The Gulf of Stupidity: Taxing the Poor, Enriching the Rich
Who really pays for America's new tariffs.
Have you ever stopped to wonder why we have an income tax?
Seriously. Think about it.
Nobody likes taxes. I just met with my accountant for my business, and if you’re an entrepreneur, you know tax season comes in waves—first in March for businesses, then in April for personal filings. February? That’s crunch time, with CFOs, accountants, and business leaders scrambling to get everything in order. And for those of you who filed early, you’re either eagerly awaiting a refund or dreading the bill you know is coming.
Of course, who knows how smoothly that process will go, given that Trump and Musk seem hell-bent on dismantling the federal bureaucracy piece by piece?
I am a scholar of politics, history, and law. I believe there have been a few key moments in U.S. history where the Constitution was fundamentally altered—where the balance between the federal government and the states shifted in ways the framers might not have anticipated. Today, I want to focus on one in particular: the 16th Amendment.
Why? The shift from indirect to direct taxation fundamentally reshaped how the federal government collects revenue—because it ties directly into Donald Trump’s favorite economic weapon: tariffs.
The Trade-Off Between Tariffs & Taxes
If you’ve ever been frustrated by the complexity of the U.S. tax system, you’re not alone. Impressively enough, there was no federal income tax for much of America’s early history. Instead, the government primarily funded itself through tariffs—taxes on imported goods. It was a system designed to be indirect, protecting domestic industries while keeping the federal government’s hands out of the pockets of everyday Americans.
At least, that was the idea.
Quick, aside, the first valorem tax in America was on, you guessed it. Booze.
In 1791, the new American Congress enacted a tax on distilled spirits to help pay off debts incurred during the Revolution.
In reality, tariffs functioned as a regressive tax. The cost of imported goods didn’t just hit merchants and industrialists—it was passed down to consumers, meaning that lower-income Americans bore the brunt of taxation every time they bought a foreign-made product. Meanwhile, the wealthy, particularly those who owned land or industrial enterprises, could structure their wealth in ways that shielded them from this kind of taxation.
By the late 19th and early 20th centuries, the cracks in this system became impossible to ignore. A growing progressive movement began pushing for tax reform, arguing that the burden of government funding should shift away from the working class and toward those who could afford to pay more. Their solution? The 16th Amendment, ratified in 1913, introduced the federal income tax to ensure that the wealthiest Americans contributed their fair share.
But here’s the thing—fair share has never been the point of taxation.
This shift—from tariffs to income tax—wasn’t just a change in revenue collection. It was a fundamental reordering of economic priorities. It represented an attempt to balance the scales, ensuring that taxation didn’t disproportionately fall on those least able to bear it. But over time, this balance eroded. Post-World War II tax policies, corporate lobbying, and a shifting political climate gradually undermined the progressive tax structure. By the 1960s and beyond, tax laws increasingly favored the wealthy while the working class shouldered more of the burden again.
And now, after decades of free trade policies, we’ve come full circle. Once an outdated and abandoned form of taxation, tariffs have returned under President Trump, threatening nearly 80 years of progress. The tool that income tax was meant to replace is now being wielded again despite its history of placing disproportionate strain on the average consumer.
How did we get here?
To answer that, we need to start at the beginning—back to colonial America, when taxation was as much about philosophy as revenue.
The Framers’ Vision for Taxation
When the Framers debated how to fund the federal government, one thing was clear: direct taxation—meaning taxation on individuals—should be avoided at all costs. To them, a government that could reach directly into a citizen’s pocket was one step closer to tyranny. They had just fought a war, after all, in part over what they saw as unfair taxation by a distant, unaccountable power.
Instead, they opted for indirect taxation, primarily tariffs and excise taxes. Tariffs—taxes on imported goods—were seen as the most logical way to fund the government for a few reasons:
They targeted foreign goods, not citizens. This meant the federal government didn’t directly tax the average American. Instead, importers paid tariffs, and that cost was absorbed into the price of goods.
They protected domestic industries. By making foreign goods more expensive, tariffs encouraged American manufacturing to grow.
