This Taxation Is Looking a Lot Like Theft

The Trump administration is trying to avoid paying refunds after illegally collecting $175 billion from its emergency tariff scheme.

There is a word to describe the illegal taking of money or property, followed by a refusal to return the stolen goods.

Theft.

Now, as a libertarian, I am effectively obligated to remind you here that, yes, all taxation is theft. Roll your eyes if you must, but it's true. The government demands payment, never asks for consent, and backs up its demands with threats of violence. At the most basic level, the transactions between the government and the taxpayer are no different than those between a mugger and his victim.

In theory, what makes taxation different is that it is subject to the rule of law. You may not have consented to paying income tax, but your elected representatives (or those of your ancestors) did, and that bestows some sort of legitimacy upon the whole thing. The rule of law is also supposed to govern how much money is taken, how the revenue is put to use, and what checks are in place to prevent the government from behaving, well, more like a bandit or a mugger.

In short, the expectation is that the government will follow its own, duly passed laws—that's what the rule of law is—even while it is taking your stuff.

Discard the rule of law, and all the scaffolding that's meant to make taxation look legitimate comes tumbling down. Taxation once again becomes indistinguishable from theft.

The Trump administration is now veering dangerously close to that edge as it plots various strategies to keep as much as $175 billion in illegally collected tariff revenue in the wake of last week's high-profile Supreme Court ruling.

The White House is "scrambling" to find ways to keep that money, even as hundreds of American businesses are lining up for refunds, Politico reports. "Early ideas include policies to discourage companies from claiming their refunds, prevent the government from paying the money back or otherwise preserve at least some of the tariff revenue."

Of the various schemes reportedly being batted around, I think my favorite is the idea of allowing "companies to jump to the front of what is expected to be a lengthy queue for refunds if they agree to forfeit some of the money to the government."

Nothing says "this is a totally legitimate operation that deserves the public's trust" like turning refunds into a backhanded shakedown scheme. Imagine how many complaints would flood the Federal Trade Commission's website if a private company used that approach when issuing refunds for defective products or fraudulent transactions.

The Trump administration's attempts to wriggle out of refunding the tariffs look even more ridiculous after it spent months telling federal courts that refunds would be readily available if the tariffs were ultimately struck down, which they were.

The major complicating factor in issuing the refunds is the gap between who paid the tariffs and who actually bore the cost of them. The tariff bills were paid by importers who brought foreign-made goods into the country. Those importers then added the cost of the tariffs onto those goods as they were sold to downstream businesses—manufacturers buying raw materials, retailers buying finished goods, and so on. Eventually, most of those higher, tariff-related costs fell on consumers.

(You'll want to note that nearly all the cost of the tariffs fell on American businesses and consumers, not foreign producers or foreign governments, despite what the Trump administration has been claiming for months.)

The problem is that the tariffs' "legal incidence" and their "economic incidence" fell on different people, as the Cato Institute's team of trade experts explains in a must-read post about all this. Importers have a legal claim to refunds because they paid the tariff bills to the federal government and have the receipts. But the economic pain of the tariffs fell mostly on downstream businesses and consumers.

Democrats in Congress have proposed solving this problem by sending all American households a $1,700 check to cover tariff-related expenses.

I'm sure that would make a lot of people less angry about the whole thing, but I don't think that gets the Trump administration off the hook. As a legal matter, the refunds are due to the companies that paid the tariffs—the importers of record.

Some of them might be able to pass the refunds down the supply chain in the same way the tariff costs were. For example, FedEx has promised to refund its shippers and customers.

In many other cases, this outcome will feel unsatisfying and unfair. The difficulty of undoing illegal tax policy, it turns out, is one of the many very good reasons to avoid doing illegal tax policy in the first place.

Not that we should expect the Trump administration to learn a lesson from this. Just hours after the Supreme Court ruled last week, President Donald Trump signed an executive order imposing a new set of tariffs that also look to be illegal. Months from now, we might be right back here all over again, debating how to refund yet another pile of illegally obtained tariff cash.

For now, one thing should be clear. No matter who ends up getting the refunds, that money cannot remain in the U.S. Treasury. Those funds were unlawfully confiscated.

They were stolen.

The tariffs are theft.