The Big Lies - Tariffs and Tax Cuts
"Dumber than a sack of bricks"!
50-year study of tax cuts on wealthy shows they always fail to "trickle down" | Salon.com
For the last 45 years, Republicans have snookered average Americans with promises of prosperity from tax cuts and neoliberal free trade policies. Instead, income and wealth inequality have soared; the riches have gone increasingly from the middle-class and the poor to the richest billionaires! (Why There's So Much Anger and Despair)
Now, Donald Trump claims that global tariff increases will MAGA! The world's richest man, Elon Musk, says that's "dumber than a sack of bricks"! (Trump tariffs live updates: Elon Musk attacks Peter Navarro)
I asked Perplexity.ai to do "deep research" on this tax cut and tariff issue, and then followed-up with "How have past tax cuts specifically impacted the wealth distribution in the US":
Perplexity Prompt:
"The 47th US President, Donald Trump, has imposed new high global tariffs on China and other countries. These are effectively consumption taxes on American citizens and businesses, which are anti-progressive, and hence increase income and wealth inequality in the US. Describe the effects of these and other past "tax cuts" which have increased economic inequality in the US." (Use Deep Research)
The Compounding Effects of Tariffs and Tax Cuts on U.S. Economic Inequality
The recent wave of tariffs implemented by the 47th U.S. President Donald Trump, combined with his past and proposed tax cuts, represents a significant economic policy shift with far-reaching implications for income and wealth distribution in America. Current data shows that wealth inequality has reached historic levels, with the top 50% of households controlling 97.5% of the country's assets, while the lowest-earning Americans face disproportionate burdens from these policy decisions[1].
Current State of Wealth and Income Inequality
Wealth inequality in the United States has widened significantly since the late 1980s, with gains flowing disproportionately to the wealthiest Americans. Federal Reserve data reveals that at the end of 2024, the top 1% of households owned 31% of the nation's assets, a substantial increase from 23% in 1989[1]. During this same period, the share owned by the bottom half of Americans declined from 3.5% to just 2.5%[1].
This stark disparity creates a foundation upon which new fiscal policies can either mitigate or exacerbate existing inequalities. While Americans as a whole have grown wealthier since the 1980s, with the bottom 50% seeing their collective wealth increase more than fivefold to $4 trillion (compared to $700 billion in 1989), their overall share of national wealth has continued to shrink[1]. This indicates that wealth creation has been dramatically uneven, with high-income households capturing a progressively larger portion of new economic gains.
Economic Vulnerability of Lower-Income Households
Economic vulnerability among lower-income Americans creates a context where fiscal policy changes have outsized effects. Currently, the lowest-earning 20% of U.S. households spend approximately 95% of their income on necessities, leaving minimal flexibility to absorb additional costs[1]. This precarious financial position means that even modest price increases resulting from trade or tax policies can significantly impact their quality of life and economic security.
Trump's New Tariff Policies
In April 2025, President Trump announced a sweeping new round of tariffs targeting imports from multiple countries. These include 25% import duties on cars and auto parts, as well as tariffs on steel, aluminum, and various other products[1]. The tariff regime includes particularly steep rates on goods from several Asian manufacturing centers:
Over 40% tariffs on imports from Vietnam, Sri Lanka, and Cambodia[5]
More than 70% in cumulative tariffs on products from China[5]
New "reciprocal tariffs" designed to equalize trade barriers between the U.S. and other nations[1]
These tariffs represent a significant expansion of protectionist trade policy, with the administration arguing they will restructure global trade and revitalize American manufacturing jobs[5]. Treasury Secretary Scott Bessent has suggested that Americans desire more than just inexpensive goods, stating, "The American dream is not simply about affordable electronics"[5].
Economic Impact of the New Tariffs
The economic impact of these tariff policies is projected to be substantial. Analysis from Yale University's Budget Lab estimates that the cumulative effect of tariffs introduced since Trump took office could impose a financial burden of approximately $3,800 annually on the average household[5]. The Peterson Institute for International Economics specifically projects that Trump's proposed tariffs on Canadian, Mexican, and Chinese imports could cost typical households around $1,200 per year[1].
