The debt of the U.S. government is of much concern to policymakers and citizens alike. Solutions range from raising income taxes to cutting spending on national defense and entitlements. In an old U.S. customs house in New York City, there is a sign that says that at one time the U.S. government paid for all of its debt from a war by imposing tariffs on imported goods. Could a higher import tariff of, say, 20 percent currently be used to pay for Medicare and noticeably reduce the federal debt? It is true that tariffs originally accounted for the bulk of federal government revenue-in 1795, about 95 percent of federal receipts came from tariff revenue. However, the importance of tariffs declined as tariffs were reduced and the income tax, enacted in 1913, came to be the major source of federal revenue. Today, tariffs are present on about 30 percent of goods imported by the United States, and they generate only about $25 billion of revenue per year, amounting to 1.2 percent of federal revenue. Also, the average U.S. tariff rate is about 2 percent of the price of an imported good.
So should the government raise tariffs to 20 percent, a 10-fold increase of the current rate? Multiply the $25 billions of annual revenue that the federal government collects from tariffs by 10 and you would get an additional $250 billion of revenue each year, assuming that imports do not decrease if they go up in price by 20 percent, a dubious assumption. But let's not deal with that assumption. Because right now the U.S. government is borrowing over a trillion dollars a year to cover its deficit. Uh.… Eliminating that much debt would require a gigantic tariff, again assuming no decrease in import purchases. That could invite retaliatory tariffs imposed by our trading partners. Raising tariffs is not a good option for getting the United States out of debt.

What do you think? Is increasing tariffs a good idea for the U.S. government to get out of debt?