US working-class voters have sent a clear message to Democrats. Running as a centrist and governing as a leftist is not acceptable. Will Democrats listen and learn?
There are many lessons to be learned from this most recent US election and many contributing factors for the Democratic loss: the communication ecosystems are thriving on the right; misinformation through social media platforms is rampant; there was a lack of vigour in pursuing accountability at the Department of Justice; and perhaps some minor but cumulatively important tactical missteps in a very well-run Democratic campaign. All of these issues and more led to a decisive loss for the Democratic Party.
The most important lesson, however, is the one that working-class voters are teaching us. There is a real danger that the Democratic Party will misunderstand the lesson and fail the test in future elections. We have already heard from very loud voices on the far left that Democrats were not far left enough. Bernie Sanders has made his case for this perspective and is getting some traction for this opinion. Working-class voters decisively voted for Trump, a man who explicitly rejects almost everything that Senator Sanders stands for. Somehow, Sanders now argues that the Democratic Party has abandoned the working class by not giving them more of what they just voted against.
Having fired Donald Trump in 2020, U.S. voters did an about-face Tuesday and sent him back to the White House. It was a remarkable political rebound, but one that owed as much to the Democratic Party’s weakness as it did to Trump’s strengths.
Despite heavily outspending her opponent, Vice President Kamala Harris carried not one battleground state in failing to reassemble the solid anti-Trump majority of four years ago. She also lagged behindJoe Biden’s 2020 performance with key Democratic-leaning groups: young voters, Hispanics, Blacks and even women.
The demographic and geographic sweep of Trump’s victory is impressive. He made inroads among urban and suburban voters, independents, young men and non-white working-class voters. The U.S. political map is getting redder.
Most importantly, Trump improved his 2020 performance with Hispanics by 25 points, despite his dehumanizing rhetoric about immigrants. Overall, he won 46 percent of the Hispanic vote, the most ever for a Republican presidential candidate.
The electorate’s rightward shift has sparked heady talk among Republicans about a new U.S. political alignment around education level and social class rather than traditional left-right polarities. It certainly is a rebuke to the left, which has been hailing the advent of a new progressive majority for much of this century.
The following is a national perspective testimony submitted by Bruno Manno, on behalf of the Progressive Policy Institute, to the DC Council on Proposed Bill 25-741 Vocational Education for a New Generation Act of 2024.
Many Americans, including the last wave of Gen Zers now entering high school, want schools to offer more education and training options for young people, like career and technical education, or CTE. They broadly agree that the K–12 goal of “college for all” over the last several decades has not served all students well. It should be replaced with “opportunity pluralism,” or the recognition that a college degree is one of many pathways to post-secondary success.
School-based CTE programs (there are also programs for adults) typically prepare middle and high school students for a range of high-wage, high-skill, and high-demand careers. These include fields like advanced manufacturing, health sciences, and information technology, which often do not require a two- or four-year college degree. CTE programs award students recognized credentials like industry certifications and licenses. Some programs also provide continuing opportunities for individuals to sequence credentials so that they can pursue associate and bachelor’s degrees if they choose.
From October 21–25, 2024, a delegation from the Progressive Policy Institute (PPI) traveled to Argentina and Uruguay to discuss the role of artificial intelligence (AI) in the App Economy and its potential to drive economic growth. This trip, led by PPI’s Chief Economist Dr. Michael Mandel and Director for Trade and Global Markets Ed Gresser, featured high-level meetings with government officials, academic leaders, and key players in the tech and business sectors. The delegation emphasized AI’s potential to revolutionize industries ranging from agriculture to finance and underscored the need for supportive policies that foster innovation and job growth.
As Argentina faces continued economic challenges, there is a growing recognition of the App Economy as a source of sustainable employment. This report summarizes key takeaways from PPI’s engagements in Argentina and Uruguay, focusing on themes of innovation, AI integration, and cross-border economic collaboration.
Buenos Aires, Argentina – October 21, 2024
CEDES (Centro de Estudios de Estado y Sociedad)
PPI’s first meeting in Argentina was with the think tank CEDES, where discussions centered around Argentina’s broader political and economic landscape, which gave the delegation a foundational understanding of how Argentina’s economy evolved to the state that it’s in today. and the potential for digital transformation to drive job creation. Key themes included the need for lowering inflation while simultaneously raising prices, and what would constitute a successful economic term for Argentinian President Milei.
Meet & Greet with Professors at Universidad Torcuato Di Tella
During this discussion, faculty members emphasized that “this time it’s different”—suggesting that innovation in AI and the App Economy should not be viewed through the same lens as traditional industrial technologies. The group discussed new opportunities from handling more granular, disaggregated data and the unique challenges and potential of such innovations. While development of technologies has often taken center stage, there was acknowledgment that less attention has been paid to how technologies will be adopted in practice, which will be crucial for maximizing the impact of AI and app development on Argentina’s economy.