These tariffs are expected to trigger broad price increases across multiple sectors of the economy:
An overall price increase of 2.3%, compounding the current inflation rate of about 3%[5]
Leather goods (including shoes) projected to increase by 18%[5]
Apparel likely to rise by 17%[5]
Electrical equipment costs increasing by 10%[5]
Food items facing significant increases, with rice prices projected to rise by 10% and prices for fish, nuts, and fresh produce by 4%[5]
Tariffs as Regressive Consumption Taxes
Despite being framed as penalties on foreign producers, tariffs function primarily as consumption taxes paid by American consumers and businesses. When the U.S. government imposes tariffs, American companies importing the affected products pay these fees directly to U.S. Customs and Border Protection[5]. These companies subsequently pass most or all of these costs to consumers through higher prices[1].
Economists Adam Hersh and Josh Bivens of the Economic Policy Institute explain that "tariffs are a regressive tax, meaning people with lower incomes will pay a larger share of their earnings in taxes than high-income people"[1]. This regressive impact occurs because "tariffs are essentially a consumption tax, and consumption as a share of income tends to fall as incomes rise"[1].
Disproportionate Burden on Lower-Income Households
The regressive nature of tariffs creates a disproportionate burden on lower-income Americans for several interrelated reasons:
Lower-income households spend a larger percentage of their income on consumption, particularly on essential goods most affected by tariffs[1][5].
These households are more likely to purchase products from countries facing the steepest tariffs, such as China and Vietnam, which typically produce more affordable consumer goods[5].
The Yale Budget Lab analysis indicates that the lowest-income families might experience a 4% decrease in their after-tax earnings due to these tariffs—three times the effect felt by higher-income households[5].
Lower-income consumers have less financial flexibility to absorb price increases or switch to more expensive domestically-produced alternatives[5].
Economic analyst Ernie Tedeschi of the Budget Lab, a former economist at the White House Council of Economic Advisers during the Biden administration, notes that "tariffs function as a regressive tax, disproportionately affecting families with lower incomes compared to those with higher earnings"[5].
Impact of Past Tax Cuts on Economic Inequality
The 2017 Tax Cuts and Jobs Act (TCJA), which expired on December 31, 2024, represents the most direct recent example of how tax policy can exacerbate inequality. Despite promises of middle-class benefits, more than 80% of the cuts went to corporations, tax partnerships, and high-net-worth individuals[3]. The cost to the U.S. deficit was substantial—a total increase of $1.9 trillion from 2018 to 2028, according to Congressional Budget Office estimates[3].
Corporate Tax Cuts and Income Distribution
Research on corporate tax cuts provides compelling evidence of their relationship to increased income inequality. A study published in the Journal of the University of Chicago found that corporate tax cuts lead directly to higher income inequality[4]. Analyzing state-level tax changes, researchers determined that a 1 percentage point cut in corporate taxes increases the share of income accruing to the top 1% by 0.90 percentage points[4].
This research suggests that a typical state corporate tax cut of 0.5 percentage points would explain approximately 7.4% of the increase to the top 1% income share during the 1990-2010 period[4]. These findings confirm that while tax cuts generate some gains for all earners, the disproportionate benefits to capital income for top earners exceed the total income gains for lower-earners, thereby increasing inequality[4].
Racial Dimensions of Tax Policy
The tax advantages for Black Americans under the TCJA were particularly minimal, highlighting the racial dimensions of fiscal policy[3]. Legacy effects of slavery, Jim Crow laws, and structural racism have created barriers to home ownership for Black Americans, preventing many from accessing tax benefits tied to property ownership, such as mortgage interest deductions and property tax deductions[3]. This structural disadvantage means that ostensibly race-neutral tax policies can nevertheless perpetuate racial economic disparities.