Tariffs were easy to collect. Customs houses at major ports could efficiently enforce them, unlike income taxes, which required extensive government oversight.
Because of this, tariffs were the primary way the federal government funded itself for over a century, sometimes accounting for as much as 90% of all federal revenue.
But this system had tradeoffs. Tariffs made imported goods more expensive, which meant Americans paid more for things they couldn’t produce domestically. They also created constant political battles between industrialists who wanted high tariffs to protect their businesses and farmers who relied on cheap imports and wanted tariffs kept low.
The Shift to Income Taxation
By the late 19th century, the cracks in the tariff-based system were becoming impossible to ignore. While tariffs had funded the federal government for over a century, they disproportionately impacted lower-income Americans. Every day, goods became more expensive, and the burden of taxation fell heaviest on those least able to afford it. Meanwhile, the wealthiest Americans—industrialists, landowners, and financiers—found ways to shield their wealth from taxation, benefiting from an economy structured around their interests.
This was when the real purpose of taxation began to shift.
Although it didn’t become a “reality” until modern monetary systems in the 1970s (the advent of global fiat currency systems), governments don’t need taxes to fund spending. They primarily tax individuals to regulate aggregate consumption (spending), control inflation, and keep wealth circulation in check. The 16th Amendment wasn’t just about making the rich pay more—it was a tool to stabilize an economy structured around a regressive taxation scheme. The U.S. needed people to spend, not just hoard wealth, and it needed to find a way to allow the government to grow its services and presence without creating intense inflationary pressure.
But just as income tax began to take hold, a new economic crisis put tariffs back in the spotlight.
The Disaster of Smoot-Hawley and the Great Depression
While the 16th Amendment was designed to reduce reliance on tariffs, protectionist instincts remained strong in Washington. In the late 1920s, with the American economy booming, policymakers assumed high tariffs could be maintained without consequence. That assumption was catastrophically wrong.
In 1930, amid growing economic instability, Congress passed the Smoot-Hawley Tariff Act, one of U.S. history's most infamous trade legislation. The law raised tariffs on over 20,000 imported goods to protect American industries from foreign competition. The logic was straightforward: by making foreign products more expensive, consumers and businesses would buy American-made goods instead, keeping factories running and workers employed.
Instead, it triggered a global economic backlash. Other nations retaliated with their tariffs, cutting off markets for American exports. Instead of protecting jobs, Smoot-Hawley accelerated the collapse of world trade, deepening the economic downturn already beginning. What started as a Wall Street crash in 1929 spiraled into the full-blown Great Depression.
The consequences were devastating.
Unemployment soared (a third of all workers in the U.S. were unemployed), businesses failed, and poverty swept across the country. Smoot-Hawley had proven that once the backbone of government revenue, tariffs were no longer a viable economic tool in an interconnected world.
I think that last statement bears repeating: tariffs were no longer a viable economic tool in an interconnected world. (Remember that because it’s going to matter again later.)
The New Deal & Taxation
With the economy in freefall, President Franklin D. Roosevelt took office in 1933 with a mandate to address the economy. His “New Deal” introduced sweeping economic reforms, including restructuring the tax system. Income tax rates on the wealthy were raised significantly, reaching as high as 79% on top earners by the late 1930s. The federal government was now fully committed to progressive taxation as its primary source of revenue.
This marked the final shift away from tariffs as the primary funding mechanism for the U.S. government. Trade revenue needs would no longer dictate policy—it would now be shaped by economic strategy.
The lesson of Smoot-Hawley was clear: in a global economy, tariffs were dangerous and unpredictable. The United States would need a new approach cemented in the post-World War II era with the Bretton Woods system, which sought to eliminate trade barriers and prevent economic disasters like the Great Depression from happening again.
But before we get to that, we must understand how World War II finally killed off tariffs as the dominant force in American economic policy—and how income tax became a permanent fixture in American life.
