Rebates Can’t Clean Up the Tariff Mess

Sen. Josh Hawley (R.,-Mo) introduced the  the American Worker Rebate Act on July 28. (Al Drago/Getty Images)

About the authors: Marc Short was former Vice President Mike Pence’s chief of staff and the director of legislative affairs in the White House from 2017-18. He is chairman of the board at Advancing American Freedom, a Washington-based public policy advocacy organization. Joel Griffith is a senior fellow with the organization.

Contrary to economic reality, President Donald Trump and his administration continue to insist that foreign governments and foreign companies bear the costs of tariffs as an entry fee to U.S. markets. But American families are beginning to feel the brunt of reality. Prices are rising, and the labor market is cooling. Republican senators envision tariff “rebate” checks offsetting the pain.

Unwilling to directly oppose Trump’s tariff tax policy, they are instead attempting to avert political repercussions from the hardships of higher prices and shrinking job opportunities with direct payments to Americans.

This idea has been tossed around for months by individuals close to the administration. In late July, Sen. Josh Hawley (R.,-Mo.) put forth the first concrete rebate proposal: either a baseline of $600 per American citizen or the total 2025 tariff revenue divided by the total number of citizens—whichever is greater. For example, if the government collects $500 billion in tariff revenue, the rebate would be approximately $1,613 per “eligible person.”

But millions of American families would receive no relief at all. Actual rebates would be contingent on an individual’s tax filing status, income, and number of dependents. They would begin to phase out for single filers earning over $75,000 or $150,000 for married couples filing jointly. The phaseout is steep: Based on the $500 billion tariff revenue estimate, the rebate would fully phase out at approximately $107,000 for singles with no children and $182,000 for married couples with no children.

This showers cash on some while leaving tens of millions of other families and businesses in the lurch. A single parent with four children who earns $40,000 and pays virtually no income taxes would receive an $8,065 rebate, dwarfing their actual tariff expense. Meanwhile, a married couple with two children that jointly earns $280,000 in income and jointly pays more than $46,000 in federal income tax would receive zero rebate.

In addition, a simple rebate is detached from actual tariffs paid. A $30,000 home improvement project could incur $5,000 in tariffs, far exceeding the $1,613 per-person rebate. A $40,000 imported SUV carries a similar burden, leaving American families to pay the difference.

Businesses, particularly those reliant on imports, fare even worse. A small manufacturer could face $200,000 in tariffs on essential equipment, with no rebate to soften the blow.

Checks offer little to no support for American companies and small businesses invested in global supply chains or abiding by the rules of long-established trade agreements or tax policy. The Tax Foundation projects a loss of 831,000 full-time jobs and a 0.9% drop in economic output from these disruptions. Over a decade, this translates to more than a $8,000 loss in per capita gross domestic product. No check provided by the central planners trying to control Americans’ spending habits can undo this economic harm.

A rebate plan is a distraction wrapped in the cloak of populism, papering over the reality that tariffs at the highest levels since the Great Depression era are taxes on American families. Rather than an income redistribution scheme, Congress should reclaim its constitutional authority over trade and dismantle these tariffs.

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