Explaining a flourish.

My main point in my last post on this subject was that the gross amount of revenues attributed to tariffs were likely to overestimate how much the federal government would net from them. I noted, first, that any negative effects of the tariffs on economic growth would depress revenues from other taxes (income, payroll, corporate). I added, after Kyle Pomerleau pointed it out, that those other taxes are applied post-tariffs and thus would have to yield fewer revenues even ignoring those growth effects.

I should have left it at that, but I put in a flourish toward the end that I now see distracted from the main point — to wit, “It’s entirely conceivable that the net effect on revenues is marginal or even negative.” Economist Jason Furman, though he opposes Trump’s tariffs in general, wrote that he thinks this is “very unlikely to be true.”

He starts with a recent estimate that the gross revenues from recent tariff increases will amount to 0.8 percent of GDP. To eliminate those revenues, the tariffs would have to cause the economy to be roughly 4 percent smaller (because an average tax rate of 20 percent, applied to 4 percent of output, yields 0.8 percent). “That is 10X most estimates of output loss.”

All very reasonable. Assume the damage to the economy from the tariffs indeed amounts to 0.4 percent of output. Then the two effects I mentioned mean that the net revenue increase would be roughly 0.52 percent of GDP. (Cut the 0.8 percent by a quarter because of the Pomerleau effect, and then subtract 0.2 * 0.4 for the growth effect.) More than a third of the apparent revenue boost would disappear. You’d still be left with a significant increase in revenue.

That’s a very plausible scenario that leaves my main point standing: Net revenues are likely to fall significantly short of gross ones.

I won’t totally give up on my flourish, though. The source of the gross revenue estimate also says that if the courts throw out some of the tariffs (as they might, and they should), we’re talking about 0.2 percent of GDP in revenue increases. Take account of Pomerleau’s point, and it’s 0.15 percent of GDP. In that scenario, the economic damage would presumably also be smaller. But it might not be a quarter as small, given that we would have put the economy through a lot of uncertainty. Cut the damage in half, and we’ve got a 0.11 percent boost in revenues as a share of GDP. Nearly half the gross receipts would have been offset.

If the estimates of the economic effects of the tariffs turn out to be too optimistic — if it causes harm worth 0.75 percent of output or more — then we get to zero or less.

That’s unlikely, even “very unlikely,” as Furman says. But it is conceivable.