Blizzards & Tariffs Hit Washington 2/23/26

26:41It appears the administration will be using those measures. And we're going to have to sit here and wait for each declaration and how it does it. It looks like they carved out some of the initial exemptions that were in the IEPA tariffs and those pass over into the Section 122 tariffs. We'll just have to wait and see. And then we'll do more and more of this analysis to try to figure out what the ultimate impact is on inflation and growth, Andrew. Yeah. I mean, we're still waiting, Steve. And, you know, there are a lot of people that think that the axe will eventually fall on inflation and everything else.

27:13But I just, you know, debilitating uncertainty will continue. I don't think the administration would use the word debilitating uncertainty for American business. We just went through an amazing earnings season. The market's at new highs. It just hasn't. Maybe we're waiting for Godot. Maybe it happens. But I just don't feel the debilitating uncertainty that you're saying that companies have felt since Liberation Day. Maybe for the first week, there was debilitating uncertainty. And then it all reversed itself. So it'd have to get a lot worse than what it's been up to this point. I know a number of CEOs who think that they made a big mistake, by the way, already with some of the supply chain stuff.

27:53OK, I'm just saying that markets are new highs. I hear what you're saying. I hear what you're saying from the stock market. Has not come from the stock market point of view, Joe. Earnings. Well, that is the stock market, right? Not necessarily. It's it's it. Well, you just said the debilitating uncertainty for companies. Where are you seeing it in either the stock market or the company's results? Well, when you talk to people, Joe, who talk about the idea of trying to program their systems, Joe, we've had intraday changes in tariffs. We have had a period of time where the uncertainty about what the cost is going to be of fairly critical inputs.

28:38They have had exemptions. I understand. You know what I'm saying. The administration. We'll call up Santelli and get. Call up Santelli. Then it'll be fair. You, you, me and Santelli against against you. How would that be better? We got to get we got to move on against me. I got good. This is the biggest story of the year, possibly of the decade. You knew it was going to happen. No, no. But I'm saying the tariff story, broadly speaking, what this president has done with tariffs is changed the entire global trade landscape. We did it in his first administration and then Biden left him on. And now this is.

29:12So, OK, so the thing that I'm still just trying to understand that I wanted to go back to Steve about is the question long term. Let's say you get past these 150 days. Let's say you're able to implement other tariffs while this administration is this administration. Do you think, and this is the question I was hearing from CEOs about, which was, yes, their view is that the tariffs of some form will stay here possibly for the next two, two and a half years. But that's different than being here for the next 10 years in terms of making big infrastructure investments and some of the sort of long term investments that they're going to be making.

29:52And my question to Steve is whether you're hearing either the same thing or how you think that changes the dynamic. Well, first of all, I want to go back to what Joe is saying. It is true that not every company has had debilitating uncertainty. That is true. It is certainly more true for those involved in importing of products and where imports are essential. The president's policies are based on, in part, a revenue issue, right? When they said, we're going to really replace the revenue. They didn't say we're going to replace the reasons for the thing being there. We're going to replace the revenue.

30:24There's a revenue component. There's also this component where the president is hoping to bring in manufacturing into the United States. Only a stable tariff regime can result in that kind of investment. And if you might recall, Joe, from the very beginning of this, I said, if the president wants to put tariffs on for that reason, he must go to Congress to create a more stable regime. And it was not a question of whether or not tariff's good, tariff's bad. But you want people to make investment. You got to have stability. So because the next administration might not. I understand that the president's own plans.

31:02Right. You I mean, that that's a perfect world. Obviously, you're hoping for because administrations change and we get whipsawed. Businesses get whipsawed back and forth on all kinds of things and not just trade and tariffs, but regulation and everything else. This was supposed to be an administration that was going to come in and be very business friendly. And they have been in the sense of this accelerated depreciation and other deregulatory aspects. We've had this issue. We had Scott Lince to come on. I don't remember if you were there from the Cato Institute who showed the graph of if you're trying to follow the law and pay these tariffs, that you must be out of your mind to follow the rules here because it is so complicated, so complex, so changing every day.

31:48And this is antithetical to the administration's own central initiative of deregulation and being pro and business friendly. Right. It's mercurial. I mean, I've actually when I've talked to to some of the president's biggest supporters, I've said, well, what about this? What about this? What about this? And they always say sort of the same thing. Steve, you know what they say? Joe, that's how he rolls. And I think when they say that, yes, that is true. That's how he rolls.

