The new Secretary of Defense has changed the name of Fort Liberty back to Fort Bragg. Ice cream eating Joe Biden changed the name in 2023 due to Bragg being named after a confederate general named Braxton Bragg, but the new one will be named after Roland Bragg a World War II paratrooper from Maine. Trump meanwhile has renamed the Gulf of Mexico, the Gulf of America, which ironically enough is named after the Italian mapmaker Amerigo Vespucci. We are watching politics happen in real time folks. This is all very unimportant but the renaming I want to discuss today is tax reform.
Before the birth of the income tax in the early part of the last century, this country was supported by the tariff. Tariffs didn’t collect that much money although they did run most of the federal government, but it turns out we didn’t have much government to run. Trump has decided he wants to return to that model. Hurray. Hip hip hooray! I am all for that.
Here is the sneaky little trick though. Before the income tax, the tariff was the tax on Americans. In fact the way the government sold the public on the income tax was it was a 1% tax on the rich, aka the Vanderbilts, Morgans, Rockefeller fellers. The public loved this idea because the tariff is like inflation in that it is a regressive tax. Everyone has to pay. If you want to buy a shirt from Wal-Mart and its from China, guess what that shirt is 10% higher this week than last. Everyone pays. The American public knew how tariffs worked and when they got a tax cut and the rich had to pay, well that was good politics and that is how the income tax got into our government. Well now we have had the income taxes and now we are about to get a tariff as well. This would be double taxation and a tax on everyone. I have long been a fan of the flat tax. Part of what I like about it is that everyone pays something, aka it is regressive. I don’t believe there should be loopholes for anyone. Not child tax credits, not real estate deductions, not Salt credits for living in an expensive state, nada. Why? It is easy, someone always has their hand out. Who gets to pick? Here is the tax, don’t buy and save your money and you don’t pay a tax. That works for an old libertarian, but that is bad for governments, businesses, and credit institutions that want its people in line, in stores, and in debt.
I don’t want any of that. However, what I do want is higher taxes. What is that you say Kemosabe? Higher taxes? That’s right. I want higher taxes so we can lower our debt to GDP. In the history of man and currencies runaway debt is the death blow to them all. It is the reserve currency killer, the standard of life leveler, and the surest way to do that is live outside your means. It’s undefeated, it’s never lost. Now if Trump says he is going to raise taxes he loses the election to Kamala, so he says he wants to reduce taxes and raise tariffs. If net net that is an increase in government revenue then wonderful.
The DOGE boys are making waves and cutting government spending. This is not a surprise as we have years of Rand Paul’s Festivus reports to show them where and how to save on spending. They seem to be making some pretty good progress so far. Lots of waste in the USAID programs. Trump is also talking about doing federal layoffs. This is where it is going to get tricky for him. They need to be laid off. Lots and lots of them need firing and many have inflated salaries. However, if they do get laid off, this is a massive chunk of spending being taken out of the economy all at once and it is happening at a time when the private sector is laying people off as well. The last thing that any politician would want to do when layoffs are rising, and the economy is in recession is raise taxes but that is what Trump is doing by using tariffs. It is necessary and its smart politics to use tariffs instead of tax hikes which sell about as well as prune popsicles.
So, by renaming the tax hikes as tariffs Trump has started raising revenues which is what he said he was going to do and I pointed out last week that he wasn’t by taking the tariffs off of Colombia, Mexico, and Canada. Well, he put the tariffs on steel and aluminum this week at 25%. That is the tariff on Canada anyway because they are like 7 times bigger than any other country when it comes to importing aluminum. So, the trade wars can now begin. This will cause higher prices on the American consumer. Will it be 25% higher? Perhaps, but it is likely that the exporter might absorb some, the importer might absorb some, and maybe other middlemen before a finished good is produced and sold to a consumer. Will the can of beer in an aluminum can be higher, yes it will. Will be people be forced to buy it at a higher price, no. What will happen is eventually sales will decrease based on the elasticity of the demand. If a beer jumps from $3 to $5 perhaps customers will switch to drinking wine in glass bottles. Perhaps they will just pay $5 for their beer and buy less of something else. It creates a crowding out effect and less purchasing power for the disposable income of the consumer. They buy less stuff in aggregate and that is bad for business. This is no different than a tax because if the government taxes you more then you buy less as well. Either way the government gets money and you get less. That’s why it is in effect a tax.