The End of Tariffs as a Revenue Tool
The Great Depression had proven a critical point—tariffs were no longer an effective way to fund the government, and in a globalized economy, they could even be destructive. However, World War II permanently reshaped the global economic order and cemented the United States’ transition from a protectionist, tariff-driven economy to a free-trade powerhouse reliant on income taxation. It would spend the next four generations attempting to build a fair, open, and free trading system of worldwide trade. It is this system that President Trump attacks at every possible opportunity.
The War That Changed Everything
World War II was the largest military conflict in human history and the final nail in the coffin for tariffs as a primary funding mechanism. Unlike previous wars, which had been funded with a mix of tariffs, war bonds, and temporary income taxes, WWII required a massive, sustained mobilization of economic resources on a scale never seen before.
To fund the war, the U.S. dramatically expanded income tax.
Before the war, only about five percent of Americans paid income tax. By the end of the war, nearly ninety percent of workers were taxed.
The top marginal tax rate soared to ninety-four percent on incomes over $200,000 (about $3.5 million in today’s dollars).
This shift from tariffs to broad-based income taxation became permanent. By 1945, income taxes had replaced tariffs as the primary funding mechanism.
But taxation wasn’t the only thing that changed.
Bretton Woods: The Beginning of Free Trade
As the war ended, the world’s economies were in ruins. Europe was shattered, and global trade had collapsed. The U.S., now the unquestioned economic superpower, led the charge to rebuild the global economy—but in a way that would benefit American interests.
In 1944, world leaders met at Bretton Woods, New Hampshire, to design a new economic order. The agreements that emerged from that meeting would shape everything about global trade and taxation for the next century.
The key pillars of the Bretton Woods system were:
The U.S. dollar became the global reserve currency, pegged to gold at thirty-five dollars per ounce. This created a stable, dollar-dominated global trade system.
Fixed exchange rates encouraged trade by eliminating currency fluctuations.
Tariffs were gradually dismantled in favor of lower trade barriers and open markets.
The fundamental idea behind Bretton Woods was simple: rather than each country imposing high tariffs and engaging in trade wars, the global economy would be interconnected, stable, and open.
And this is where the shift happens.
Tariffs no longer mattered for government funding. Instead, the U.S. relied on income tax while using trade policy as a geopolitical tool rather than a revenue source.
The U.S. would use its dominant economy to flood the world with cheap exports, while ensuring that developing nations provided raw materials and manufacturing capacity.
The old tariff-based economy was dead. In its place was a new world order centered on free trade.
The Shift to a Globalized Economy
Several factors fueled the postwar boom from 1945 to 1971. The U.S. had massive industrial dominance—by 1950, the U.S. controlled nearly fifty percent of global manufacturing output. A strong middle class emerged, powered by high wages, union protections, and a social safety net. Low tariffs and rising trade ensured that cheap imports became a key feature of the economy rather than a threat.
In that last sentence, I find this very fact ironic with President Trump. The President seems caught in this temporal frozen moment of 1950 or 1960, but he seems to remember what happened in that decade completely wrong. It wasn’t tariffs and protectionism that made “America Great” in terms of manufacturing. It was low tariffs, rising trade, a strong labor force, with high wages, that made “America great” during the 1950-1960 decade period. This is exactly the opposite of all of the policies the President pursues today.
This period, 1945-1980, was also the “golden age” of progressive income taxation:
The top marginal tax rate remained above seventy percent from 1945 to 1981.
The government used taxation not just to raise revenue but to manage inflation and economic demand.
For decades, the system worked—until it didn’t.
The Collapse of Bretton Woods & the Nixon Shock (1971)
By the late 1960s, cracks were forming in the Bretton Woods system. The U.S. was running trade deficits, and the Vietnam War and Great Society programs were draining government resources. Other countries began demanding gold instead of holding U.S. dollars, fearing that the U.S. was printing too much money.
Then, in 1971, President Nixon made a decision that would change everything—he ended the gold standard. With a single executive order, Nixon cut the dollar’s ties to gold, making it a fully fiat currency for the first time. This meant the U.S. government could print money without any commodity backing it.
President Nixon’s Address to the Nation, August 15, 1971
(the EO announcement occurs at 9:35)
This had massive implications.