32:25President preparing to deliver the State of the Union tomorrow night and the state of the economy will be front and center. Probably get some comments on the Supreme Court ruling as well. I bet you you might get a glimpse of some famous hockey players, too. Maybe. I don't know. I'm just thinking. Joining us now, former Trump economic advisor and co-founder of Unleash Prosperity, Stephen Moore and Natasha Saron, Yale University Law School. Professor, I was joking a little bit because, Stephen, you've never been a fan of tariffs, so I said this is going to be some debate talking about tariffs when both people are, like, finishing each other's sentences.

33:05You at least concede, Stephen, that it might tie Trump's hands in negotiating better trade deals and forcing other countries to reduce their tariffs. But you've always thought of it as a tax, I think, on companies and consumers as far as tariffs go. Well, that's exactly right, Joe. And I've always been kind of conflicted on this because on the one hand, I don't like taxes and tariffs. And I do think that the Supreme Court has made the right decision in basically saying that these kinds of decisions really have to pass through the House of Representatives and Congress. This Constitution is pretty clear on that.

33:45On the other hand, the court has basically taken an arrow out of the quiver of Trump's negotiating strategy. And, again, as someone who's not a fan of terrorists, I am a fan of these trade deals that Trump has brought home. The trade deals with China, the trade deals with Canada, Mexico, Europe. He has forced other countries to lower their tariffs on our goods. And now he's sort of lost that negotiating tactic. So that's, I think, one of the reasons Trump was so angry about this decision. And you do make one point that I think everyone could identify with a little bit, and then we'll get to Natasha, Steve.

34:27And if you do view tariffs as taxation, as a tax, your point is, imagine what would happen if a and you say a Kamala Harris, President Kamala Harris, President Gavin Newsom, President AOC were to just tax anything he or she wanted without any congressional approval. That's nightmarish. That's a hellish scenario. Maybe Natasha might like it. We'll find out. But that's a scary scenario, isn't it? It should. That's one reason that conservatives and free marketeers should probably be cheering this Supreme Court decision. Because no president, not this president or an AOC or Kamala Harris, should have the authority to say, well, we have an emergency here, so we're going to raise taxes without any approval from Congress.

35:21And so, look, this simply means that Congress is going to have to do their job. Have they voted Joe up or down on any of this? I mean, the Congress is sort of the villain here. They've done nothing on these. They've never even taken a vote. Yeah, well, they got an election every two years in the House. That no one wants it. I can't imagine. Natasha, take it away. And I know you always come on and you know you're going to needle you a little bit, but you smile when I do. I appreciate that. Well, I have to say I agree with a lot of what you and Stephen are saying. I think the idea of taxation without representation is so terrifying that this country was founded on the principles that you have to have some sort of deliberative process that goes through Congress that determines the power to tax and spend.

36:06And so I, too, was heartened by the Supreme Court's decision on Friday. The thing that I think is challenging, and Stephen started to get at a little bit of this, with respect to our negotiating posture in other countries, I think we disagree on how positively we view these trade deals. But I suspect we agree on the following. Effective tariff rates today relative to where they were Friday morning before the Supreme Court are actually in kind of a similar place. So the pre-Supreme Court ruling was around 16 percent. The effective tariff rate calculated by my colleagues at the budget lab at Yale says it's now about 13.7.

36:45But there is so much uncertainty and volatility about even the legal authority that's being deployed to effectuate these new tariffs. And they're temporary for 150 days. And then they do require congressional authorization. And if you're sort of an ally or an adversary looking at the United States right now, and if you've been looking at them for something over the last year, I suspect you're kind of wondering about the extent to which these types of authorities that the president is trying to levy are ultimately going to be supported by the Supreme Court. And I suspect this isn't the last time we're going to see legal challenges in this dimension.

37:23So I just think that this is a moment of great uncertainty and volatility, not just for consumers, not just for businesses, but also for our trading partners and for adversaries like China that are looking at the U.S. in a weakened position. Natasha, right out of the box, you said this is terrifying, terrifying. I'm going to start using that on Leesman. He's been terrified since Liberation Day. Tariff. Get it, Steve? Huh? I do what I can for you, Joe. You went right through it, Natalia. I don't think, but I was listening. Oh, my gosh. He just said it really is terrifying. Go ahead, Steve. I was just going to make an important point, which is this is, I think the word that the court made was that this is going to be very complicated and confusing about where we head from here on in now.