Why am I pleased with this arrangement? Well, I’m against tariffs because they feed government revenues and governments should spend less. I am for low taxes and tariffs are taxes, but in this case, we are at a tipping point. The government needs more money, and I will send it to them if they are cutting spending. They aren’t cutting spending enough yet, which is why I am just getting to the meat and potatoes of this piece today and why I am a bad writer since it took 1100 words to get here. We have a $2 trillion deficit and DOGE has found $75 billion so far. The tariffs are going to be in the billions hopefully and it is nice directionally, but slowing down the rate of growth is still growth which means that they are spending more than they are taking in and that is what must be reversed. We can only get there on the cutting spending side by going after the untouchables- defense, health care, interest expense, and social security. No politician is ready to do that so we can go after the remaining 20% or so which is $2T or so. We can’t cut everything although that would give me fever dreams of swimsuit models drifting towards me on kegs of Miller Lite, not a sponsor of the show, yet.
Since we can’t get $2T in cuts, and everyone knows that except Musk who was just running his mouth about cutting that much, we have to raise revenues and that is what this is all about. We are broke and Trump I think knows this. He wants half a trillion from Zelensky in Ukraine for funding the war. He wants the Panama Canal back. He wants Greenland. He wants Canada for goodness sakes. Trump is shaking down the world because we need revenue. He doesn’t really want all of these things, but he does want revenue and he is threatening and threatening and is going to collect what he can. This is a money grab, and we need money so I can finally see what he is trying to pull off here.
I don’t like Trump but I will be the first to admit he is a very effective communicator. I also think he is very good as misdirection. I think he saying outrageous things to keep us preoccupied with Gaza beachfront condos and Panama Canal pissing contests when the real project is happening behind closed doors. It’s a pink slip. Elon is there because he can help fire as many as possible and after what he did at Twitter Trump knows he can cut as deep as possible. That’s is step one. Step two is we need revenue, hence the tax hikes aka tariffs. Step three is recession. Trump needs a recession, and he needs it right now. If we get a recession and the unemployment rate jumps quickly which is what it always does and what I think it is doing now before government layoffs, what will Mr. Jerome Powell be forced to do? Trump can’t force Powell to cut rates. He tried that in 2018 and Powell did pivot but that was after a 20% decline in the stock market.
Trump can get Powell to cut rates any time he wants now. He can put tariffs on enough things that the markets start to tank a little bit, but the layoffs start and that combined with his government layoffs will force Powell with his dual mandate to cut rates. That is the short end of the treasury curve and that is where new Treasury Secretary Scott Bessent said he will continue borrowing for the next two quarters but then he said they would stop giving forward guidance. He is continuing Janet Yellen’s policy which he vocally said he didn’t agree with. Why? He has to for a few months until they can get the back end of the treasury curve down. That’s why Trump came out and said he agreed with Jerome Powell about not lowering the Fed Funds rate. Trump isn’t going to force him verbally, he is going to lay off a bunch of people, put tariffs aka taxes on people, and drive us into recession. Why? It is the same reason why Powell had to cut rates when the stock market was at all time highs? The debt expense is getting too high. It is more than defense spending and it is panicking everybody as its at $1.2T. Look, the gold price is at all time highs at almost $3000 and it just broke $2000 a few months ago. That’s in dollars and the US dollar is very high as well.
This is what they are going to do. Trump is going to slam us into recession. Powell will cut rates at the front end. Recessions are deflationary and inflation expectations are going to go down sharply. Long term interest rates are composed of two main things inflation expectations, which will be zip, and growth expectations, which will also be zip, in a recession and the long end of the treasury curve will fall. Then Scott Bessent can arrive on the scene and extend out our debt long term at a low rate. If the government is cutting spending massively, the inflation is dead due to recession, and the government is raising more receipts due to a combination of tariffs and taxes then the deficit will get narrowed. If the deficit gets narrowed, then we can continue funding our government and we will find the buyer of the bonds. People that can trust the US government again provided that it does get the deficit down.
