President-elect Donald Trump has recently announced plans to create a new agency called the “External Revenue Service” (ERS) to collect tariffs and other revenues from foreign nations. While this proposal might sound like a step towards economic reform, it raises significant concerns about its potential impact on the American public.

What is the External Revenue Service?

The ERS is intended to function similarly to the Internal Revenue Service (IRS), but with a focus on collecting tariffs, duties, and revenues from foreign sources. Trump has stated that this new agency will ensure that those who benefit from trade with the United States will start paying their fair share2. However, the creation of this agency requires an act of Congress, and it overlaps with the functions of existing agencies like the Commerce Department and U.S. Customs and Border Protection.

Potential Harmful Effects

1. Increased Tax Burden on the Public: Economists warn that the cost of tariffs will likely be passed on to consumers, leading to higher prices for goods and services. This could disproportionately affect low- and middle-income families, making it harder for them to afford basic necessities.
2. Widening the Wealth Gap: Critics argue that the ERS could exacerbate the divide between the rich and the poor. By shifting the tax burden onto tariffs, the wealthy may find ways to avoid paying their fair share, while the average American bears the brunt of the costs.
3. Economic Inefficiency: Tariffs are generally considered an inefficient way for governments to raise revenue and promote prosperity. The creation of a new agency to handle these functions may lead to bureaucratic inefficiencies and increased government spending, contrary to Trump’s promise to shrink the size of government1.
4. Impact on Trade Relations: The imposition of high tariffs on key trading partners like Canada, Mexico, and China could strain international relations and lead to retaliatory measures. This could further harm the U.S. economy and disrupt global trade.

Conclusion

While the idea of an External Revenue Service might seem like a bold move towards economic reform, it is essential to consider the potential adverse effects on the American public. Higher prices, increased tax burdens, and a widening wealth gap are just a few of the concerns that need to be addressed. As the proposal moves forward, it is crucial for lawmakers and the public to scrutinize its implications and advocate for policies that genuinely benefit all Americans.