It started off so well. In the early days of President Donald Trump’s administration, Treasury Secretary Scott Bessent laid out two important goals: reducing the deficit by to 3% of gross domestic product while increasing the annual rate of GDP to 3%.
Indeed, the two goals support each other – not something commonly understood among policymakers. But rather than getting our fiscal house in order, the actual policies the administration has put forward look like a fiscal house of cards.
Perhaps realizing how difficult it is to effectively boost the economy’s underlying growth rate by about 50%, the administration has leaned more heavily into raising taxes to reduce the deficit. Not traditional taxes on income, mind you – those have been cut as part of the One Big Beautiful Bill Act.
Instead, the administration has floated or implemented a variety of odd and dangerous ideas for raising revenue that are doomed to fail.
Trump’s tinkering with free markets will backfire
First and foremost, Trump’s fixation on tariffs as a solution for just about everything, including the deficit, has led him to run roughshod over the law and norms of international trade. The chaotic and alarming rollout of the “Liberation Day” tariffs sent shock waves through financial markets, and more turbulence is coming as the Supreme Court is expected to rule on lower court opinions that some of these tariffs are illegal.
If these tariffs are struck down, more than $100 billion of revenue collected so far may need to be refunded, and a fiscal hole of about $1.7 trillion in expected tariff revenue over the next decade would need to be filled.
Add to this mayhem and confusion the embarrassment, cost and uncertainty of having to unwind and renegotiate the Trump administration’s lauded trade deals.
One of the many strange ideas emanating from Commerce Secretary Howard Lutnick is to tax patent values, which would require a new apparatus to assess and validate those patents, a process one expert described as “voodoo science.”
Even if it could be done at a reasonable cost, the proposal would have the serious downside of discouraging innovation or pushing it offshore. Inventors could opt to establish their patents elsewhere, in Europe or other places, where the rules are more straightforward and beneficial.
Lutnick has also discussed having the federal government take ownership of patents generated by federally funded academic research. Even if universities agreed to this, the federal government is unlikely to be a good steward of these patents, given that major agencies such as the Department of War are generally unable to account for most of their assets.
Most likely, many (if not all) of the patents would languish in some obscure government agency hidden from the public, eventually losing all their value.
On a related note, Trump and Lutnick are pushing the federal government to own shares in various U.S. companies, striking a deal with Intel for a 10% stake, through the conversion of grants issued under President Joe Biden’s administration, and with U.S. Steel for a “golden share” that would allow the Trump administration to control certain aspects of the company’s planned merger with Japan-based Nippon Steel.
Part of the rationale is national security, but that is a slippery slope with no clear dividing line between these companies and, say, all companies involved in artificial intelligence, including suppliers of chips and energy. This sounds like a sure way to end America’s technological edge.
Trump has also reached a deal with Nvidia and Advanced Micro Devices to provide them export licenses in exchange for the federal government getting 15% of sales to China. This, despite the fact that the Constitution explicitly bans export taxes.
There are more straightforward ways to increase revenue
These ideas are emblematic of the administration’s misguided and poorly thought out approach to raising revenue in ways that are legally dubious, economically damaging and ignorant of the multitude of more sound options that the Tax Foundation and others have put forward for years.
While generations of economists and public finance experts have stressed the need for a broad-based tax on consumption and the reform of entitlements, the Trump administration seems to think it can fix the debt by thinking outside of the box.
To be sure, a new approach is needed, as a quarter-century of deficits demonstrates. But this pattern of failure will not be corrected by pretending someone or something else – foreigners or big companies, for example – will foot the bill.
Instead, we need more, not less, transparency about the drivers of the debt, the approaching insolvency of the Social Security and Medicare trust funds, and the tradeoffs of having our federal government provide an ever-richer set of cradle-to-grave entitlements.
We also need an honest discussion about how best to finance these benefits and other government expenditures. Otherwise, the “house that Trump built” will not be known to historians as orderly, fiscally or otherwise, but rather as a hastily slapped together addition – good for entertainment, but an eyesore to all the neighbors.
Trump’s tariffs, government control of business won’t work
