No. of Recommendations: 6
A BOE calculation using the $3800 aggregate price increase that a family of four will pay in a year, and assuming 100 million families, I get $380 billion in extra income for the U.S. gov't.
Is this too simplistic or just outright wrong?
Yes. I mean, it's simplistic - and it's a little wrong.
Probably the biggest problem is assuming that the increase in cost to the consumer matches up to the revenue to the government. It won't, because of (at least) two factors: the incidence of the tariff and consumer switching.
Tariff (tax) incidence is simply the relative proportion of who bears the cost of the tariff. If a good from Europe cost $100 before the tariff, and there's now a 20% tariff, the producer might theoretically increase the price of the good to $120 - but it's far more likely they would increase it to something lower than that. So, for example, they might instead sell it to the consumer for $110. They pass $10 of the $20 tariff on to the consumer, and eat $10 of it themselves. The revenue to the government is higher than the price increase to the consumer. The degree to which the tariffs get paid by the producer vs. the consumer depends on the relative price elasticities of demand and supply that they face.
Consumer switching can result in price increases when consumers change their behavior to avoid tariffs. Again, take that good from Europe cost $100 before the tariff and $110 afterwards - if there's a domestic version of that good that cost $108, the consumer might switch from the imported good to the domestic one. They're paying more than before ($8), but none of that increase in price yields any tariff income to the U.S. government.
As you might expect, the real world will be an insanely complex amalgam of all of the above. Different consumers and producers have different price elasticities, purchasers will switch not only between imported and domestic goods but switching from where they import from as well, consumers will not only switch where they source their goods (domestic shrimp vs. imported shrimp) but what goods they consume as well (chicken vs. shrimp), etc. So, no - you can't conclude that the amount of revenue to the government will equal the amount of extra costs that consumers bear.
Finally, a quibble - there probably aren't 100 million families of four in the U.S. - we have about 131 million households, but many are smaller than four. So that's a little high even in the first place.