The Compounding Effect of Current Fiscal Policies
The combination of extending past tax cuts while imposing new tariffs creates a concerning scenario for income and wealth inequality. Currently, Trump is seeking to extend his 2017 tax cuts while adding additional reductions—including eliminating taxes on Social Security income and making interest for some auto loans tax deductible[1].
Economic analyses project that this policy mix will have dramatically divergent impacts based on income level:
The lowest-earning 20% of households is forecast to take a hit of $1,125 per year if the tax cuts are extended and public benefits are cut[1].
The top 1% would enjoy an effective income boost of $43,500 annually under the same scenario[1].
Emily DiVito, senior adviser for economic policy at Groundwork Collaborative and former policy adviser at the Treasury Department, describes this combination as "pretty devastating" for lower-income households, noting that the wealth inequality "trend we have been experiencing for the last 40 years would be exacerbated"[1].
Widening the Wealth Gap
The combination of regressive tariffs and progressive tax cuts creates a powerful mechanism for accelerating wealth concentration. High-income households are more likely than low- and middle-income families to have disposable income after paying bills, which they can invest in stocks, bonds, and other assets[1]. Extended tax cuts provide these households with even more investment capital, allowing their wealth to compound over time[1].
Meanwhile, lower-income households simultaneously face:
Reduced purchasing power from tariff-induced price increases
Minimal benefits from tax cuts focused on investment income and high earners
Potential reductions in social safety net programs that might otherwise offset these negative effects[1]
Conclusion: Long-Term Implications for American Society
The current trajectory of U.S. fiscal policy—combining heavy tariffs with tax cuts that primarily benefit corporations and wealthy individuals—appears poised to accelerate the concentration of wealth and income. While the administration argues these policies will benefit all Americans through job creation and economic growth, the available economic evidence suggests that the immediate and medium-term effects will be to further strain already-precarious lower and middle-income households while providing substantial benefits to those at the top of the economic ladder.
This pattern of increasing inequality has profound implications not just for economic statistics, but for the lived experience of Americans across the socioeconomic spectrum. As wealth and income become increasingly concentrated, questions about economic opportunity, social mobility, and the equitable distribution of the nation's prosperity will likely become even more central to political and policy debates in the coming years.
Citations:
[1] https://www.cbsnews.com/news/trump-tax-cuts-tariffs-top-50-percent-own-almost-all-wealth/
[2] https://thehill.com/opinion/finance/5175122-trump-tariffs-wealth-inequality/
[3] https://theconversation.com/trumps-2017-tax-cuts-expire-soon-study-shows-they-made-income-inequality-worse-and-especially-hurt-black-americans-233758
[4] https://www.journals.uchicago.edu/doi/full/10.1086/718950
[5] https://www.nbcnews.com/politics/economics/trumps-new-tariffs-will-hit-lower-income-households-hardest-rcna199501
[6] https://www.commondreams.org/opinion/why-aren-t-you-supporting-the-trump-tariffs
[7] https://www.axios.com/2025/04/02/trump-tariffs-low-income
[8] https://publicintegrity.org/inequality-poverty-opportunity/taxes/unequal-burden/how-four-decades-of-tax-cuts-fueled-inequality/
[9] https://www.cbsnews.com/news/tax-cuts-rich-50-years-no-trickle-down/
[10] https://budgetlab.yale.edu/research/fiscal-economic-and-distributional-effects-illustrative-reciprocal-us-tariffs
[11] https://www.hbs.edu/faculty/Pages/item.aspx?num=54496
[12] https://www.cbsnews.com/news/which-products-most-affected-tariffs/
