Trump's tariffs are a 'dirty tax' that will make the $38.6 trillion national debt crisis even worse over the long term, top analyst says | Fortune

"While economists generally view a broad-based, flat VAT as an efficient method for raising government revenue, Smetters distinguishes tariffs as a "dirty" variation because they are far less uniform. A standard VAT applies broadly, distorting decisions primarily between spending now versus saving for later. Tariffs, however, target specific goods, causing consumers and businesses to shift behavior in inefficient ways to avoid the tax."

""We have a lot of debt, and we are going to be floating more and more debt along our current baseline," Smetters said, adding he sees a future ahead in which investors demand a higher return to keep investing in the U.S., and a "feedback effect" that will just keep driving the debt higher, far out into the distance."

Broad-based tariffs function like a non-uniform value-added tax that targets specific goods and induces inefficient consumer and business responses. A uniform VAT primarily shifts choices between current consumption and saving, while tariffs prompt substitution and avoidance that distort production and purchasing. A large share of imports are intermediate inputs used by domestic manufacturers, so tariffs raise costs for U.S. firms and can operate as a disguised corporate tax. Tariff revenue may not substantially reduce the national debt, and rising debt could prompt investors to demand higher returns, creating a feedback loop that elevates borrowing costs and debt over time. The Supreme Court is considering legal challenges related to these tariff policies.

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