38:16Trump obviously came out with that temporary tariff, was it 10 or 15 percent across the board yesterday? And that would be, I think, only for a few months. But the big question that I'm being asked by all businesses, merchants, retailers, manufacturers, will they be repaid the money that they paid in the tariff? In other words, if the tariffs were illegally imposed, then do these countries get their money back? And if so, we're talking about$175 billion that would have to be returned. I don't know the answer to this, but I know it's going to be a big, big issue that's debated. Yeah, I think the court called it, Stephen, a mess, both in oral argument and then Justice Kavanaugh and dissent, right, trying to think through exactly what process is going to be used.

39:10And the decision says nothing about the refunds. And so it's really an issue that's been left. Natasha, I think one of the big questions now, putting aside what you think companies ultimately do, is all of these unfulfilled commitments that countries have made to the United States in terms of investments here, where you think that heads, what kind of leverage or not you think the president has. some of these commitments effectively require foreign legislatures to approve them, many of which have not thus far. You read some of the international press in some of these countries now, and they're saying, you know, we were coerced into these deals that we shouldn't have been making, and maybe we're not going to now do them.

39:50How do you think that all plays out? And what kind of other levers do you think the U.S. has, whether it's about defense, we're thinking about Taiwan and other things that may pressure them to continue this path. Yeah, and you saw the Europeans over the course of the weekend making the point that this, in fact, also using the terminology that the tariff uncertainty has created a mess with respect to trying to think about how even realistic it is that the United States is going to be able to make the kind of commitments and threats that they've been levying in the course of these trade negotiations.

40:21And so I think the thing is, Andrew, it has always been very legally questionable and dubious that the president was able to effectuate these kinds of across-the-board tariffs, which, as Stephen points out, are taxes. They're taxes on businesses and consumers with the stroke of a pen and changing them so dramatically. By my count, the effective tariff rate has changed on some 60-plus days so far in this administration. And so I think they were always pretty legally dubious. I suspect the nature of how other countries were looking at Trump was not through the lens of how likely it was the Supreme Court was going to uphold these tariffs, but instead through the lens of trying to appease and work with the United States, given their importance in the world.

41:04But this gets to the question then long term, Stephen, maybe you can speak this long term, how countries and companies invest or not either in the U.S. or in these new supply chains. Or do they slow roll this whole situation and say, you know what, I don't know what's going to happen over the next two and a half years. I was thinking about this, but maybe I'll see where the world goes afterwards. And if that's the case, that actually is not a good result in many ways because you won't necessarily get that investment. Yeah, you need predictability and you need certainty. And we don't, needless to say, we don't have that right now.

41:38But one of the, look, I'm not a fan of the terrorists, but as I said earlier, I think Trump has really recognized something that previous presidents haven't, which is that the United States is in a unique position in the sense that every other country in the world must trade with the United States. We're the alpha male economy. We're the hub of the world economy. And what Trump did, which I think is, was virtuous, actually, is to say, look, you You have to trade with us. Your stakes are higher here than ours. You have to start giving us a better deal. To use a term that Trump has used, rip off.

42:12A lot of these countries have been ripping off the United States by charging us higher tariffs than we charge them. And to some extent, what Trump is basically saying is, look, we want a level playing field. And what's wrong with that? Yeah, but Stephen, that's actually not what these trade deals are doing. I mean, what can you articulate as to something that the United States has gotten out of them? And I think Andrew's point is a really important one, which is the type of volatility and uncertainty and lack of predictability that doesn't just go away. Like the world looks less stable in the United States, looks less stable as a trading partner.

42:44And that's here with us for some time going forward. And as investors are trying to make choices about where to spend resources, they're looking at Europe. They're looking at Japan in ways that they wouldn't have been 16 months ago or 13 months ago precisely because of this volatility. And I think that's a really unfortunate and long term consequence for the United States going forward. OK, well, thank you. But look, you talk about investors. But what about our manufacturers, our farmers, our dairy farmers who've been who've been really. Well, it takes time. It's right so far. All right. Thanks, Natasha.