[13] https://www.pbs.org/newshour/nation/how-trumps-latest-tariffs-could-affect-your-personal-spending
[14] https://en.wikipedia.org/wiki/Reagan_tax_cuts
[15] https://www.bbc.com/news/articles/cn93e12rypgo
[16] https://www.investopedia.com/terms/r/reaganomics.asp
[17] https://rooseveltinstitute.org/blog/the-trickle-down-tax-code-failed/
[18] https://inequality.org/article/liberation-day-tariffs-will-concentrate-wealth-even-more/
[19] https://www.nber.org/system/files/working_papers/w24598/w24598.pdf
[20] https://www.epi.org/publication/tcja-extensions-2025/
[21] https://www.piie.com/blogs/realtime-economics/2025/trumps-tariffs-are-designed-maximum-damage-america
[22] https://www.ucdavis.edu/magazine/how-could-tariffs-affect-consumers-business-and-economy
[23] https://calbudgetcenter.org/app/uploads/2018/11/PI-19-Kitson-handout.pdf
[24] https://www.brookings.edu/articles/effects-of-income-tax-changes-on-economic-growth/
[25] https://www.nbcnews.com/business/economy/trade-deficit-what-does-it-mean-for-economy-trump-tariffs-rcna199999
[26] https://www.progressivepolicy.org/tariffs-are-a-poor-form-of-taxation/
[27] https://inequality.org/article/tax-cuts-create-debt-division-and-despair/
[28] https://www.propublica.org/article/history-income-tax-history-16th-amendment-trump-tariffs-great-depression
[29] https://budgetlab.yale.edu/research/where-we-stand-fiscal-economic-and-distributional-effects-all-us-tariffs-enacted-2025-through-april
[30] https://apnews.com/article/tariffs-consumer-impact-workers-prices-ba862da51b51ae1afdfae08bf02c2449
[31] https://www.citizen.org/article/progressive-tariffs-101/
[32] https://www.piie.com/blogs/realtime-economics/2024/can-trump-replace-income-taxes-tariffs
[33] https://www.whitehouse.gov/presidential-actions/2025/04/regulating-imports-with-a-reciprocal-tariff-to-rectify-trade-practices-that-contribute-to-large-and-persistent-annual-united-states-goods-trade-deficits/
[34] https://taxfoundation.org/research/all/federal/us-consumption-tax-vs-income-tax/
[35] https://www.whitehouse.gov/fact-sheets/2025/04/fact-sheet-president-donald-j-trump-declares-national-emergency-to-increase-our-competitive-edge-protect-our-sovereignty-and-strengthen-our-national-and-economic-security/
[36] https://www.sciencedirect.com/science/article/abs/pii/S0047272723000798
[37] https://www.npr.org/2025/04/02/nx-s1-5345802/trump-tariffs-liberation-day
[38] https://www.citizen.org/article/a-progressive-explainer-on-tariffs/
[39] https://taxpolicycenter.org/briefing-book/how-do-taxes-affect-income-inequality
[40] https://www.americanprogress.org/article/tax-cuts-are-primarily-responsible-for-the-increasing-debt-ratio/
[41] https://www.brookings.edu/articles/what-we-learned-from-reagans-tax-cuts/
[42] https://www.investopedia.com/articles/07/tax_cuts.asp
[43] https://www.reaganfoundation.org/ronald-reagan/the-presidency/economic-policy
[44] https://www.lse.ac.uk/research/research-for-the-world/economics/tax-cuts-for-the-wealthy-only-benefit-the-rich-debunking-trickle-down-economics
[45] https://academic.oup.com/ser/article/20/2/539/6500315
[46] https://www.reddit.com/r/PoliticalDebate/comments/1jsjrno/for_leftists_concerned_with_income_inequality_why/
[47] https://www.bakerinstitute.org/research/did-tcja-reduce-wealth-inequality/
[48] https://pubmed.ncbi.nlm.nih.gov/8500951/
[49] https://equitablegrowth.org/six-years-later-more-evidence-shows-the-tax-cuts-and-jobs-act-benefits-u-s-business-owners-and-executives-not-average-workers/
Answer from Perplexity: https://www.perplexity.ai/search/the-47th-us-president-donald-t-eDBuQcBRTLquRZhNPfe9MQ?utm_source=copy_output
The Impact of Past Tax Cuts on Wealth Distribution in the U.S.
Tax cuts implemented over the past four decades have significantly altered wealth distribution in the United States, primarily benefiting high-income households and exacerbating income inequality. Below is an analysis of how these policies have shaped economic disparities.
