State and Local Tax Deduction: Taking Proponents' Arguments with a Grain of SALT

The Tax Cuts and Jobs Act (TCJA), which passed at the end of 2017, was the most comprehensive tax reform the United States has had in about three decades. The TCJA has not been without controversy. One of the most controversial provisions of the TCJA was the state and local tax (SALT) deduction. Essentially, the SALT deduction allows federal taxpayers who itemize their deductions to deduct certain state and local government taxes from their gross income on their annual federal income tax forms. Prior to the TCJA, there was no limit as to how much could be deducted. The TCJA changed that by putting a $10,000 cap on the SALT deduction. Yesterday, the Democrats held a House Committee hearing on whether it should be repealed. As the backdrop of a highly polarized country suggests, the Democrats are largely for the SALT deduction, and would like to see the cap removed. Before getting into the merits of the SALT deduction, I would like to ask a key question first.

Who benefits from the SALT deduction?

This question is important because it helps set the tone of the discussion, particularly in how the tax code should and does function. To start the discussion, only 30 percent of taxpayers itemize their deductions. This means that 70 percent of Americans do not benefit from the SALT deduction because they use the standardized deduction. For those who do end up claiming the SALT deduction, it is interesting who claims it.

First, a look by income bracket. The individuals that benefit from the SALT deduction the most are upper income households. When the Right-leaning Tax Foundation had their representative, Nicole Kaeding, testify yesterday, she pointed out that prior to the TCJA, 91 percent of those who filed for the SALT deduction had an income of over $100,000. The Tax Foundation is not the only one to make this claim. The Tax Policy Center, which has a slight lean to the Left, had similar findings. If that weren't enough, the Joint Committee on Taxation (JCT) released a report on the SALT deduction about a week before the hearings. What did the JCT find? Those who make over $1 million receive 52 percent of the benefit of the SALT deduction. If the SALT deduction cap were repealed, it would be a $40.4 billion tax cut that would go to millionaires (JCT, p. 14).

As the Tax Foundation shows, putting a cap on the SALT deduction (combined with raising the standard deduction) made the tax code more progressive. 

The income brackets only tell a part of the story. Geography, particularly on the state level, plays a role, as well. Prior to the TCJA, a majority of the deduction claimed in dollars came from six states: California, New York, New Jersey, Illinois, Texas, and Connecticut. These six states only made up 38 percent of the population prior to the TCJA, in spite of claiming a majority of the deductions. It would be an oversimplification to state that states with high rates of taxation benefit the most, especially since Texas is one of the top beneficiaries (although Texas does rely heavily on property taxes). Rather, those who stand to benefit the most are high-income earners, many of whom live in high-tax states.

How the SALT Deduction Cap Affects State Budgeting
At first glance, the Democrats' response is perplexing. After all, the position of many Democrats as of late has been to "soak the rich with taxes," whether such proposals come in the form of increasing the marginal tax rate to 70 percent or enacting a wealth tax. Since the SALT deduction disproportionately benefits the rich, you would think that the Democrats would be the ones for a SALT deduction cap or even the repeal of the tax deduction. The reason why the Democrats are opposed to the cap has already been hinted at.

The SALT deduction has disproportionately benefited states with higher taxes. Why? Because the SALT deduction acts as "an indirect federal subsidy by decreasing the net cost of nonfederal taxes." As such, this incentivizes state and local governments to enact higher taxes (Tax Policy Center) because every time a state decides to increase its taxes, those who itemize get a larger federal return. The Congressional Research Service (CRS) found in 2017 that a cap leads to moderate declines on state and local government spending.

This incentive would explain why New York Governor Andrew Cuomo warned in 2017 that a SALT deduction cap would destroy New York. It explains why congressional members from New Jersey and Illinois, two states affected by the SALT deduction cap, are the ones trying to reform the SALT deduction cap to something closer to what it was prior to the TCJA. Although it is a regressive tax that benefits the rich, the reason the Democrats are for repealing the SALT deduction cap is because it would effectively lead to higher taxes and greater government expenditures.