Buenos Aires, Argentina – October 22, 2024
CIPPEC (Centro de Implementación de Políticas Públicas para la Equidad y el Crecimiento)
At CIPPEC, discussions centered on Argentina President Javier Milei’s platform of reducing inflation, dollarizing the economy, and minimizing the privileges of the political elite. While banking and insurance sectors have shown some resilience, the broader economy has not yet rebounded, and uncertainty remains prevalent. Despite this, Milei retains relatively high approval ratings as president, albeit within a climate marked by political violence and threats. The group explored how AI and tech-driven growth could potentially contribute to stabilizing Argentina’s economy amid these challenges.
Argentina Council for International Relations (CARI)
At CARI, the discussion focused on Milei’s success in advocating for fiscal responsibility, marking a shift towards pragmatism in Argentina’s economic approach. There is optimism that Milei’s policies may yield economic growth by the end of 2024, aligning with PPI’s emphasis on long-term digital economy strategies. CARI representatives expressed confidence in Milei’s methods as practical solutions to Argentina’s ongoing economic issues and highlighted the potential for a tech-driven economic boost in the near term.
Argentine Foreign Ministry, US Division (Dirección de Relaciones Económicas con América del Norte – DIANE)
The discussion with the Argentine Foreign Ministry’s U.S. Division focused on strengthening US-Argentina trade relations in both the tech services sector and in basic goods. The group examined how the trade relationship between the two nations could differ following the result of the U.S. presidential election, and how policies like the CHIPS Act impact Argentina.
Argentine Economic Ministry
The PPI team met with the Economic Ministry to discuss Argentina’s trade policy. In recent years, Argentina has faced challenges in liberalizing international trade, but there is a focus on lowering import tariffs and increasing trade volume with the support of the central bank. Although a temporary tax was introduced on imports to fund the pandemic response, it has not yet been fully repealed, highlighting ongoing fiscal considerations. The ministry underscored its intention to continue reducing tax rates to support economic recovery.
PPI Salon Dinner at Cabaña Las Lilas: Fostering Conversations on AI and Economic Growth
On the evening before the event hosted at Etermax in the Villa Urquiza neighborhood of Buenos Aires, PPI hosted a private salon dinner at Cabaña Las Lilas, bringing together a select group of Argentine government officials, tech industry leaders, and software developers. The dinner, which began with a cocktail hour, provided a relaxed setting for off-the-record discussions on the future of the global tech economy and the role of AI in Argentina’s economic landscape.
Participants explored ideas on how government policies could support tech industry growth and addressed challenges unique to the region. This dinner served as a platform for fostering collaboration and building connections among key stakeholders ahead of the formal presentations at Etermax the following day.
Buenos Aires, Argentina – October 23, 2024
“Argentina: AI and the App Economy”
PPI, in partnership with the Argentine Chamber of the Software Industry (CESSI), hosted an event at Etermax headquarters titled “Argentina: AI and the App Economy.” This gathering brought together policymakers, industry leaders, and app developers to discuss the intersection of AI and the App Economy in Argentina. Dr. Michael Mandel presented his latest findings on employment trends in Argentina’s App Economy.
The event featured keynote remarks by Marcos Ayerra, Secretary of SMEs, Entrepreneurs, and Knowledge Economy, who spoke on the government’s efforts to position Argentina as a tech innovation hub. Máximo Cavazzani, CEO of Etermax, delivered a presentation in which he shared insights into AI applications within Argentina’s tech sector. Dr. Mandel then concluded the event by moderating a panel discussion with an app developer and leading AI expert on the role of AI and the app economy in Argentina.
Meeting with Ambassador Pablo Porro and Juan Labraga at the Ministry of Foreign Affairs and the Advisory Trade Policy Unit
This meeting focused on Uruguay’s trade and foreign policy initiatives, including relations with the U.S., Mercosur partners Brazil and Argentina, and China, to give the delegation a sense of Uruguay’s economic position in the world and what their international trade goals are. The Ambassador shared that Uruguay’s primary interest is to have market access for trade negotiations with the US and other large countries. Uruguay does not have a Free Trade Agreement (FTA) with the US, and Buy-American rules preclude their contribution to recent U.S. industrial strategy programs developed in the CHiPS Act and the Inflation Reduction Act. They are successful exporters of software to the US, and would like to generate increased investment from multinational tech companies.
Meeting with Uruguay XXI: Investment, Export, and Country Brand Promotion Agency
In Montevideo, PPI met with Uruguay XXI to discuss Uruguay’s investment climate and initiatives to attract tech companies. Discussions touched on what Uruguay has to offer the world in terms of investment potential and what role the US does and could play. They shared that while the US is the fifth-ranking destination for Uruguay’s exports of goods (principally beef and other farm products such as honey), Americans are the top partner for services, which comprise 30% of total exports. More than 80% of Uruguay’s IT services exports go to the US. A recent foreign investment breakthrough was an $850 million investment from Google in building a data center in Uruguay. Relevant to the group was also the opening of a Microsoft AI innovation hub lab. Uruguay XXI stressed that their investment grade is high and their country risk is the lowest in the region as reasons why FDI is continuing to rise.