Historical Context: Reagan's Economic Recovery Tax Act (ERTA)
The Economic Recovery Tax Act of 1981 marked a pivotal moment in U.S. tax policy, reducing the top income tax rate from 70% to 50%, slashing corporate and estate taxes, and introducing other benefits for high-net-worth individuals. While modest tax breaks were distributed across income groups, the wealthiest Americans received outsized benefits. For example, ERTA provided a yearly tax cut equivalent to $21 billion today to just 82,000 taxpayers—the richest sliver of the top 1%. This set a precedent for subsequent tax reforms that prioritized benefits for the wealthy[3].
The Tax Cuts and Jobs Act (TCJA) of 2017
The TCJA further entrenched wealth concentration by delivering substantial benefits to corporations and high-income households:
Corporate Tax Cuts: The TCJA reduced the corporate tax rate from 35% to 21%, with 81% of the gains captured by the top 10% of earners. Executives and shareholders reaped significant rewards, while workers below the 90th percentile saw no wage increases as a result of these cuts[4].
Distributional Effects: The law disproportionately benefited wealthy shareholders and executives, exacerbating racial income gaps since high-income earners are disproportionately White or Asian[4].
Long-Term Trends in Wealth Inequality
Federal Reserve data shows that wealth inequality has widened dramatically since the late 1980s:
The top 1% of households owned 31% of U.S. assets at the end of 2024, up from 23% in 1989.
Meanwhile, the bottom half's share fell from 3.5% to just 2.5% during the same period[1].
Tax cuts have contributed to this trend by providing high-income households with additional disposable income for investments like stocks and bonds, allowing their wealth to compound over time. In contrast, lower-income households struggle to save or invest due to stagnant wages and rising living costs[1][3].
Regressive Nature of Tax Policy
Research consistently shows that tax cuts for the rich increase income inequality in both short- and medium-term periods without significantly boosting economic growth[5]. For example:
Corporate tax breaks disproportionately benefit wealthy households because corporate assets (stocks and bonds) are concentrated among the richest Americans. Approximately 84% of corporate tax benefits flow to the top 20% of earners[2].
State-level analyses confirm that reductions in corporate taxes lead directly to higher income inequality by increasing the share of income accruing to the top earners[3].
Impact on Social Programs
Tax cuts often come at the expense of public spending on social safety nets. For instance, proposals to extend Trump's tax cuts include reductions in programs like Medicaid and food stamps, which disproportionately benefit low-income households. This "double-whammy" effect leaves lower-income Americans worse off while enabling wealthier households to accumulate even more resources[1].
Conclusion
Tax cuts have played a central role in widening wealth inequality in the U.S., disproportionately benefiting high-income households while providing minimal advantages—or even financial burdens—to lower- and middle-income families. These policies have accelerated wealth concentration among the nation's richest individuals, leaving broader segments of society struggling with stagnant incomes and reduced access to public support systems.
Citations:
[1] https://www.cbsnews.com/news/trump-tax-cuts-tariffs-top-50-percent-own-almost-all-wealth/
[2] https://itep.org/corporate-tax-breaks-income-and-racial-inequality/
[3] https://publicintegrity.org/inequality-poverty-opportunity/taxes/unequal-burden/how-four-decades-of-tax-cuts-fueled-inequality/
[4] https://equitablegrowth.org/six-years-later-more-evidence-shows-the-tax-cuts-and-jobs-act-benefits-u-s-business-owners-and-executives-not-average-workers/
[5] https://academic.oup.com/ser/article/20/2/539/6500315
[6] https://budgetlab.yale.edu/research/how-would-tcja-reform-affect-inequality
[7] https://taxpolicycenter.org/briefing-book/how-do-taxes-affect-income-inequality
[8] https://www.americanprogress.org/article/the-tax-cuts-and-jobs-act-failed-to-deliver-promised-benefits/
Answer from Perplexity: https://www.perplexity.ai/search/the-47th-us-president-donald-t-eDBuQcBRTLquRZhNPfe9MQ?utm_source=copy_output