Responding to Proponents for Repealing the SALT Deduction Cap

There are other considerations to respond to beyond tax progressively and state budgeting. Here are some of the other misconceptions and responses surrounding the SALT deduction.

1. Capping the SALT deduction is not double taxation. Proponents of the SALT deduction assume that double taxation is the result of a SALT deduction cap or repeal. This is a misunderstanding of double taxation. When one pays a tax on shareholder dividends, for example, that income has already been taxed once through the corporate income tax. In this example, there are two layers of taxation taking place. That is not what happens with capping the SALT deduction. Federal dollars go to pay for federal services, and state dollars fund state services. As the bipartisan Committee for a Responsible Budget (CFRB), Tax Foundation, and the National Taxpayers Union Foundation point out, this is not double taxation. The problem here is not the non-existent double taxation, but rather the high levels of taxation at the state and local level.
2. The SALT deduction is expensive. Prior to the TCJA, the SALT deduction was one of the most expensive tax breaks, amounting to $103 billion in 2017. If the Democrats succeeded in removing the cap, it would cost an extra $500 billion over the next six years (CFRB). 
3. Inducing higher municipal debt. As the Heritage Foundation argues in its white paper on repealing the SALT deduction, the SALT deduction also creates excessive and inefficient infrastructure decisions on the local level, thereby driving up municipal debt. 
4. Addressing General Criticisms of the TCJA. The two main criticisms of the TCJA have been that the TCJA benefits the rich and that it costs the taxpayers too much money. Guess what would happen if you removed the cap? Both of those criticisms would be magnified. 

Conclusion

In short, the SALT deduction is expensive, regressive, creates perverse incentives for states to increase state-level taxes, and subsidizes states with higher earners and higher income and property taxes. The SALT deduction is a distortion of the tax code that hides the real cost of taxation and willingness of taxpayers to pay for public services. The SALT deduction cap is a preferable policy alternative to the SALT deduction unhinged, although I would have been more amenable to a SALT deduction repeal with equalization grants, as Niskanen Center fellow Joshua McCabe argues. If we want a fairer, simpler, and less expensive tax code that doesn't subsidize the wealthy or incentivize wasteful spending, then the last thing we need to do here is repeal the SALT deduction cap.

Comparing Refugee Detention Centers to Concentration Camps Is Inappropriate, Regardless of Stance on Trump's Immigration Policy

If I had told you a few years ago that the semantics of the phrase "concentration camp" would become part of a major political debate, you would probably think I was pulling something from science fiction. And yet, that is exactly where we have ended up in U.S. politics. Earlier this week, freshman Congresswoman Alexia Ocasio-Cortez (D-NY), or AOC for short, released a video expressing her rancor towards the detainment of Central American refugees crossing the U.S.-Mexico border and how they are being treated. During this video, AOC said that "the U.S. is running concentration camps on our Southern border." After receiving backlash for her comments, she doubled down by citing Andrea Pitzer, an author who has written on the history of concentration camps.

As a Jew that is aware of the history of anti-Semitism, I can confidently say I don't want the disenfranchised, marginalized people, or minorities to be oppressed by a government, certainly to the extent to which Nazi Germany carried out their atrocities. We should hold governments accountable to human rights abuses. At the same time, when we are evaluating a problem or issue, we should do so with a clear perspective in order to make accurate comparisons and assess the situation. As such, I would like to do two main things here. One, answer the technical question of "What is a concentration camp?" Two, determine whether using the term "concentration camp" is appropriate for the current refugee situation on the U.S.-Mexico border.

Technical Definition of "Concentration Camp"

What is a concentration camp? You would think that it would be an agreed upon, unambiguous term. Not so much. To illustrate that point, here are some definitions:

U.S. Holocaust Museum: A camp in which people are detained or confined, usually under harsh conditions and without regard to legal norms of arrest and imprisonment that are acceptable in a constitutional democracy.

This definition is broad enough to arguably include the detention centers near the U.S.-Mexico border. Let's look at another definition.