Montevideo, Uruguay – October 25, 2024
Meeting with CUTI (Chamber of Information and Communication Technology Companies)
This meeting with Uruguay’s largest technology industry group centered on Uruguay’s tech sector, particularly in software development and AI. They are supported by 400 member companies, frequently collaborate with Parliament on laws that might affect the industry and with government agencies to help grow innovation. CUTI shared that Uruguay is doing well in terms of providing IT services, and that they’d like to add more startups and intellectual property to continue growing and adding jobs. A key takeaway was that Uruguay’s international tech sales are mostly selling to tech companies and startups and they’d like to sell more directly to industries.
Meeting with CERES (Center for Studies of Economic and Social Reality)
PPI next met with CERES, a centrist think tank created in 1985 after a military government fell and was replaced by a democratic system. They gave the group an in-depth breakdown of the current government’s makeup and ideological evolution, as well as insight into the Uruguayan elections later that weekend. This involved a second-round presidential vote, and a controversial (and ultimately unsuccessful) pension referendum. They detailed what they’d be looking for in terms of relations with Uruguay from a Harris administration, and expressed concerns about the effect on commodity prices for Uruguay if the role of the US in international conflicts were to be destabilized.
Meeting with CED (Center for Economic Development)
To cap off the trip, PPI met with CED, the Center for Economic Development. A center-right think[-tank, they continued to reiterate the economic and political themes that had been expressed throughout the visit, and gave further insight into the recent slowdown in Uruguayan economic growth. CED highlighted political stability and strong institutions as Uruguay’s strong points, while outlining their vision for a more sustainable economic growth plan in the near future. They emphasized that their objective in the next year is to consolidate the high levels of employment and aim for the Central Bank’s 3% inflation rate target in order to foster this economic growth.
Conclusion: Toward a Stronger Regional App Economy
PPI’s delegation trip underscored the opportunities for Argentina and Uruguay to emerge as leaders in the AI-driven App Economy. By fostering supportive policies, investing in talent development, and encouraging cross-border collaborations, both countries stand to benefit from the global tech boom. This visit provided valuable insights and strengthened PPI’s ties with policymakers, academic leaders, and industry experts committed to advancing digital innovation throughout Latin America.
America’s grand experiment in democratic self-rule was launched 236 years ago in Philadelphia. Since then, it’s survived a Civil War, the Depression, wars hot and cold, and disruptive waves of economic and social change.
In today’s presidential election, it faces another major test. The central question before the voters isn’t the cost of living, immigration, or abortion. It’s repairing the health and effectiveness of America’s political and governing institutions.
Donald Trump adores self-aggrandizing superlatives, so let’s indulge him: He is beyond doubt the most successful demagogue in U.S. history. But he’s already proven that he doesn’t know how to unite and lead our country. Instead, he “wins” by magnifying our differences and setting Americans at each other’s throats.
We know exactly what to expect if he wins: Four years of intensifying social conflict, political chaos, and partisan hatred. Kamala Harris may not be perfect, but she offers at least a chance to deescalate today’s ugly civil strife and revive the norms of honesty, mutual respect, and civility that make self-government work.
The global movement to end the use of combustible cigarettes has gained support from scientists, regulators, community leaders, and governments, marking one of the most impactful health achievements we could reach in the next decade. After over 50 years of the “tobacco wars,” a future without traditional cigarettes is within sight.
Alternative tobacco delivery systems, such as heat-not-burn and vaping products, have created a safer “off-ramp” for adult smokers looking to quit. Governments in the U.S., U.K., Japan, and Canada have thoroughly studied these alternatives, concluding with conviction that they represent the future of tobacco control. These countries have embraced these products as a healthier alternative, driving significant reductions in smoking rates and putting them on a path toward eliminating combustible cigarettes.
The Maldives, however, seem to be choosing a different path. With a recent import ban on alternative tobacco products and now a proposal for massive tax increases on these alternatives, the Maldives appears ready to distance itself from this global health trend. The repercussions of this decision could be severe, potentially harming public health, discouraging foreign investment, and even diminishing the Maldives’ appeal as a tourist destination.
If this proposal goes forward, the Maldives will join a shrinking group of nations where adults may still be smoking cigarettes ten years from now, while most of the world moves closer to ending smoking altogether. Countries like Japan, the U.K., and the United States have already reduced their adult smoking rates by almost 50% in recent years, thanks to the availability of alternative products that are estimated to be 95%-99% less harmful than cigarettes. At their current rates, these nations could see adult smoking virtually disappear by 2034 — a remarkable public health success.
