Kent Smetters, faculty director of the Penn Wharton Budget Model, is challenging the narrative that tariffs are a tool for protecting domestic industry. In a recent interview with Fortune, Smetters held forth on what he said was his long-held view that broad-based tariffs are a “dirty VAT” (value-added tax)—a policy he believes is significantly more damaging to the U.S. economy than traditional tax increases.
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.
Even more, Smetters said, despite the tariffs being pitched as a deficit-reduction tool that will bring in revenue that makes a material difference on the United States’ $38.6 trillion national debt, he sees it another way.
“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 into the future.
