Kyle Bass, renowned hedge fund manager and founder of Hayman Capital Management, recently voiced skepticism regarding former President Donald Trump’s proposal to replace income taxes with import tariffs. During an appearance on CNBC’s “Last Call,” Bass critiqued the feasibility of Trump’s plan, emphasizing the vast disparity between U.S. import volumes and tax revenues.
Bass highlighted that in the previous year, the total volume of imports into the United States amounted to $3.8 trillion, whereas U.S. tax revenue stood at approximately $4.4 trillion. Even with a hypothetical scenario of imposing a 100% tariff on all imports, Bass pointed out that it would still fall short of meeting the $5.4 trillion budget estimates for tax revenues this year. He concluded that Trump’s proposal, while provocative in nature, is not grounded in practicality and would not suffice as a viable economic strategy.
Trump’s proposal to replace income taxes with an “all tariff policy” marks a significant departure from conventional economic policies. This idea was reportedly discussed with CEOs and lawmakers, signaling Trump’s continued advocacy for protectionism and tariffs as pillars of economic policy.
In response to Trump’s proposal, top economist Paul Krugman also weighed in, expressing skepticism through social media posts. Krugman calculated that an average tariff rate of 133% would be necessary to entirely supplant income tax revenues, dismissing the feasibility of reverting to such extreme protectionist measures in the modern economic landscape.
During his presidency, Trump notably championed protectionist policies, aiming to reduce trade deficits and bring manufacturing jobs back to the United States. His tenure saw the implementation of tariffs on goods from countries like China and the European Union, under the rationale of leveling the playing field for American businesses and workers.
Trump’s economic agenda, which included the signing of the Tax Cuts and Jobs Act (TCJA) in 2017, represented one of the largest tax code overhauls in decades. The TCJA primarily benefited high-income earners and corporations, with provisions set to expire by 2025.
Bass’s critique of Trump’s tariff-centric tax proposal underscores the ongoing debate over economic policies that balance fiscal sustainability with trade competitiveness. As discussions continue on the future direction of U.S. economic policy, the feasibility and implications of such radical proposals remain a topic of considerable scrutiny among economists, policymakers, and investors alike.