Unfortunately, the Maldives risks missing out on this progress by following a path similar to those taken by countries like Australia, India, and Thailand, where prohibitionist approaches have led to harmful outcomes. When governments pursue prohibition, they often fail to recognize the unintended consequences, as evidenced by Australia’s experience with illegal vaping and increased youth tobacco use.
Australia’s story should serve as a cautionary tale. Its strict regulations on vaping products have led to headlines like “Illegal vape sales in Perth attract organized crime threats as new vaping laws passed.” Beyond the rise of illicit markets, Australia has also seen a troubling increase in youth vaping. Among Australians aged 15 to 24, 13.3% were using e-cigarettes but not regular cigarettes in 2022-2023, up from just 2.3% in 2019. This surge in youth vaping and the empowerment of criminal markets demonstrate the failure of prohibitionist policies. Is this the direction the Maldives wants to take?
The Maldives stands at a crossroads. By aligning with the healthier global supply chain, it could join the ranks of progressive countries like the U.S., U.K., and Japan, benefiting from reduced smoking rates, increased public health, and greater foreign investment. Choosing the opposite path risks creating more challenges than it solves, isolating the Maldives from international health and business communities.
The choice is clear. Embracing a healthier tobacco supply chain won’t just be good for public health in the Maldives — it will signal to the world that the nation’s government is committed to modern, evidence-based policy. Now is the time for the Maldives to take the lead in this global health movement. Today’s Maldivian adult smokers are depending on the wisdom of the country’s present leadership. Tomorrow’s young Maldivians will thank today’s leaders in due time.
Why did Vladimir Putin invade Ukraine? After more than 300 years in the Russian sphere of influence, first as a de facto colony and then an integral part of the Soviet Union—its breadbasket and industrial heartland—Ukraine wants out. It wants to leave the Russian orbit for the West, fully embrace Western capitalism and democracy, and join Western alliances—NATO and the European Union—as soon as possible.
Nearby Georgia and Moldova are also chaffing against a long history of Russian subjugation. Like Ukraine, both are former socialist republics on the underbelly of the Russian colossus and until recently, both have been advancing toward EU membership. Popular opinion in both countries strongly favors joining the West. And it’s no accident that Putin and his proxies have done everything possible to block and skew their recent democratic elections.
In Moldova, where pre-election polls showed nearly two-thirds of voters in favor of EU membership, a network of Kremlin surrogates, including criminal groups and a pro-Russian oligarch, poured money into the country to interfere with electoral procedures and bribe voters. An estimated $100 million of walking-around cash goes a long way in a nation of just 3 million, and the upshot was a virtual tie in the nationwide referendum on joining the EU: 50.4 percent for joining to 49.6 percent against—hardly the decisive outpouring Moldovan president Maia Sandu was hoping for.
While high-profile economic populists in President Joe Biden’s administration — namely Federal Trade Commission Chair Lina Khan, Department of Justice antitrust division chief Jonathan Kanter and Consumer Financial Protection Bureau Director Rohit Chopra — might get more headlines for their attempts to reshape American industry, Buttigieg might be up to something just as radical. Buttigieg has moved beyond simply punishing bad actors to using the powers of his executive agency to restructure a market it oversees.
Whether the changes Buttigieg has made will outlast his tenure — or that of a president who called on his Cabinet to fight concentrated corporate power — is a fair question. The regulatory changes he’s instituted “could be a smashing success, or could get caught up in the machinery,” says Diana Moss, director of competition policy at the left-of-center think tank Progressive Policy Institute. One key rule is currently blocked in court, while others won’t take full effect until the next president is in office, with their ultimate success dependent on agency staffers having the resources and willingness to fully execute them. Airlines are still merging, and the economics of commercial aviation is just one slice of his sweeping portfolio.
But Buttigieg has emerged as a surprising ally to, and asset for, the slice of the political left that has embraced an antimonopoly, antitrust framework — a wing of the Democratic Party now fighting to maintain its dominance in a post-Biden Washington, and that once saw Buttigieg as an adversary.
By this stage of the election, it’s difficult to find something to write about the candidates for president and vice president that hasn’t been repeated dozens of times, but here’s one.
Conventional wisdom has it that because Kamala Harris and her running mate have courted the teachers unions, they believe that charter schools are the enemy. Maybe there’s hope that they don’t.
Harris picked Governor Tim Walz even though during the pandemic he listened to the pleas of charter school students with a serious problem The story that hasn’t gotten national attention, but as Harris and Walz seek to rally the youth vote in the final days of the campaign, the campaign should amplify Walz’s willingness to listen to a bunch of teenagers and act on their concerns.