Webster's Dictionary: A place where large numbers of people (such as prisoners of war, political prisoners, refugees, or members of an ethnic or religious minority) are detained or confined under armed guard, used especially in reference to camps created by the Nazis in World War II for the internment and persecution and other prisoners

This definition could also cover AOC's assertion, although I will cover the latter clause in the next section. Here is a definition that does not make it so clear.

Encyclopedia Britannica: Internment centre for political prisoners and members of national or minority groups who are confined for reasons of state security, exploitation, or punishment, usually by executive decree or military order. Persons are placed in such camps often on the basis of identification with a particular ethnic or political group rather than as individuals and without benefit either of indictment or fair trial...They are also to be distinguished from refugee camps or detention and relocation centers for the temporary accommodation of large numbers of displaced persons (own emphasis added).

Two things with Encyclopedia Britannica's definition. One is that such a center would need to violate due process, a point that is also made in the U.S. Holocaust Museum definition. Two, and more importantly, Encyclopedia Britannica is exercising some nuance by distinguishing between concentration camps and camps temporarily holding refugees or asylum seekers (more on that momentarily). This gives some leeway to argue that the detention centers on the U.S.-Mexican border are not necessarily concentration camps.

Is It Appropriate to Call the Detention Centers "Concentration Camps?"

We can get into a debate about the technicalities of what is or is not a concentration camp. As illustrated above, one could select and finesse a definition for or against the claim. But here's the thing with that. AOC's words do not exist in a vacuum or stay in an ivory tower. It doesn't matter that the term "concentration camp" predates the Second World War or that concentration camps were used during the Boers War. Words have meaning outside of a technical sense, and even if you want to argue that the detention centers on the U.S.-Mexico border are technically concentration camps, it's irrelevant. AOC made her statement in a political context.

The truth is that for many Americans post-WWII, the phrase "concentration camp" evokes images of Nazi death camps. This isn't the first time in language in which a word can technically mean one thing but colloquially mean another. AOC is perfectly cognizant of that reality. She knew that because in her video, she said that "'Never again' means something." The phrase "Never Again" was used after World War II as a slogan conveying the message that we do not want a repeat of the Holocaust, which took the lives of 6 million Jews and over 5 million non-Jews in state-sponsored genocide. This is not the first time that AOC has pulled such a stunt. Last November, AOC compared the migrant caravan scenario to Jews fleeing Nazi Germany. AOC has no qualms invoking Holocaust imagery and making analogies to the Holocaust to advance a political agenda.

If you are going to evoke the Holocaust out of sincerity instead of trying to score political points by exploiting Jewish trauma, you better be damn sure that your comparison is more like the Holocaust than not. Yes, these detention centers have some similarities from the Nazi concentration camps. They are both government-operated camps in which the detainees are not free to leave. Both the detention policies target specific groups of people. In both cases, children are being separated from their parents. One could argue that in both cases, the living conditions are absolute squalor.

Yes, there are similarities between the detention centers on the U.S.-Mexican border and the Nazi concentration camps. However, the reality is that the differences between the two are much more pronounced than the similarities. Nazi concentration camps existed for the purpose of cleansing the world of what the Nazis deemed undesirables, including Jews, homosexuals, Gypsies, and the physically disabled. There was a clear genocidal intent with the Nazi concentration camps. In Nazi concentration camps, the Nazis were actively murdering its detainees, either through gas chambers, mass executions, or starving and working the prisoners to death. There were those in Nazi concentration camps were experimented on by doctors. The ones who weren't killed right away or being experimented on were forced into slave labor. There is a reason why the Holocaust is used as the prime example of human rights atrocities: because it was that despicable and deplorable.

Say what you want about Trump's immigration policy or his detention centers, but none of the aforementioned features in the previous paragraph can be attributed to the situation on the U.S.-Mexican border. The migrants crossing the border are apprehended and detained. As CNN points out, the detainees stay until HHS can find someone with whom to stay. After their stay, the average of which is 48 days, they stay with someone else until their case could be processed. These refugees are not being detained because of a lack of due process, but due to a backlog in processing their cases. This last bit is important because it would arguably not make the detention centers concentration centers by the previously mentioned definitions. If you want to make a more accurate analogy, compare them to the Japanese-American internment camps run by the Franklin D. Roosevelt administration (Yes, that is the same FDR that inspired AOC so much that she created the Green New Deal).