First, taxation was now officially about controlling inflation, not funding spending. Second, the U.S. no longer needed to care about trade imbalances in the same way—it could print more dollars to cover deficits. Third, tariffs were now purely a political tool, rather than an economic necessity.
From this point forward, the purpose of taxation fundamentally changed.
The Legacy of Bretton Woods
After the collapse of Bretton Woods, free trade took over completely. The General Agreement on Tariffs and Trade (GATT) evolved into the World Trade Organization (WTO) in 1995. The Most Favored Nation (MFN) principle ensured that countries treated all trading partners equally. Neoliberal economic policies—championed by Reagan, Thatcher, and later Clinton—promoted free trade and relentless tax cuts for the wealthy.
The old tariff-driven economy was gone, replaced by a new model that:
Lowered taxes on the wealthy, shifting the burden onto the working class.
Built global supply chains that relied on cheap foreign labor.
Designed trade policies that benefited corporations, not workers.
And for nearly fifty years, this system remained unchallenged—until Trump.
Phase 4: The Trump Tariff Reversal – How We Ended Up Back Where We Started
For nearly fifty years, tariffs had been relegated to the dustbin of history. They were no longer a primary funding mechanism, a tool for economic protectionism, and certainly no longer a part of serious policy debates among mainstream economists. Then, Donald Trump happened.
By the time Trump took office in 2017, America’s economy had been running on the principles of free trade and financial globalization for decades. Trade agreements like NAFTA, the WTO, and the normalization of trade relations with China had defined economic policy since the 1990s. Offshoring was the norm, and cheap imports from Asia filled every Walmart and Target in the country. The economic establishment—from Wall Street to Washington—saw tariffs as relics of a bygone era.
Trump, however, saw things differently.
Tariffs as a Political Weapon
Trump’s rhetoric on trade was simple: China is ripping us off, Mexico is taking our jobs, and tariffs will fix it. His economic nationalism wasn’t really about revenue, nor was it a serious policy effort to revive American manufacturing. It was a weapon—one designed to play to his political base and challenge the neoliberal economic order.
His trade war was built around a few key pillars. Imposing tariffs on China, arguing that China’s trade surplus was the result of unfair practices. Taxing European imports, particularly automobiles, steel, and aluminum. Renegotiating NAFTA, turning it into the USMCA (United States-Mexico-Canada Agreement), which largely preserved the old framework but gave Trump a victory to claim.
For Trump, tariffs were about optics more than economics. They were a blunt instrument, meant to signal that the U.S. would no longer play by the globalist rulebook.
The Economic Fallout – Who Paid?
Trump’s trade war created a new reality: tariffs were back, and they were costing Americans billions. Contrary to his claims, foreign governments did not pay tariffs—they were passed on to American consumers and businesses. This was exactly why the U.S. had moved away from tariffs in the first place.
American importers bore the cost. Companies bringing in goods from China now had to pay higher duties, which they passed on to consumers. Farmers suffered from retaliatory tariffs. China, Europe, and Canada hit back, slapping tariffs on American agricultural exports, causing U.S. farm income to plummet. Manufacturing costs increased. Tariffs on steel and aluminum drove up production costs for American companies, making goods more expensive domestically.
By 2019, Trump’s tariffs had cost U.S. consumers and businesses over $80 billion—essentially a massive tax hike on working Americans, despite Trump branding himself as an anti-tax president.
The Great Irony: Trump Brought Back the Very System the 16th Amendment Tried to Fix
The shift from tariffs to income tax in 1913 was to stop forcing the working class to bear the burden of government revenue. The Progressive Era reformers understood that tariffs functioned as regressive taxes, raising prices on ordinary consumers while letting the wealthy hoard their fortunes.
Trump’s tariffs did exactly that—except this time, they weren’t funding the government. They were just economic dead weight, redistributing wealth from working-class consumers to domestic producers and political interests.
And yet, despite the apparent economic damage, Trump never paid a political price for his tariffs. His supporters saw them as a bold stand against globalism, while his opponents were focused on scandals, impeachment, and election interference.