This sounds awfully good now doesn’t it. Trump is making America great again by making it bad. He is going to have to hold America down, pinch its nose, and give us our medicine. I have been calling for that for a long time. This is the only thing that makes sense to me with his erratic behavior. It’s a smokescreen for the real show of Bessent and Musk. Cutting spending and fixing the debt.
This doesn’t come without risks though. When America goes into recession, it is usually accompanied by the stock market falling, which reduces tax receipts as the capital gains taxes aren’t collected. Social programs usually crank into high gear giving people handouts. The deficit usually doubles. That would push us to $4T and that would be unacceptable. The number is something like 93% of the stocks are owned by 7% of the people anyway so he needs a way to get a wide tax base again and that is the tariffs. If the tariffs raise revenue this can compensate for the lack of stock market capital gains taxes. If Musk and DOGE can clean up some of the social program mess and outright fraud then the recession expenditures won’t be quite so high, and lastly if interest rates come slamming back to earth as they are prone to do in a recession then Scott Bessent can start lowering the interest rate on the debt by lowering the current $1T annual expense and get that number more manageable.
This is a lot of things that have to go very right at the right time. I have also heard some other hail Mary ideas and I kept thinking about why am I hearing these things. Gold being revalued from its current value on the government balance sheet to the current market price or higher. That would raise money instantly on the asset side of the government balance sheet. Another trick Trump could use if things go poorly is he has his own tax cuts that he wants to extend and/or make permanent. If he could talk a couple of wayward Republicans in the house to side with the Democrats, he could in theory have another tax increase lever and a big one. He could blame Congress when in reality it is what he needs after all which is revenue. He could get the win in revenue and put the blame for the tax cut on the Congress. Not too shabby of a play if need be, but that is at the end of this year I believe and we will be knee deep in brown water by then.
If we go into a recession then the demand for everything falls including energy and since we are drilling at a high capacity, then oil and energy prices should drop which would help offset the tariff pain for the consumer. This sounds like higher tariffs and lower gas prices would be an even exchange and there won’t be any pain. There will be pain.
The pain will be in the unemployment. I can feel the layoffs coming. They have been happening under the nose of the foolish BLS for a year. They have been happening since the illegals started deporting themselves and the ICE roundups are starting. They have been happening with Meta, Boeing, Tyson closing plants, and the government deluge about to happen. This won’t just be government workers, but the non-government organizations supported by the programs DOGE is cutting, it will be the companies affected by tariffs, and it will be state and local governments which will no longer have the federal government teat to sponge off of. This will be bad, and recessions are nasty and this one will surprisingly be able to bring about some good. Banks will get some relief by being able to shed those awful bonds they have rotting on their balance sheets which they can do if they get lower long term rates, the better extend and pretend companies can get refinanced if we get lower rates providing they don’t go out of business, and real estate market could see lower rates that could unlock some of the demand from unaffordability. People lose their jobs and their houses. Housing prices fall so they become more affordable in 18 months or so when we are coming out of the recession. During those tariff years there were many bad recessions and depressions, and we have covered a ton of them here. Most were of the year or two variety.
I have been as guilty as any getting distracted by what Trump has been saying as anybody. He has been saying dumb stuff, and I think that is by design. We need to watch what he is doing before we judge the performance. I think he is risking a lot. He might just be willing to be the worst president ever. This recession could get really nasty and turn worse than recession. I think his tariffs are what are going to send us there. He and his team will have to be very nimble to pull this off in terms of it has to be bad, but not too bad. They have to get everything timed perfectly to get this back under control. It’s risky, but at least it seems to make sense and is a plan. That is more than what we had from Biden. Trump will bellyache, threaten, cuss, tweet, and bemoan but it is all likely to be theater or television or social media if you will. This is a great misdirection or renaming if you will. Today’s inflation print came out hot at 3.3% core inflation which excludes food and energy. Powell can’t lower rates now and some people are asking him to hike. Chevron announced today that they were laying off 20% of the workforce today. Trump is going to get his recession, and if Powell happens to raise rates, which I think is probably unlikely, it will only make it worse. There are a lot of billionaires working in the government suddenly and let’s hope they can fix our system. I think they know that their billions don’t mean much if they can’t. God speed.
Sincerely Yours,
C Thomas Printer
Also born on this date… Abraham Lincoln.
Thank you for listening today and you can find all of our articles and more on our website cthomasprinter.com.