When using Holocaust imagery, AOC is minimizing the evils of the Holocaust. The world has unfortunately seen similar atrocities to the Holocaust since World War II that could be accurately analogized. Joseph Stalin killed 20 million or more. Mao Zedong's Great Leap Forward killed as many as 50 million people in China. Pol Pot killed nearly two million in Cambodia. There are also the genocides of Rwanda and Darfur.

"Never Again" should not only be reserved for the Holocaust. Conversely, if "Never Again" simply becomes shorthand for "I don't agree politically, therefore I am going to evoke Hitler," not only do you diminish atrocities (when looking at it from the overall arc of history), but it becomes a lot more difficult to take your argument (in this case, reforming the detention centers) seriously. I want to elaborate on this point a little more. When I wrote about the #MeToo movement two years ago, one of my criticisms was lumping together sexual assault/rape and sexual harassment. Yes, rape and sexual harassment are both morally wrong. However, one is more morally problematic and reprehensible than the other. It becomes a question of magnitude.

Let's apply that concept to the detention centers. You can argue that the way that Trump is going about detaining Central American refugees is morally wrong. Last year, I scrutinized Trump's family separation policy, and went as far as calling it a part of his fear-mongering immigration policy. As recent as earlier this month, I criticized Trump for stupidly trying to use tariffs to solve the refugee issue. I can and do criticize Trump's usage of detention centers and his seeming lack of desire to help out refugees without evoking the Holocaust to make a false equivalence. That being said, let's ask ourselves some questions:

• Is the treatment of the Central American refugees in these detention centers a human rights abuse? Yes. After all, government policy doesn't need to be at the level of the Holocaust to be morally wrong. The United States should have learned its lesson from the Japanese-American internment camps from World War II. 
• Is being placed in an imperfectly managed detention center while waiting for asylum applications to be processed anything like the horrors of such concentration camps as Auschwitz or Dachau? Not even close. Again, there is a reason why Nazi Germany is infamously in the history books. 
• Does this mean that we should do nothing? No. Something should be done to speed up the applications and provide the asylum seekers with better conditions while they wait, and to make sure their dignity is preserved in the process.

Some people say that we are spending needless time on the semantics. Yes, I believe we should be spending energy reversing an exceptionally misinformed refugee detention policy. At the same time, the fact that we even need to be discussing these semantics is indicative of how out of whack U.S. civil society is. Forget for a moment that Obama also had detention centers during his administration. It is becoming more difficult in U.S. society to have a discussion about policy without evoking Holocaust imagery, and thusly implying that the "side you don't agree with" is a literal Nazi. If political discourse has reached a point where one side literally views the other as Hitler for simply disagreeing, thereby using the logical fallacy of reductio ad Hitlerum, then it is no wonder the U.S. has this level of political polarization.

I'm not going to pretend as if there were some magical time in which everyone respectfully disagreed because no such time existed. Politicians have used such discourse since the beginning of time. Using hyperbole or antagonistic, divisive rhetoric is done by all those in power, regardless of ideological inclination. I ask that we learn how to talk with those with whom we disagree and work across the aisle in the hopes of making discourse civil again.

Why Cory Booker's Affordable Housing Plan Is Mostly Deficient, But Has Some Good in It

In recent months, I have noticed that various Democratic figures are shifting the Democratic Party to the Left. The Green New Deal, introduced by freshman Congresswoman Alexia Ocasio-Cortez (D-NY), has been a  topic of discussion long after it was voted down. Congresswoman Pramila Jayapal (D-WA) introduced a version of "Medicare for All" that was even more extreme than that of Bernie Sanders (I-VT), which says something. Presidential hopeful Elizabeth Warren (D-MA) has proposed student debt forgiveness. Now Senator Cory Booker (D-NJ) has joined the fun. Booker recently released his affordable housing plan. Before getting into the particulars of his plan, Booker tells the story of the challenges his parents faced in acquiring housing. He then has a five-point plan: renters' tax credit, Baby Bonds, zoning reform, combat housing discrimination, and eliminate homelessness. For time's sake, I am only going to cover the first three in detail here today.

