Tax News & Views International Weekly: The Big Tariff Revenue Haul

During the 2024 campaign, President Trump promised to take tax collection back to the turn of the century—the 19th century.

While Trump has long been an advocate for protectionist trade measures, he only more recently emphasized them as a potential revenue source, even one to eventually replace income taxes. He often pointed to the presidency of William McKinley, from 1897-1901, as a period America should strive to replicate. In those times, as with all of the 19th century, income taxes had yet to be enacted and tariffs were the country’s primary source of federal revenue. America could finance its government not through taxing its citizens, but by charging foreign countries and businesses still eager to gain access to American markets.

The corporate and personal income taxes are still here—but the promised revenue from new tariffs may be starting to materialize. As a new round of tariffs take effect, a D.C.-based think tank is predicting that the tariffs could bring in a large amount of money. According to a Monday post from the Committee for a Responsible Federal Budget, the revenue haul could be more than a trillion dollars for the rest of Trump’s term, and $2.8 trillion by 2034.

It’s one of a few recent estimates that show significant new revenue from tariffs, that the administration has been quick to promote. It’s also led to some fears, among the tariffs’ critics, that they could become difficult to remove even after Trump’s presidency.

There are many caveats, however. The estimates don’t include potential losses with other taxes caused by the tariffs. For instance, there could be a dip in corporate income taxes if the tariffs spur a recession. It’s also impossible to predict reactions from those companies paying the tariffs—if they reduce sales into the U.S., that would reduce overall revenue as well. And if companies respond by moving production back into the country—as Trump has promised they would–that would create new jobs, but result in less tariff revenue.

No matter how money is raised, there will always be effects.

Noteworthy Items This Week

Governance and Fairness Questions Loom Large in U.N. Tax Talks – Nana Ama Sarfo, Tax Notes ($):

A lightning rod issue mentioned by several stakeholders is “fairness.” Several perspectives on this have come to light. The African Union stated in its submission that countries should discuss the fair allocation of taxing rights on a protocol-by-protocol basis or, in the context of various initiatives and instruments, “each taking up its meaning from the context of its peculiarity.” Meanwhile, the South Centre cautioned against determining, in detail, when and where economic activity takes place. “This is an unnecessary detail which can become a very complex exercise, may not have universal applicability to all business activities, can become quickly outdated in the face of evolving business models and will end up wasting precious negotiating time,” the organization said. The Republic of Korea echoed a similar point, writing that “while we appreciate the emphasis on creating ‘future-proof’ rules, we caution against attempting to prescribe detailed commitments for business models that may not yet exist. The rapid pace of technological innovation and evolving global structures makes accurate forecasting difficult.” The South Centre suggested that the committee remove language about determining where business activity takes place from the commitment and address the matter in specific protocols instead.

Canada Nixing Digital Services Tax Poses Several Legal Questions – Ian Caines, Sabina Han and Michael Kandev, Bloomberg Tax:

It’s unclear whether ending the DST will lead to any compensatory changes in Canadian tax policy. After being forestalled in its plans to directly tax foreign digital service providers on their Canadian-derived revenue, the Canadian government may consider expanding its efforts to collect goods and services tax/harmonized sales tax (GST/HST, the Canadian value-added tax) on Canadians’ consumption of foreign-provided digital services.

PepsiCo Win Sets Back Australia Crackdown on Company Tax Dodges – Caleb Harshberger and Deborah Nesbitt, Bloomberg Tax ($):

The court decision could also offer taxpayers some insight on how to defend against the 40% diverted profits tax that the Australian Taxation Office sought to apply, practitioners said.

Australia’s resolve to keep its DPT may be tested by the Trump administration’s threats to retaliate against any country that has tax policies that discriminate against US corporations. The tax was targeted in the US House GOP version of the recent tax and spending bill, which included imposing a new tax code Section 899—a so-called revenge tax—on offending countries. Section 899 was ultimately stripped from the final version under intense pressure from financial and business groups.

U.N. Delegates Float New Nexus Ideas for Tax Convention Protocol – Stephanie Soong, Tax Notes ($):

At an August 12 meeting of the intergovernmental negotiating committee on a U.N. framework convention on international tax cooperation, several countries expressed the view that physical presence is no longer a suitable nexus indicator for taxation because companies can provide services in a jurisdiction without it.

The meeting was part of the committee’s second session in New York to discuss commitments and two protocols to the framework convention. In addition to the first early protocol on the taxation of cross-border services income, delegates are discussing a second early protocol, which will cover dispute prevention and resolution.

Taylor Swift’s Music Deal and the Cloud Sourcing Regs – Mindy Herzfeld, Tax Notes ($):

A clear parallel can be drawn between musicians’ frustration with the loss of their traditional revenue streams, as music purchases have moved from hard copies of audio recordings to digital streaming, and developing (and some developed) countries’ dissatisfaction over the loss of their traditional revenue base from retail in-store local purchases of tangible goods. That parallel is underscored by Swift’s attempts to maximize revenue from her creative content, which include successful efforts to increase the income of her fellow musicians. Tax authorities follow along in the wake of digital technology’s disruption of traditional business models.

o-minute video isn’t subtle. Wielding a medieval halberd, the president of the conservative Swiss People’s Party lays out the choice Switzerland faces: a simpler life that the country’s founders spelled out in a one-page declaration more than 700 years ago or a 2,000 page treaty with the European Union.

Public Domain Superhero of the Week

Every week, a new character from the Golden Age of Comics, who’s fallen out of use.

This week’s entry: Rainbow Boy

Debut Year:1942

Debut Publication: Reg'lar Fellers Heroic Comics #14

Origin Story: Never explained.

Superpowers: His rainbow-related powers allow him to fly and grant him super-strength, but only at daytime.

Eide Bailly's International Tax Team and our affiliates at HLB, The Global Advisory and Accounting Network, stand ready to assist with your worldwide tax needs.

Tax News & Views International Weekly: The Big Tariff Revenue Haul

Alex Parker