Opens in a new tab

Auto tariffs could cost low-income earners tax cut money

June 10, 2018

Cars lot imports

Donald J. Trump arrived in Quebec for the G-7 meeting with some controversial ideas (notably, letting Russia back in the club) and he left the international meeting the same way.

Tweeting from Air Force One as he headed to Singapore to meet with North Korea's Kim Jung Un, Trump gave notice he's ready to escalate trade disagreements with Canada by imposing automobile tariffs.

The initial reaction has been what such a move could actually mean to the U.S. automotive industry.

Tax cut tariff costs: But auto tariffs also could undermine any gains from the TCJA, according to a Washington, D.C.-based tax policy think tank.

And the taxpayers who would feel the negative effects most are low-income households.

"We estimate that increasing tariffs on automobile imports would reduce the gain in after-tax income for households in 2018 derived from the Tax Cuts and Jobs Act while making the tax code less progressive," says Erica York, an analyst with the Tax Foundation.

York notes in her article posted at the tax policy nonprofit's website that economists generally agree that free trade increases the level of economic output and income, and conversely, that trade barriers like tariffs reduce economic output and income.

The full effect of any tariffs would be long-term, but if ultimately imposed, York says "these automobile tariffs would fall more on middle- and lower-income taxpayers, reducing the increase in income these households would see because of the Tax Cuts and Jobs Act, and making the distribution of the tax burden less progressive."

How much so is shown in the Tax Foundation table below:

Auto tariff projected impact on TCJA gains

Bigger tax break, less tariff effect: Overall, the Tax Foundation projects that new tariffs on automobiles reduce after-tax income gains for all taxpayers by 0.47 percent or a 16 percent change.

Those in the bottom 80 percent of earnings, however, would see their after-tax income gains from the new tax law cut by 0.49 percent or a negative impact of 49 percent on their tax change earnings.

That's almost half of the 1 percent income gain those households are expected to get from the TCJA.

And that's why the 0.49 percent potential TCJA tariff bite is this week's By the Numbers figure.

It could be that Trump's tariff talk is primarily bluff and bluster, as he doubled-down while en route to the meeting with Kim. As his advisors noted, he wants to appear as strong as possible for those discussions.

But trade matters have been a major political plank for Trump from the get-go of his political career. So, as Trump is fond of saying, we'll see.

You also might find these items of interest:

Advertisement



Share:

The More Tax Posts tab at the top of this page will take you to, well, more tax posts. You also can search below for a tax topic. 

Latest Posts
confused office worker
8 workplace benefits questions to ask this enrollment season

October 26, 2026

Millions of U.S. workers are now deciding what workplace benefits, some of which also offer…

Read More
TAX-SAVVY WAYS 
TO WRAP UP 2026

It’s over! With October’s extended filing deadline behind us, it is now time to focus on year-end moves to reduce your 2026 tax bill. 

You’ll find ways to do just that on the Tax Tips page (see the More Tax Posts drop-down menu at the top of the blog), as well as the separate tax tip pages for each month, notably October through December. If you’re on the Tax Tips page, you’ll find a monthly list at the end of this column. If you’re on another blog page, you can head straight to the October tips; at the bottom of that tips page you’ll find links to all the other 11 months’ collections of tax advice.

Not to spoil what you’ll find in that tax advice, but it does cover such things as tax deductions for charitable donations, investment moves that could reduce tax due, and ways to max out your tax-favored retirement savings. 

Finally, as the year winds down, things get hectic. There are lots of other things to occupy our time, like the much more fun upcoming holidays. But don’t lose sight of taxes, since timing is key. To be of use, most tax moves must be made by the end of the tax year. That’s Thursday, Dec. 31, which also is the last business day of the year. 

So that you don’t miss that final tax year deadline, also keep an eye on the countdown clock below. It will keep you on top of just how much time is left to make important, tax-saving moves. (Note: I’m in the Central Time Zone, so adjust accordingly for where you live.)

Comments
Leave the first comment