Tax Credit for Renters
Booker has proposed a renters' tax credit that covers the difference between the 30 percent of a beneficiary's income and their rent [capped at the neighborhood fair market rent]. The median tax credit, if enacted, would be $4,800 annually. His reason for such a tax credit is that nearly half of renters pay more than 30 percent of their pre-tax income on rent. To mitigate the burden of rental costs and ultimately allow for better savings to eventually purchase a house, Booker finds this to be part of the solution.

There are some issues with this proposal, such as administrative costs, incidence, and whether the government can deliver the credit when the rent is supposed to be due [monthly], as opposed to one annual tax credit (Tax Policy Center). The main issue with Booker's plan is that his tax credit acts similar to a demand-side subsidy. I agree that a subsidy is technically not the same as a tax break. A tax break is allowing for a taxpayer to keep more of the paycheck that they earn, whereas a subsidy is a government expenditure to directly fund something. However, my caveat with this is that 47 percent of Americans do not pay federal income tax. When looking at federal taxes by income quintile, the lowest quintile pay a net federal tax rate of 1.5 percent. With the average household income for the lowest quintile being $12,457 (Census), the federal taxes that these households pay ($187) is less than the median amount of the tax break proposed by Booker, thereby making the tax credit de facto act as an indirect government subsidy.

That being said, mainstream economic theory states that such a subsidy would artificially push the demand curve upward. While an increase in demand would increase quantity consumed, it would also increase price. This is not mere economic theory. It plays out in practice. With regards to college, government subsidies towards college tuition have caused college tuition prices to skyrocket. Single-payer healthcare has pushed the demand curve well beyond market equilibrium, thereby making healthcare more expensive. Granted, the two main issues with these analogies is that a) they do not take place in the housing market, and b) these are direct government subsidies, whereas Booker's proposal is a tax credit.

If you want me to point out something more directly related, look no further than the mortgage interest deduction (MID), a tax break that de facto subsidizes the housing market. What happened when the government tried to use the tax code to incentivize housing and make it more affordable? Not what was expected, that's for sure. The MID does not make housing cheaper. It merely incentivized people to purchase more expensive homes, thereby increasing indebtedness. The MID did not end up increasing home ownership, which was its primary goal. It actually made it more difficult for lower-income households acquire a house. As such, it would be reasonable to assume that similar unintended consequences would result in the rental housing market, as is brought up in the Tax Foundation's analysis of Booker's renters' credit proposal.

Instead of fighting fire with fire, perhaps Booker could make the tax code more neutral by repealing the MID instead of causing more complexity to the tax code and the housing market.

Baby Bonds
Booker's second proposal, which is actually the one policy idea that currently distinguishes him in the presidential race, is to implement Baby Bonds. A "Baby Bond" is a government-funded savings account that, per his proposal, would grow in a federal trust and provide enough seed capital to fund a downpayment on a house. A study from Columbia University recently found that it would help close the wealth gap between black and white people (Zewde, 2018), a wealth disparity that exists regardless of income quintile (Duke University; St. Louis Federal Reserve). The other good news is that it would cost about $80 billion annually, which would be $800 billion over a decade. This is low compared to certain government budget line items or certain tax credits. It would also be less divisive than reparations. Even if you set up the Baby Bond in a way that the money would only be withdrawn for paying towards a house, we still run into some issues.

