Saturday, October 31, 2026
Michael Lind and the tariff advocates are delusional when they say tariffs will get manufacturing to come back to the United States
During the heyday of American tariffs, tariff revenues were tiny and went to fund a tiny federal government.
From 1880 to 1910, federal spending grew from about $300 million nominal to $800+ million, and tariff revenues more or less tracked it to pay those bills.
At the same time the rich risked their own money to build US manufacturing, and the tax code was uniquely arranged to reward them for it.
To put it simply, until Reagan we taxed ordinary income at high marginal rates, while income from long term capital investment received relatively preferential tax treatment. That investment translated directly into American manufacturing, higher-paying American jobs, and robust economic growth.
High marginal ordinary income tax rates, which dominated the tax code from WWI except during the roaring 1920s, were first brought down by JFK to 70% from 91%, then to 50% by Reagan I, and finally to 28% by Reagan II. Democrats subsequently lifted these into the high 30s where they are now.
Capital gains rates of 25%, which persisted throughout the period, suddenly lost much of their appeal because the spreads closed. The new arbitrage which opened up because of globalization was between costly labor at home and cheap labor abroad, which the rich then exploited to get even wealthier.
For those of us who lived through this period, it was accompanied by the constant drum beat of one business after another closing up its domestic operations and moving them abroad, leaving a steady stream of workers behind who were forced to find usually less well paying work here.
We did this to ourselves and called it conservatism.
Michael Lind here is delusional about how to turn back this clock:
Tariffs — taxes on imports — are a means to the end of “reshoring” manufacturing in America. By making some imports more expensive, Trump hopes to expand the market for those products at home for American manufacturers.
Apart from not working (!), this makes the consumer pay the bill instead of placing the risk where it belongs, with the capitalists, who have the capital!
You will never accomplish with tariffs, whose arena is now much too small, what you can with the stick of high ordinary income tax rates, high capital gains taxes on income from US investment abroad, and the carrot of relatively lower capital gains taxes on income from domestic investment.
We need to attract capital back to the United States and give it preferential treatment in the tax code while penalizing in a relative way the income received from foreign sources and from high ordinary incomes received at home.
Ordinary incomes up to $101,082/$134,776 single/married-filing-jointly in Sep 2026 should be free of federal tax, but anything higher should be progressively and steeply taxed.
Capital gains tax rates should follow the reverse course: steep taxes on income from capital held up to a year, and progressively lower taxes on income from capital held 2, 3, 5, 7, 10, 20, and 30 years.
In such a tax environment, corporate taxes would be redundant, unnecessary, and counterproductive.
Meanwhile 10 years of the Trump tariff regime are not working to revive domestic manufacturing, and the long term comparison with the pre-Reagan past remains negative.
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