companies that use steel will see costs rise and experience smaller sales and a need to cut workers, or both.

Leavitt said, "Tariffs are a tax cut for the American people."

Virtually all economists, citing years of data and analysis, characterize tariffs as tax hikes rather than tax cuts, because much of the additional cost of the tariff is passed on to consumers through higher prices.

Seven economists we interviewed said that it’s possible to argue that the added revenue to the treasury from raising tariffs could allow the government to lower taxes. However, analyses show that it’s unlikely that even high tariffs could generate enough revenue to permit meaningful tax reductions for typical Americans.

We rate the statement False.