1. The tax break acts as a subsidy towards housing. As brought up in the previous section, the mortgage interest deduction (MID) has distorted the housing market with multiple unintended consequences. It would not be surprising to see similar distortions to the housing market as a result of Baby Bonds. 
2. We already have a clear example of how the government handles asset management: Social Security. Social Security provides lower rates of return relative to alternatives (see 2018 Heritage Foundation backgrounder; 2018 OECD report showing that private pensions fare better; 2016 Tax Foundation report; Ahmed et al., 2016; and my 2013 analysis). 
3. My general skepticism surrounding the government's asset management for Social Security is compounded with Booker's plan. When Booker initially proposed the Baby Bonds idea through his "American Opportunities Account Act" in October 2018, he proposed putting them in low-risk bonds at an estimated rate of return of 3 percent. While government bonds don't have the lowest rate of return, there are other higher-yielding options that could further create wealth.  
4. The government shows a lack of political willpower to deal with the fiscal insolvency component of Social Security. Can we expect the Baby Bonds program to realistically stay solvent?
5. More broadly, there is the question of how the U.S. government is going to pay for it. This country is still dealing with burgeoning debt growth. Under the Congressional Budget Office's baseline projections, the debt-to-GDP ratio is going to reach 93 percent by 2029 (CBO, p. 2). It is going to take eighteen years before the first recipients even cash out. In the meantime, the U.S. government has added $800 billion to the debt (plus applied interest payments). Too high of a government debt dampers economic growth, which impacts quality of life, especially for those who Booker is trying to help (see Peterson Foundation; Congressional Research Service; Mercatus Center; European Commission; Dallas Federal Reserve). The Baby Bonds program isn't going to break the bank, but it doesn't mean it wouldn't exacerbate the debt issues, either.
6. Booker plans on increasing the capital gains tax and estate tax. An increase in the capital gains tax and estate tax would slow down wealth growth, which would be ironic considering that wealth is what Booker is trying to grow. 
7. One criticism of the Baby Bonds is dealing with more imminent poverty issues, such as child poverty. University of Chicago law professor David Hemmel argues that the focus should be on child poverty because the effects of poverty on a child are lifelong. Hemmel posits that it would be preferable to address these current issues, in no small part because there are many developmental needs that need to be met before the individual would cash out on the Baby Bond at age 18. Zewde, the author of the Columbia University, presents the counterargument that providing children with hope about their future has its own intangible benefits. 
8. There is an issue of political feasibility. Even if the Democrats took both Congress and the White House, a recent Rasmussen poll shows that 48 percent of Americans disapprove of Booker's proposal.
9. Much like I expressed with the child tax credit, I have a philosophical qualm as to whether childless households should have to support another household's choice to support children. A philosophical qualm is more subjective than a policy outcome, but it's still worth considering.
10. Since this is part of a housing plan, let's assume that the Baby Bond could only be cashed for housing purposes. Booker's plan comes with the paternalistic assumption that lower-income households do not know how to best spend this accumulated wealth, which is why Booker proposes that the spending goes towards housing. Forgetting that owning a house is not for everyone, I have to ask this question: If lower-income households cannot be trusted with spending the accumulated wealth on something aside from housing, how can we trust them to make the right spending decision with regards to the house for which they make the downpayment? 
• Alternatively, let's assume that the eighteen-year old could gain access and use it for whatever they would like. In this alternative, the plan would implicitly assume that the young adult is going to spend that money wisely. This individual just became an adult. There is a chance that they are going to spend it on something stupid or frivolous, especially considering that the brain doesn't fully mature until around the age of 25. There is also a high likelihood that they are going to get their college tuition bill and spend it towards college. If the Baby Bond turns into a federal subsidy for college tuition, we already know that such a subsidy is going to cause college costs to skyrocket further.

Zoning Reform
Booker points out that restrictive land use regulations have constrained affordable housing by more than 50 percent from 1964 to 2009. I wrote a piece a couple of years ago on land use regulations (also see October 2017 policy report from the Cato Institute), and this is the one area in which Booker and I are in total agreement. Land use regulations have driven up housing prices by constraining housing supply, as well as create more volatile boom-and-bust cycles in the housing market.

Bottom Line: Baby Bonds and renters' tax credits are only going to add to the issues of affordable housing. If we want to make a difference, two sound policies would be abolishing the mortgage interest deduction (MID) to make housing more affordable and to remove land use regulations in order to increase affordable housing supply.