By the time Trump left office in 2021, tariffs had become a normalized part of American economic policy again. Biden, wary of appearing soft on China, kept many of them in place. What had started as an economic stunt had reshaped the political landscape—tariffs were no longer a dead policy.
Trump’s Second Term: Tariffs on Everything
If Trump’s first term showed that tariffs could return, his second term proved he had no intention of reversing course. In early 2025, he took his trade war global, slapping tariffs on virtually every major U.S. trading partner. He enacted a 25% tariff on all imports from Mexico and Canada, a 10% tariff on imports from China, and additional duties on European goods. His justification? A mix of economic nationalism, claims of unfair trade practices, and vague references to border security and drug trafficking.
The international backlash was immediate. Canada, Mexico, and the European Union condemned the tariffs, threatening retaliation and warning of economic instability. Canadian Prime Minister Justin Trudeau called the tariffs “unacceptable and unjustified,” while European Commission President Ursula von der Leyen promised countermeasures. China, already engaged in a trade war with the U.S., escalated its own tariffs in response.
For Americans, this meant even higher costs. With tariffs now covering a broader range of products, prices on everyday goods—from cars to electronics to groceries—began to rise. Companies that relied on international supply chains struggled to absorb the costs, leading to layoffs and factory closures. Meanwhile, farmers once again found themselves caught in the crossfire of global trade disputes.
Despite the economic turmoil, Trump remained defiant. His administration doubled down on the idea that tariffs were a long-overdue correction to America’s trade policies. But the numbers told a different story—growth slowed, inflation rose, and American consumers bore the brunt of the impact.
Who Wins Under Trump’s Tariff War? The Rich Again
Despite all the populist rhetoric surrounding Trump’s tariffs—claims of “bringing back American jobs” and “leveling the playing field”—the reality is that tariffs, like most forms of regressive taxation, benefit the wealthy while burdening the working class.
At their core, tariffs function as hidden consumption taxes. They don’t take money directly from corporations or the ultra-wealthy—they raise the price of imported goods, forcing ordinary consumers to pay more for everyday items. The added costs don’t impact billionaires; they impact middle-class families, small businesses, and workers who have little choice but to absorb the higher prices.
But while regular Americans face higher costs, some very specific groups benefit from tariffs.
1. Domestic Manufacturers and Industry Giants
Trump framed his tariffs as a way to revive American manufacturing, but in reality, they benefit only a select group of powerful corporations. Companies that already dominate their industries—like U.S. steel and aluminum producers—suddenly found themselves in a protected market where foreign competition was artificially constrained. This allowed them to raise prices without improving productivity, padding profits while consumers footed the bill.
For industries like automobiles, heavy equipment, and construction materials, tariffs meant higher costs for imported parts and raw materials. But instead of absorbing those costs, large corporations passed them down the supply chain, forcing smaller businesses and consumers to take the hit.
2. Speculators and Wealthy Investors
One of the biggest winners under Trump’s tariff regime has been Wall Street.
Every new round of tariffs created massive volatility in the stock market, leading to huge opportunities for speculators who could bet on price swings. Hedge funds and institutional investors played both sides of the trade war, profiting off uncertainty while ordinary investors—those with retirement accounts and 401(k)s—watched their portfolios take a hit.
Even for industries supposedly “hurt” by tariffs, CEOs and shareholders still won. Corporations didn’t just absorb tariff costs—they raised prices, laid off workers, and continued stock buybacks, ensuring that profits kept flowing to those at the top while ordinary workers suffered the consequences.
3. Political Donors and Lobbyists
Trump’s tariffs weren’t applied evenly—there were exceptions, carve-outs, and backroom deals that let politically connected industries off the hook. This meant that companies willing to play the Washington game—through lobbying, campaign donations, and personal relationships with Trump and his inner circle—could secure exemptions from certain tariffs, putting them at a competitive advantage.
For example, certain industries lobbied successfully for exclusions from steel and aluminum tariffs, while others saw their competitors hit with massive import duties. This wasn’t about economic fairness; it was about who had the most influence.