43:19Alpha person. You get Stephen. Alpha person. Man, we keep inviting you on, but you got to get it together. it. But thank you, Stephen. Thanks, Natasha. Coming up on Squawk Pod, will a new wealth tax proposal in Washington state have executives of three iconic corporations, Microsoft, Amazon, and Starbucks, thinking about leaving? We'll talk to the state representative trying to make this tax a reality right after this. It's Jamie Peterson. If we pass the bill, it will make it much more like most of our peer states. And I don't think, therefore, that it would cause many people to think about moving.

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45:23Welcome back to Squawk Pod. You are watching the one and only Squawk Box on CNBC on this very blizzardy day here in New York City Times Square. I'm Andrew Ross Sorkin, along with Joe Kern and Becky is off. Meantime, the state of Washington is considering a nearly 10 percent tax on the state's millionaires. A proposal has already passed the state Senate and joining us right now is the prime sponsor of that bill. Washington State Senator Jamie Peterson. Good morning to you. This is becoming a national topic as other states like California, New York and others have talked about wealth taxes. And there's been a bunch of people potentially moving from these states.

46:04And I'd start with just the very question to you, which is how concerned are you and how much do you worry that if you put these taxes in place, that some of the wealthiest in your state who work at places like Amazon and Microsoft and Starbucks and others are going to leave. Yeah. So let's be really clear about what we're talking about. This is not a tax on intangible property, the so-called wealth tax that we were considering last year. This is an income tax on very wealthy people. So people who have more than a million dollars of income each year. And the tax rate that's proposed, which is 9.9%, is actually lower than in most other states.

46:49So there are 41 states at this point that have some form of personal income tax. This would be a personal income tax that has a million dollar standard deduction, so that the only people who would pay it are ones who have more than a million dollars in income. So I guess what I draw from all of that is that our tax system is unusual, exceptional right now, in the sense that it does not tax income at all. What would, if we pass the bill, it will make it much more like most of our peer states. And I don't think, therefore, that it would cause many people to think about moving. I don't disagree with you that right now that tax does not exist.

47:33It's just that the delta is so high, you are not concerned that there are people who would leave the state and try to go to other states with lower taxes? And therefore, what happens to your revenue base? Well, look, if you have somebody, for example, who's thinking about going to Idaho, they have to have more than$1.9 million of income for it to pencil out, right? Because the amount there is a 4.4 % tax, but from$1. So, you know, if you go to Oregon or California or Hawaii or most of the other jurisdictions that we tend to compete for talent with, the tax is actually higher on that level of income, and they have tax brackets that are lower than a million dollars.

48:20So it is true that if you have somebody who really wants to move to Texas or Florida, or one of the other non-income states, then they could choose to do that. But I think many of those people have probably already left for other reasons. I think New Jersey has this already, right? Something close to it. This is not a—I don't know why we keep calling it a wealth tax. So you said that right at the top. This is not a wealth tax, is it? It's an income tax. It's not a wealth tax. Okay. You know, that takes away all the really potent ammunition for all the questions. And so, I mean, it might be bad, but it's not you're not trying to tax intangible assets, at least.

48:58Right. We are not. Even you aren't crazy enough to try to do that. Are you, Senator? I think, you know, I think one of the big lessons that I've had over this process is that we we're a state that has a lot of natural advantages. We don't need to be exceptional in terms of our tax system. And what is really exceptional about our tax system right now is that we don't have any form of income tax at all. We rely primarily on sales taxes to fund government services. Am I wrong in understanding at the same time you want to increase corporate taxes, though? No, actually, the proposal will decrease corporate taxes, both for large businesses, rolling back a tax that we had increased last year, and then also probably more importantly, for small businesses, we would increase the small business credit so that 70 percent of businesses in the state would no longer pay any business taxes at all.

49:58Well, what would be the biggest the impact on the biggest companies in the state? And I'm thinking about the Amazons, the Microsofts, the Starbucks and the like. Yes. So we we have worked closely with a group called the Washington Roundtable, which includes most of the largest businesses in the state in developing the proposal. And the proposal right now includes their top two priorities. Number one, reducing that what's called business and occupation tax surcharge of a half a point on gross receipts for businesses that have over $250 million in revenue. We would accelerate the sunset date for that by one year.