10 Reasons Why Trump's Proposal to Use Tariffs to Punish Mexico Over Immigration Is Faulty (and Even Dangerous)

Trump simply can't help himself. He is threatening another country with tariffs, except this time, he is threatening Mexico. I thought Trump stirring the pot with 25 percent tariffs on $200 billion worth of Chinese imports was bad enough. Now he is threatening an ally with tariffs because he is dissatisfied with the migration surge on the U.S.-Mexico border. What Trump announced last Thursday was an intention to implement a series of phased tariffs, starting at 5 percent effective June 10, and making their way up to 25 percent by October...unless Mexico can contain the mess, that is. It should be no secret by now that I strongly dislike tariffs, but for the purposes of laying out a cogent argument, let's go into the myriad of reasons, ten to be exact, as to why Trump extending his trade war to Mexico would be a bad idea.

1. U.S. tariffs imposed on foreign goods are a tax paid by American consumers. As recent as Sunday has the Trump administration asserted that U.S. consumers will not pay the burden of these tariffs. I have news for you: that's not how the economics of tariffs works. Under standard microeconomic theory, two parties lose economic welfare under a tariff: foreign producers and domestic consumers. More to the point, a study released from Princeton University earlier this year confirmed that the burden of Trump's enacted tariffs falls on the American consumer (Amiti et al., 2019). 
2. Trump's trade war has already cost the American people, and will continue to do so. The authors of the previously mentioned Princeton study released an update on May 23 with the latest figures on consumer burden. What did they find? Trump's tariffs cost the average American household $811 a year. Additionally, his tariff on washing machines alone cost the American people $1.5 billion in 2018 (Flaaen et al., 2019). If you need a sense of where prices will increase, here are a few major goods that the U.S. imports from Mexico: produce, alcohol, television sets, monitors, fuel (especially crude oil), medical instruments, rubber, and automobiles. This gets more complicated considering how many raw materials, components, intermediate goods the United States imports from other countries, including Mexico. Imagine the combined effects of the already-existing tariffs with tariffs on Mexico, the country that recently became the United States' number one trading partner. Such tariffs would have a ripple effect that would be felt by Americans across the country.
3. Trump is undermining his own trade deal and trade relations with Mexico. In November 2018, the presidents of Mexico, Canada, and the United States have signed USMCA, which is Trump's version of NAFTA that is slightly worse than the original. The legislative branches of the three countries have yet to sign it. I'm not a master of "The Art of the Deal" like Trump is, but I can take an educated guess that this will affect the likelihood that USMCA is ratified by the Mexican legislature. Senator Chuck Grassley (R-IA), a senior Republican Senator on the Senate Finance Committee, also thinks that this move threatens USMCA. If USMCA doesn't pass, Trump would be shooting himself in the foot because reforming NAFTA was one of his major 2016 presidential campaign promises. This could also undermine his own reelection in 2020 if the trade war spirals out of control.  Trump's tariffs on Mexico beg another question: Why have a trade agreement to eliminate tariffs if Trump is going to impose tariffs anyways? Mexico may or may not acquiesce, but it certainly puts strain on U.S.-Mexican relations.  
4. Tariffs on Mexico would affect trade relations with China. You might be wondering how relations with Mexico would possibly have any bearing on Sino-American trade relations, but bear with me for a moment. China is already skeptical of Trump based on their dealings with him. China's skepticism has increased since Trump exacerbated U.S.-Mexican trade relations. Trump promised back in late 2018 that he would remove the global steel and aluminum tariffs (another bad idea) provided Canada and Mexico signed USMCA. He didn't get around to removing those tariffs until only about three weeks ago, and that was even done under considerable pressure. Instead, Trump intends to go against the terms of the free-trade agreement and impose tariffs on imported Mexican goods. If Trump cannot honor a signed international agreement, how could you expect him to keep his word with China?
5. Trump is eroding diplomatic relations with all countries. The effects of Trump's tariffs on Mexico go well beyond Mexico, as the Council on Foreign Relations illustrates. For one, other countries will be hesitant negotiate trade agreement terms with Trump because all he has shown is that he is willing to break his promises on a whim. The second issue has to do with the International Emergency Economic Powers Act (IEEPA). As the Peterson Institute shows in its report on trade agendas in the 2016 presidential campaign, the IEEPA was meant to impose economic sanctions when "unusual and extraordinary threats" merit it. If the IEEPA turns into a tariff free-for-all, not only has Congress' authority been severely undermined, but it sends the message that the United States (or at least the Trump administration does not care about rule of law, which opens a Pandora's box on international cooperation. 
