The post The Debate On Tariffs Ignores A Very Big Issue: The Tax Wedge appeared on BitcoinEthereumNews.com.

Headlines in the newspaper, ‘The Philadelphia Inquirer’ relate to the stock market crash, October 25, 1929. (Photo by Frederic Lewis/Getty Images) Getty Images The debate on tariffs ignores a very big issue: the tax wedge. A tariff is a tax, and a tax is a wedge, an obstacle between buyer and seller. How harmful the tax wedge is, of course, depends on its size and breadth. Let’s make this simple. Suppose there is no income tax and a person making $40 an hour wishes to buy an item that costs $200. That individual would have to work five hours to make that purchase (five hours times $40 equals $200). Now, suppose the income tax is 50%. The would-be buyer keeps only $20 an hour after that 50% tax. This means the individual would have to work ten hours, instead of five hours, to make that purchase, thanks to the tax wedge. Currently, the tariff discussions have focused on inflation, i.e., what the impact of tariffs will be on prices. Overlooked is whatever impact tariffs might have on consumer prices; they will impose a wedge, a barrier to doing business. Taxes add friction to conducting business. The magnitude depends on the actual rates and how extensive they are on particular products and services, and the effect on supply chains and existing trading patterns. That’s why the focus on inflation misses the bigger issue. Tariffs don’t necessarily raise overall prices. The cost of that $200 item may not change, but the effort required to buy it will. That means less prosperity. Federal Reserve boss Jerome Powell misses this point with his fussing about the possible impact of tariffs on prices. Instead, he should concentrate on the friction they will impose on commerce. Historically, the most devastating result from tariffs came from the…

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Filed under: News - @ July 15, 2025 12:28 am