4. Billionaires and the Ultra-Wealthy
Perhaps the most ironic outcome of Trump’s tariffs is that, while his base saw them as a way to fight globalization and “stick it to China,” the actual billionaires behind globalization weren’t harmed at all.
Jeff Bezos? Still raking in billions as consumers had no choice but to pay higher prices for imports. Elon Musk? Tesla passed on higher costs to consumers without cutting into profits. The Walton family? Walmart continued making record profits even as goods became more expensive for its own customers.
Tariffs didn’t touch the fortunes of the ultra-wealthy because they don’t rely on wages, and they don’t buy goods in a way that higher prices affect them. But for the average American family—already struggling with stagnant wages and rising costs—the tariffs were just another hidden tax that made life harder.
The Cycle Repeats: How Tariffs Serve the Elites
If history tells us anything, it’s that tariffs are rarely about protecting workers—they are about protecting entrenched wealth.
In the 19th century, tariffs protected the industrialists of the Gilded Age, allowing robber barons to consolidate wealth while workers toiled in factories.
In the early 20th century, tariffs like Smoot-Hawley crushed farmers and small businesses, but bankers and monopolists survived.
In the 21st century, Trump’s tariffs made billionaires richer while middle-class Americans paid more for groceries, cars, and appliances.
And now, as tariffs become normalized again under Trump’s second term, the same playbook is being used again. The rhetoric of economic nationalism is just a smokescreen for protecting corporate profits and rewarding political allies.
Tariffs aren’t about making America great again. They’re about making the rich even richer—again.
The Illusion of Economic Nationalism
Tariffs have always been a convenient lie—a way to sell economic nationalism to the public while quietly enriching the wealthy. From the earliest days of the American Republic to the protectionist trade wars of the 20th century, tariffs have been framed as a way to protect domestic industries, preserve jobs, and ensure economic sovereignty. But the reality is that tariffs have repeatedly functioned as a regressive tax on consumers while shielding the ultra-wealthy from real financial accountability.
The entire reason the U.S. abandoned tariffs as its primary revenue source in favor of the income tax was to stop disproportionately taxing lower-income Americans and reduce income inequality. That shift was not just about "fairness"—it was about economic stability, ensuring that government revenue came from those who could afford it rather than from hidden taxes on consumer goods. The transition was a recognition that a modern economy couldn't thrive if its government funding relied on consumption-based taxes that drove up prices and stifled demand.
And yet, here we are again. Trump’s tariffs, sold as a populist revolt against globalism, have functioned as a smokescreen. They haven't punished China, Mexico, or Europe. They will not revive American manufacturing. They will not restore the economic power of the working class. Quite the opposite, they will only enrich the ultra-wealthy. They will undoubtedly make necessities more expensive for ordinary Americans (head to the grocery store if you don’t believe me). At the same time, corporate giants, speculators, and political insiders will cash in on the chaos. It’s no surprise that President Trump is blinding the watchdogs on foreign corruption and bribery, consumer protection agencies, securities regulatory agencies, banking regulatory agencies, oversight of business, and the IRS. It’s about to be a free-for-all (literally.)
History shows that tariffs don’t solve the problems they claim to address. They don’t reverse the decline of industry, they don’t create lasting economic security, and they certainly don’t force any other country to pay “their fair share,” as the President often claims. But they do one thing incredibly well—they provide a politically convenient distraction.
America's real economic crisis isn't about trade imbalances or foreign competition. It’s about decades of corporate consolidation, declining wages, and a tax system that has been systematically rewritten to benefit the elite at the expense of everyone else. Trump’s tariffs didn’t fix these problems; they just provided a new way to obscure them.
So where does that leave us? If history repeats itself, the cycle will eventually end the way it always does—with severe economic damage that even the most diehard supporters of tariffs are forced to abandon them. But the more profound question remains: when that reckoning comes, will we finally learn? Tariffs were a bad idea in the 19th century. They were disastrous in the 20th. And in the 21st century, they have once again proven to be nothing more than an illusion—an old tool repackaged for new political gain, with the same predictable results.