Throughout his 2024 presidential campaign, former president Donald Trump has spontaneously proposed roughly a dozen tax cuts that sound perfectly targeted toward constituencies he likely wants to win over. For hourly workers: no taxes on overtime pay. For Nevada service workers: no taxes on tips. For the Michigan auto industry: tax deductions for car loan interest. For people in the Southeast who were recently hit by hurricanes: tax deductions for home electricity generators. For seniors: no taxes on Social Security benefits. For military members, firefighters, police, and veterans: no taxes whatsoever. Some of these proposals are so arbitrary that one might think they were pulled from a randomized policy generator.
Each proposal is so vague or riddled with obvious flaws that it suggests very little thought was given to how any of them would work. For example, since Trump announced his no tax on overtime or tips proposals, he has failed to answer some basic questions about how they could be implemented. Would these sources of income just be exempt from federal income tax, or would they also be exempt from payroll taxes that are currently earmarked for Social Security and Medicare? If the answer is yes, would workers then receive lower benefits in retirement because they paid less into the programs? And what guardrails would be put in place to prevent high-income professionals from simply reclassifying their income as tips or overtime pay?
What about Trump’s proposal to eliminate income taxes on Social Security benefits? Like payroll taxes, the revenue collected from these taxes is legally earmarked to pay for Social Security and Medicare benefits. Both programs are currently spending more than they take in through dedicated revenue sources, and when their trust funds are exhausted — something that is already slated to happen within about a decade — benefits are automatically cut across the board. How could Trump’s promises not to cut Social Security or Medicare be squared with his tax proposals that would make these automatic cuts even bigger?
The only reasonable conclusion is that these are not serious policy proposals, they are fools’ gold to entice undiscerning voters. The swing voters who will decide the election next week shouldn’t let Trump’s pandering promises distract them from the high costs that giving him a second presidency would likely impose.
(Disclosure—I helped design the survey on Fed autonomy mentioned in this article)
Next week America will choose a new president. According to one poll, 58% of bankers believe former U.S. President Donald Trump would be better for the financial sector vs. 35% who think the policies of Vice President Kamala Harris would be more beneficial.
But while bankers may favor President Trump, they are not big fans of his push to make the Federal Reserve more subservient to the president. According to a recent bank industry survey, only 5% would support an effort to “force” the Fed to consult with the president on interest rate decisions, and just 7% wanted to give the president the power to demote or replace a Fed chair. (Disclosure: I was hired by IntraFi to help design the survey on Fed autonomy. However, I do not receive any financial compensation from individuals participating in its poll.)
The Fed is the nation’s leading independent agency. Because it does not rely on Congress and the White House for annual budget appropriations, it does not have to worry that its funding (which primarily comes from the interest earned on the securities it owns) will be cut off if it decides to raise interest rates. Furthermore, the leadership of the central bank (the governors and Fed Chair) are appointed for a term and cannot be removed from office by the President simply because of a policy disagreement.
While other agencies are legally established as “independent,” few have the level of autonomy the Fed does. The vast majority of these departments rely on Congress for funding and many political appointees, such as the Administrator of the Environmental Protection Agency (EPA), can be fired at will by the President.
The way America prepares young people for work and life is being disrupted. Clear-cut institutional boundaries that historically separated the programs and responsibilities of high schools, colleges, and employers are now permeable boundaries.
One well-known example of these permeable boundaries is earn-and-learn apprenticeships for young people. These apprenticeships combine a job that pays with adult mentorship and related classroom instruction provided by a high school or other education and training institution. On the other hand, high school dual enrollment programs are a below-the-radar example of this disruption of institutional boundaries.
This disruption poses huge challenges for schools, colleges, and employers. But Americans have risen to this challenge before.
WASHINGTON — Across the country, many working-class Americans are struggling to make ends meet. One reason why is because their wages are being stolen from employers who are not paying them what they are legally owed. These employers either pay less than the minimum or agreed-upon wage, refuse to pay for overtime at the legally required rate, take secretive deductions from paychecks, withhold earned tips, fail to make final payments, or demand unpaid work after a shift has ended.
Today, the Progressive Policy Institute (PPI) released a new report titled “Ensuring Working Americans Get Paid What They Deserve,” which proposes new measures to combat wage theft. Report author Alex Kilander, Policy Analyst for PPI’s Center for Funding America’s Future, argues that former President Trump’s campaign proposal to end taxes on tips and overtime will not meaningfully increase the take-home pay for the employees that need it most, and Democratic policymakers should instead pass legislation that expands the legal toolbox for wage theft enforcement in order to help working Americans.
This new publication is the eighth in a series of papers published in PPI’s Campaign for Working America, which was launched earlier this year in partnership with former U.S. Representative Tim Ryan of Ohio. The Campaign aims to develop and test new themes, ideas, and policy proposals that help Democrats and other center-left leaders make a compelling economic offer to working Americans, bridge divides on culturally sensitive issues like immigration and education, and rally public support for the defense of democracy and freedom globally. Other papers cover career paths for non-college workers, housing, and competition.
