Many Americans just feel as though they cannot get a financial break. You understand the sensation. You walk to the supermarket, see the costs, and want to channel your inner Vince Lombardi: “What the (heck) is going on out here?”
Most terrible, it seems like it’s only going to get worse. There’s a very solid reason for that: Americans can, in a manner, get taxed more when they go to purchase items—more than they have for a long period of time.
Contrary to what certain individuals may say, tariffs are taxes. Combining the possible tariff rates the Trump administration might levy on us, the consumer, with the inflation that ran out of control during the epidemic makes it seem as though things have gotten away from us.
Check out a recent study from the nonpartisan Tax Foundation. It forecasts an effective tariff rate of 8% in 2025 under President Donald Trump’s suggested levies. That’s so high it would go off the page if you were tracking tariff rates over the last 55 years.
In fact, you would have to travel back to the 1960s to discover a similar rate. A higher tariff rate on Americans would require you to jump in a time machine back to when they were still receiving World War II victory medals (1946).
A greater tariff rate’s actual effects in the real world may be a great burden on the American consumer. Trump’s tariffs, the Yale Budget Lab calculated earlier this month, may reduce inflation-adjusted disposable income for the typical household by $2,000 annually.
Annual median household income is well below $100,000.
Should the tariffs take effect, prices for computers might increase by more than 10%, for natural gas by 5%, and for something as basic as rice by even more than 4%.
A new car’s average price may rise to more than $50,000.
It would be one thing now if we were merely coping with tariffs. From time to time, costs rise extremely fast significantly.
Heightened inflation has caused prices to have already become far more costly over the previous five years, which is the problem. According to the Consumer Price Index, the total inflation rate throughout that time has been above 23%.
In more than thirty years, we have not experienced a greater five-year inflation rate. Since the late 1940s, the median five-year inflation rate is barely over 14%.
Sticking with the grocery store comparison, the cost of a typical chicken is now more over $2 higher than it was in February 2020. A loaf of white bread costs $0.50 more. A pound of ground beef costs more than $1.50 more.
There are certain goods in the supermarket that are not much more costly (see bananas), but generally speaking, if you are purchasing more than a few things, your bill has become rather greater.
For some individuals, adding tariffs on top of that might be a cross too heavy to carry. Remember that between 25% to 30% of Americans live paycheck-to-paycheck.
For the rest of the population, consider how the typical person’s income has evolved considering inflation and population expansion. The increase over the last five years has been 2 percentage points lower than the median year from the early 1960s.
In fact, the real wage increase during the previous four years—during which Congress enacted a significant stimulus package at the decade’s start—has been -5! Considering inflation, there was not one four-year period previous to Covid since at least the 1960s that came close to such a decline in income.
Given the state of the economy, it is understandable that Americans are somewhat negative. In AWN surveys since the coronavirus outbreak started, only once have most Americans claimed the economy is good.
Certainly, one factor is present or retroactive readings. Future ideas are different. The Conference Board reports that belief in an improving economy has often been growing.
That was until the last several months. Fewer individuals today anticipate positive outcomes from the future economy than at any time in more than ten years.
Can you blame them after coping with inflation and now possible tariffs?