50:39And then we would also roll back the sales tax on services that we had started charging last year as part of our budget deal. So for, you know, I think the business community, you know, I won't speak for them. You'll have to talk to them directly, but I think the business community has been a participant all along the way in the development of this process, and many of them view it as preferable to charging higher business taxes. Invariably, there are going to be some who say, you don't need to be raising more money. You need to be cutting spending. What do you say to that? Well, we are cutting spending too.

51:22You know, last year in our budget process, we cut about$7 billion of spending. And this year in the budget that my Ways and Means chair just rolled out, We are going to be reducing about a billion dollars of additional spending over the next four years from what our budget had last year. You know, the reality is that we are sort of in a position where labor and other costs for public services, education, for health care are going up. We've got a federal government that is pushing more costs onto us, including we're going to have to spend something like$370 million in IT costs over the next three years to implement a system that will kick more people off of food and health care benefits, which we don't want to do.

52:16Right. But that'll be a condition for us to receive federal assistance. Senator, let me ask you. just a slightly different question and maybe it's a philosophical one and there have been folks who have obviously already left your state like jeff bezos and the like who moved to miami but you know oftentimes and here we are in new york uh the mayor here uh wants to raise taxes on the wealthy and and we often look at the number of how many people left the state but one of the things that that a lot of people don't do is say did they come to the state would have they come to the state otherwise and i think about a firm like jp morgan which is which is based here in new york City, but now has more employees, I believe, in the state of Texas than they do here.

52:59And so when you think about an Amazon or a Starbucks or a Microsoft or any place else, you say to yourself, well, it's not so much simply that people leave the state so much as what does it mean for people coming to the state? And clearly your tax rate, at least in the past, was one of the incentives that I think led people to come to your state. Yeah. So look, we're talking about a tax that would be paid by something in the neighborhood of 21 ,000, I think is the estimate, out of 8 million people. And, you know, it's going to raise a pretty significant amount of money. The projections are about$3,$3.5 billion a year, which will help us to be able to fund public schools, to fund health care.

53:45I think that the people who are thinking about where to come, and it's important to point out that like the U-Haul data actually show that Washington is one of the states into which people are really coming right now. That data suggests that people want good public services and the quality of life that we have here. I don't think that it's all about taxes. And frankly, I don't think that it's going to have a significant effect on whether people choose to come. And the final question to you, which is When you do the math on this proposal, do you do you subtract anybody leaving? So when you when you do the modeling for this, I'm always curious, do you say to yourself, OK, yes, some percentage of those 21000 people that you say are going to get hit with this tax are going to leave as a function of this.

54:37And we're going to lose X amount of money, but we're going to make it up on the other. Explain how you do it. Yeah. So the Department of Revenue does all of that work. I'm a lawyer, not an economist, but they assume in the first year that we'll have about 90 percent collection rate and then in ongoing about 95 percent. So there is built in an assumption either of tax avoidance or, you know, by people leaving or not paying. So that that is built into the assumptions that they have. Is there an actual wealth tax being proposed in Washington state? at this point? There was a bill filed to do that, but that is not what we're moving forward.

55:19No, I know. This is the way we intro. I mean, that almost is mind boggling to say that this is a 10 percent tax on millionaires. It's like that sounds like a 10 percent wealth tax on a millionaire, when in fact, in New Jersey and I live in New Jersey and I'm not saying this affected me. But Murphy, on anyone who made between$1 million and$5 million a year, he went to 10 and three quarters, the marginal rate. So you think this is a good idea? No, I'm just, he lulled me into a false, he's speaking very reasonably, and it's not nearly as bad. We've already done it. I mean, people, Phil Murphy, I did not like what Phil Murphy did.

56:00I don't like what he's doing. But it's a far cry from setting it up as a wealth tax on anyone who's a millionaire. The distinction is that there was no tax. That's right. 10 % tax. So then it's even more. He can make a case that's even more reasonable, that no one will move. Senator, thank you for joining us. We've got to run. That's Squawk Pod for today. Thank you for listening. Squawk Box is hosted by Joe Kernan, Becky Quick, and Andrew Ross-Orkin. You can tune in weekday mornings on CNBC from 6 a.m. Eastern all the way until 9. And you can get the best bits of that three-hour TV show right here on SquawkPod.

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