Kilander emphasizes that lawmakers need to increase the low civil penalty for initial wage theft offenders while ensuring escalating penalties for repeat offenders. This will prevent employers from stealing money from their employees’ pockets in the first place and heavily punish those who continue to do it, and replace the Wage and Hour Division (WHD) that is now in charge of preventing wage theft. However, the WHD struggles to maintain consistent enforcement actions and resolve cases quickly, forcing the agency to pare back how many cases it can accept.
“Tackling wage theft, a crime that takes thousands of dollars out of working Americans’ pockets each year, will do far more to improve the lives of the millions of tipped and overtime workers who are at risk of being cheated than misguided tax proposals,” said Kilander. “Our government should not stand idly by as dishonest employers steal billions of dollars each year from working Americans who have rightfully earned their wages. We need to make sure that employers are held accountable for their actions and stop hurting the American people.”
The Progressive Policy Institute (PPI) is a catalyst for policy innovation and political reform based in Washington, D.C. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Learn more about PPI by visitingprogressivepolicy.org.Find an expertat PPI andfollow uson Twitter.
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Media Contact: Ian O’Keefe – iokeefe@ppionline.org
While acknowledging her unpopularity in swing districts, that was what then-House Minority Leader Nancy Pelosi (D-Calif.) said in 2018 to vulnerable Democratic incumbents and challengers weighing the political calculation of opposing her as House Democratic leader.
Ultimately, that distancing from Pelosi worked for several incumbent and aspiring House Democrats, helping the party maximize its gains while taking back the House. Most notably in red Pennsylvania District 17, Republicans ran ads trying to link underdog challenger Conor Lamb to Pelosi, cheekily calling him one of “Nancy Pelosi’s sheep.” Yet the attack never resonated. From the beginning, Lamb vowed that he would not support Pelosi. He ended up winning the hotly contested special election, pulling off one of the biggest upsets of the cycle.
We’re now seeing a similar dynamic in this year’s presidential election. While Harris should certainly not repudiate any of President Biden’s policies that she has supported as vice president, the same underlying imperative to create more political distance exists.
A core component of the Trump campaign’s pitch to working Americans is a package of costly tax cuts that sound targeted toward their interests, such as exempting income from tips and overtime pay from taxation. But amongst the many problems with these budget-busting proposals, they wouldn’t meaningfully increase the take-home pay of the many working-class individuals, who have little to no income tax liabilities at all.
A better way for Democrats to boost the incomes of working Americans is to ensure they are actually paid what they are owed in the first place. Tackling wage theft, a crime that takes thousands of dollars out of working Americans’ pockets each year, will do far more to improve the lives of the millions of tipped and overtime workers who are at risk of being cheated than misguided tax proposals.
TRADE FACT OF THE WEEK: Tariffs are a poor form of taxation.
THE NUMBERS: Countries’ reliance on tariffs as share of government revenue* –
County / Region
Percentage
Gambia
41.6%
West Bank and Gaza (pre-war)
37.6%
Liberia
30.0%
St. Lucia
29.2%
United States Trump/Vance proposal
25.6%?**
Argentina
24.6%
Bahamas
19.6%
Somalia
18.0%
India
4.5%
China
2.9%
Brazil
2.0%
United States current
1.8%
Canada
1.6%
Korea
1.4%
New Zealand
1.3%
Japan
1.2%
United Kingdom
0.7%
European Union
0.5%
* World Bank, Taxes on International Trade (% of Revenue)
** Assuming the $2.18 trillion personal income tax is scrapped and replaced with a tariff yielding the maximum feasible revenue, likely $780 billion at rates of 50%.
WHAT THEY MEAN:
In PPI’s newest paper, It’s Not 1789 Anymore: Why Trump’s Tariff Agenda Would Hurt America, Fiscal Policy Analyst Laura Duffy examines the Trump campaign’s apparent hope to replace the U.S. income tax with a much higher tariff. Drawing from modern analysis and the Tariff Act of 1789 — Congress’ first-ever tax bill — she bluntly concludes that:
“Contrary to Trump’s claims that imposing Depression-Era level tariffs will restore America to a supposed former state of greatness, leaders of the past long recognized the weaknesses of relying on tariffs for revenue, and their concerns offer valuable lessons today. In particular, tariffs:
1. Fail to raise enough revenue to finance a modern federal government
2. Are especially non-transparent taxes that invite preferential treatment
3. Undermine equity by imposing arbitrarily unequal tax burdens on different households
4. Cause damage to downstream industries and the economy as a whole.”
Background: At least twice this fall, Mr. Trump has suggested replacing the U.S. personal income tax, and possibly the corporate income tax, with tariff revenue. This would scrap a broad-based revenue tax and swap in a big national surcharge on energy, OTC medicines, clothes, food, and other goods purchased abroad. His argument for this is a claim that in the 19th century (until the creation of estate and income taxes in the 1913 and 1916 Revenue Acts), the U.S. government relied mainly on tariffs for revenue; that during the 1890s, a period of particularly high tariff rates, the U.S. was the “wealthiest we ever were” (quite wrong: see “Further Reading” for a look at that impoverished and unpleasant decade); and that 19th-century tax policy is therefore right for 21st-century America.
