March 2, 2017

27. Is Trump right about an import tariff?

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Donald Trump has talked about a 20 percent tax on exports from Mexico to help pay for the wall, but has also spoken about a broader tax on all imports. Many fear it’s a form of protectionism that could spark a trade war, but perhaps they are misunderstanding the intent of Trump’s plan. It’s possible he is following the thinking of Oxford professor Michael Devereux who argues that corporate tax should be applied where consumption happens, rather than where profit is generated. That would mean, irrespective of where goods are made, if they are consumed in America, companies would be taxed. Companies that tried to manufacture elsewhere and sell to the US could end up being taxed in both countries, so it heightens the incentive to produce locally.

In this free edition of The Debunking Economics podcast Phil Dobbie asks Professor Steve Keen whether Trump has the right idea on this one. We also look at the fundamental purpose of taxation. The idea that it is fundamentally there to create revenue for the government is the wrong way of thinking about it, says Steve.

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