6. Trump's tariffs on Mexico are going to negatively impact the global economy. One thing I have learned as being a market research professionally is that the one thing that businesses hate even more than regulation is uncertainty. As illustrated above, Trump is creating plenty of trade uncertainty. This trade uncertainty has negative consequences, including deterring investment (Davis, 2018; Krol, 2018), reducing consumer welfare (Handley and Limao, 2017), lowering economic activity (Kliesen, 2013), and adversely affecting stock returns (Bianconi et al., 2019). This past Sunday, multinational investment bank Morgan Stanley predicted a recession within the next nine months if Trump escalates his trade war any further. 
7. "Illegal Immigration" has been declining. In his statement on Thursday, Trump mentions the "sustained influx of illegal immigrants [that] has profound consequences on every aspect of our life." It is true that there has been an influx of border apprehensions in 2019. In spite of the influx, the number of apprehensions throughout the first six months of the government's fiscal year 2019 (i.e., October 2018-March 2019) remain below historical highs for the first half of the fiscal year (Pew Research). Additionally, Trump should realize is that the unauthorized immigrant population has been on the decline for over a decade, from 12.2 million in 2007 to 10.7 million in 2016 (Pew Research). Tariffs won't do anything to deal with this influx, and as the Cato Institute illustrates, it could backfire and increase the immigration across the border. 
8. The influx of border crossings is not about "illegal immigration," but refugees. The reason for the aforementioned influx is largely not due to undocumented immigrants/"illegal immigration", but rather due to asylum seekers. In recent years, Guatemala (along with Honduras and El Salvador) has been plagued with gang warfare and violence that is so extreme that it has made it one of the most unsafe places on the planet. This humanitarian crisis has resulted in a number of Guatemalans fleeing their country in search of a better life. Not only is the right of asylum something that dates back to the ancient Greeks and Egyptians, but it is also covered under Article 14 of the Universal Declaration of Human Rights, the 1951 Convention Relating to the Status of Refugees (the U.S. is not a signatory on this Convention), and the 1967 Protocol Relating to the Status of Refugees. Trump should not be playing this as an issue with "illegal immigration," and he certainly shouldn't be treating refugees as a national security threat, which he has erroneously done in the past.  
9. Undocumented immigrants are not the problem Trump makes them out to be. Even if Trump's claim about "illegal immigration on the rise" were true, it wouldn't matter. As I have covered when asking whether we should have a border wall, undocumented immigrants are not a net fiscal drain, they are not more likely to commit crimes (see 2019 Cato Institute report here), and they actually pay taxes. More generally speaking, low-skilled labor benefits the U.S. economy. If you're worried about "making sure immigrants coming in the legal way," advocate for policies that fix the broken system and cut through the red tape. The Cato Institute provides some ideas here.
10. Trump's demands are unrealistic and hypocritical. If the United States, the most powerful country on the planet, cannot handle the issue, what does Trump expect Mexico to do? Mexico already put up a border wall of sorts (also known as a containment belt) in March because there are a number of Guatemalan refugees applying for asylum in Mexico. It's clear that the Trump administration does not know the answer to the question because its press release does not go beyond "Mexico should do something about it." Plus, he expects Mexico to figure it out and solve it in a matter of weeks. As Reason Magazine astutely points out, "Mexican officials are being told to fix a problem they didn't cause, to do it in a matter of weeks, and without knowing how their performance will be measured." 

Postscript
I view Trump's trade wars as if Trump had a hammer and all he saw were nails, except the hammer in this case are tariffs and the only toolkit in his toolbox is a rusty hammer. Trump is taking that hammer, trying to fight an imaginary war on "illegal immigration," when in fact, he has swung that hammer at an ally that is vital to American interests. I'm sure Trump thinks he is doing the country a favor by combining his two key issues (trade and immigration), but all he is doing is harming the global economy while screwing over the people he purports to help: the American people.