To put real-world numbers to this, in 2023, the personal income tax raised $2.18 trillion. This was just under half of the Treasury’s $4.44 trillion total. Tariffs got $0.08 trillion, or 1.8%. Tax scholars report that the most money a theoretical high-tariff system could raise (setting aside the trade policy* and other economic problems it could cause) is about $780 billion. Assuming repeal of personal income taxes but no other tax changes, this would mean about 25.6% of U.S. revenue. No “developed” country now uses tariffs for more than 2.7% of revenue; World Bank tables find Gambia, whose government gets 41.6% of its money from tariffs, the most tariff-reliant country in the world. At 25.6%, the U.S. would be below Gambia, but in the neighborhood of tariff-heavy jurisdictions such as Somalia, the Bahamas, pre-war West Bank and Gaza, Nepal, and Ethiopia — that is, countries too small, politically disordered, and/or poor to operate professional bureaucracies able to assess and collect revenue from broader sources such as income, wealth, or consumption.
Going to the really primary sources, Duffy notes that the original U.S. tax writers in 1789 — sophisticated analysts such as then-House of Representatives figures James Madison and his Federalist sparring partner Alexander Hamilton at the Treasury Department — did not choose tariffs as the main early-republic and 19th-century revenue source because they believed tariffs were a particularly great form of taxation. Nor did they think a tariff would somehow off-load taxation onto foreigners. (With the Tea Party events and “taxation without representation” in recent memory, no early-republic politician would ever make such a claim.) Rather — much like governments in today’s high-tariff small island state and least-developed countries — they were aware that with no professional civil service and no way to calculate income or consumption, the U.S. could not tap broader revenue sources. By contrast, tariffs are easy to collect – seaports are few, and ship arrivals easy to monitor – and therefore the best of their unattractive options.
What would happen if someone tried to cut and paste this 18th- and 19th-century approach into the 21st century? Duffy makes the obvious point that it is not 1789 anymore, our options are better than theirs, and a Trump-like attempt to return to the distant tariff-based tax past would immediately run into one big problem and then cause another three:
(1) Tariffs can’t raise enough money: Very high tariff rates cause trade to collapse rather than raising money; with $3.1 trillion in goods imports and the theoretical maximum tariff revenue at $0.78 trillion, the income tax/tariff arithmetic doesn’t work at all. Replacing a $2.18 trillion income tax with an $0.78 trillion tariff system would nearly double annual U.S. fiscal deficits to $3.1 trillion — even before adding in the effects of lower growth, foreign retaliation, and the Trump/Vance campaign’s many additional trillions of dollars in tax cuts and spending increases over the next decade. The likely result is fiscal crisis and some combination of interest spike, inflation, and collapse of public services.
(2) Tariffs are less transparent than income or consumption taxes: Since tariffs are more ‘opaque’ than income, consumption, or other broad-based taxes, more reliance on tariffs would mean less public understanding of taxation. On the government and policy side, the Treasury Department publishes no annual analysis of tariff revenue by product or incidence by income level; in daily life, American shoppers never learn how much the tariff system adds to the prices they pay for shoes, food, bicycles, etc. The extreme complexity of nearly all tariff systems amplifies this failing. Even the 1789 Tariff Act, Duffy shows, immediately evolved from the simple across-the-board 5% rate Madison proposed to an unwieldy system awarding well-connected industries with especially high rates on nearly a hundred products — from rope, beer, nails and tacks, to soap and shoes. The 1789 Act’s descendant, today’s 11,414-line U.S. Harmonized Tariff Schedule, is far worse (though less important as a revenue source), with only a few specialists knowing the main rates and fewer still knowing who pays. Trumpist ideas, with their new layers of complexity, would spread this opacity across half the tax system.
(3) Tariffs are by nature regressive and typically get worse over time: Reliance on tariffs makes taxation more ‘regressive’ and tougher on low-income and working people. In principle, as a tax on goods but not services, a tariff system taxes low-income families more heavily than wealthy households, because lower-income families spend more of their income on clothes, food, and home goods. Likewise, tariffs tax goods-intensive businesses (e.g., retail, manufacturing, construction, and farming) more than they tax investment- or service-buying industries such as real estate, law, or financial services. And in real life, 19th-century experts — say, Albert Gallatin, Treasury Secretary for the Jefferson and Madison administrations — knew by experience that the opacity of the tariff systems makes them easy for wealthy people and businesses with direct connections to government to manipulate. This means tariff systems usually grow more regressive over time, as rates fall on expensive luxuries but stay high for cheap goods whose buyers don’t know they’re paying. Again, the contemporary U.S. Harmonized Tariff Schedule illustrates the point, taxing cheap stainless steel spoons much more heavily than sterling, infant formula more than champagne, polyester shirts more than silks, and women’s clothes more than men’s.
(4) Economic harm: Finally, tariff increases invite economic harm — directly through damage to ‘downstream’ industries buying tariffed goods, and indirectly by encouraging foreign governments to retaliate against successful U.S. industries. Mr. Trump’s tariff increase on fertilizer, for example, will raise farming costs and simultaneously invite angry foreign governments to block American agricultural exports. In the same way, a new tax on metals, paint, and wiring, meanwhile, means higher costs and lost competitiveness for American auto plants and machinery manufacturers, higher prices for families buying homes, and more retaliation.
All this set out, here’s Ms. Duffy’s close:
“Replacing tariffs with direct taxes on incomes [in the 1913 and 1916 bills] was a huge step in making American public finance more rational and equitable. … Returning to tariff-heavy policies, as suggested by Trump, would be fiscally irresponsible and counterproductive. Beyond their revenue-generating limitations, tariffs are extremely susceptible to lobbying from protected industries at the expense of other businesses, workers, and consumers. Finally, the distortionary effects of returning to pre-modern tariff rates would be extremely damaging to the American economy and undermine the strong wage and job gains the country has seen in the past three years.”
* For example, abrogation of international agreements, and of basic Constitutional principles if a hypothetical Trump administration attempted to impose a tariff by decree; unprovoked harm to U.S. allies; retaliation against successful U.S. farm and manufacturing industries; etc.
FURTHER READING
Laura Duffy on Trumpism, tariffs as taxation, the Tariff Act of 1789, transparency and regressivity, and the folly of using tariffs as a 21st-century revenue source.
U.S. background:
Revenue from income taxes, tariffs, and other sources from OMB’s Historical Tables. See Table 2.1 for overall revenue shares, and Table 2.5 for “other revenue” sources for tariffs, excises, and other small taxes.
And the 1890s weren’t a good time at all. Four points:
Life and health: An American’s average life expectancy in 1900 (Table 13) was 47. To put this figure in context, World Bank tables find the world’s lowest current national life expectancies in Chad and Lesotho, both at 53. The short lives of 1890s Americans reflected very high infant mortality — more than one child in ten died before the age of one — and frequent death in early life and middle age to accident, infection, and contagious disease. (No vaccines, blood transfusion, antibiotics, or anti-inflammatory drugs.)
Wealth and poverty: Americans were poor and spent most of their money on life necessities. Per BLS’ “100 Years of Consumer Spending,” the average family spent 58% of its income on food and clothes as against today’s 12%. Even the top end of “Gilded Age” society had only 8,000 automobile owners and 600,000 mostly communal telephones, in a country of 76 million.
Civil rights: Work and daily life in 1890s America were deeply unjust and getting rapidly worse. Between 1890 and 1895, 16 states adopted segregationist constitutions and laws covering marriage, voting, education, railroads, streetcars, and other matters, validated by the Supreme Court’s 1896 “Plessy v. Ferguson” decision. The National Archives remembers.
Economy: Whatever the impact of high tariffs, the 1890s economy was bad. The decade’s main economic event, the four-year Depression following the “Panic of 1893,” introduced the word ‘unemployment’ to common English-language discourse. It also prompted the first mass protest in U.S. history, when “Coxey’s Army” of 6,000 desperate Ohio and Pennsylvania workers marched to the National Mall to appeal (unsuccessfully) for federal relief.
ABOUT ED
Ed Gresser is Vice President and Director for Trade and Global Markets at PPI.
Ed returns to PPI after working for the think tank from 2001-2011. He most recently served as the Assistant U.S. Trade Representative for Trade Policy and Economics at the Office of the United States Trade Representative (USTR). In this position, he led USTR’s economic research unit from 2015-2021, and chaired the 21-agency Trade Policy Staff Committee.
Ed began his career on Capitol Hill before serving USTR as Policy Advisor to USTR Charlene Barshefsky from 1998 to 2001. He then led PPI’s Trade and Global Markets Project from 2001 to 2011. After PPI, he co-founded and directed the independent think tank ProgressiveEconomy until rejoining USTR in 2015. In 2013, the Washington International Trade Association presented him with its Lighthouse Award, awarded annually to an individual or group for significant contributions to trade policy.
Ed is the author of Freedom from Want: American Liberalism and the Global Economy (2007). He has published in a variety of journals and newspapers, and his research has been cited by leading academics and international organizations including the WTO, World Bank, and International Monetary Fund. He is a graduate of Stanford University and holds a Master’s Degree in International Affairs from Columbia Universities and a certificate from the Averell Harriman Institute for Advanced Study of the Soviet Union.
