Tariffs Can’t Pay for the GOP Tax Bill
As Donald Trump drives the US economy off a cliff, Republicans have a new talking point: tariff revenue will pay for tax cuts.1 There’s a problem with that statement, though. It’s simply not true.
Even Trump’s most aggressive tariffs won’t be able to make up for the lost revenue from extension and expansion of the 2017 Republican tax bill. In fact, tariffs could only raise half of the revenue the federal government would otherwise forgo under very optimistic estimates. At the end of the day, tariffs can’t effectively finance the Republican tax bill for four key reasons:
- The Trump tax cuts are expensive.
- Tariffs don’t raise enough money to finance tax cuts.
- Tariffs raise even less than we think.
- This tariff revenue is also a budget gimmick under the rules.
The Facts
The Trump tax cuts are expensive. The federal government is poised to lose $4.5 trillion in revenue through 2035 if Republicans extend the Tax Cuts and Jobs Act (TCJA) without offsets.2 Reconciliation instructions also allow an additional $1.5 trillion in deficit increases for other Republican tax priorities, like Trump’s proposals to end taxes on tips and overtime.3 That means the federal government could lose $6 trillion in revenue.
Tariffs don’t raise enough money to finance tax cuts. Mainstream economists (Peterson Institute for International Economics, Tax Foundation, and Yale Budget Lab) project that tariffs will generate $2.7 trillion to $4 trillion in revenue over 10 years (FY 2026-2035).4 But that’s the rosy scenario for government coffers. Tariff revenue would only go up between $1.6 trillion to $2.3 trillion when you include the impact on the economy—so-called “dynamic effects”—and expected retaliation from other countries on US goods.5 Since tariffs are a tax on imported goods, dynamic effects account for the economic impact of people and businesses buying less. So, at best, tariffs could only pay for less than 40% of the $6 trillion Republican tax cuts.
Tariffs raise even less than we think. The mainstream projections on tariff revenue are still wildly optimistic because they assume Trump’s tariffs are permanent. But if you listen to the rhetoric from many Congressional Republicans and Treasury Secretary Scott Bessent, tariffs are a tool to get trade deals.6 And these trade deals will theoretically lower tariffs—further reducing the amount of money available to finance Republican tax cuts. For example, some of the tariffs on China have been temporarily shrunk.7 The fact that these tariffs are done by executive order also means they could be removed by a future President or even delayed, as Trump has already done.
This tariff revenue is also a budget gimmick under the rules. If Republicans wanted to raise tariffs to fund the tax cuts, they could do so in the budget reconciliation legislation. The Congressional Budget Office and Joint Committee on Taxation would officially evaluate the legislation and “score” it in terms of how much money would come in. The fact that Trump is pursuing tariffs through executive order means they cannot get counted in the reconciliation bill budget score and be used for budget enforcement purposes. If a member of Congress wants to say that tariffs pay for the tax cuts, it’s a delusion and a budget gimmick.
Note: Both the Trump tariffs and the GOP budget reconciliation bill are changing all the time. The specific numbers modeled and scored may be slightly different in the end. But the fact will remain, tariffs cannot pay for the level of tax cuts being proposed.
Endnotes
Picchi, Aimee. “Will Trump’s tariffs really lower your taxes? Here’s what tax experts say.” CBS News, 1 May 2025, https://www.cbsnews.com/news/trump-tariffs-tax-cut-below-200000-income-what-to-know/. Accessed 7 May 2025. And; Shaw, Tim. “Treasury Hopes to Offset Tax Cut Costs With Tariff Revenue.” Thomson Reuters, 30 April 2025, https://tax.thomsonreuters.com/news/treasury-hopes-to-offset-tax-cut-costs-with-tariff-revenue/. Accessed 7 May 2025. And; Duehren, Andrew. Republicans Wrestle With Trump’s Demands for Tax Cuts. New York Times, 2 May 2025, https://www.nytimes.com/2025/05/02/us/politics/republicans-trump-tax-cuts.html. Accessed 7 May 2025.
Joint Committee on Taxation. “Estimated Revenue Effects of a Permanent Extension of Certain Expiring Tax Provisions in Public Law 115-97 and Associated Change in Outlays for Debt Service Costs.” Joint Committee on Taxation, 3 April 2025, https://www.finance.senate.gov/imo/media/doc/wyden_merkley_neal_boyle_release_new_estimate_of_republican_tax_planpdf.pdf. Accessed 7 May 2025. And; U.S. Senate Committee on Finance. “Wyden, Merkley, Neal, Boyle Release Staggering New Cost Estimate of Republican Tax Plan, Blast Giveaways to Corporations and the Wealthy.” U.S. Senate Committee on Finance, 3 April 2025, https://www.finance.senate.gov/chairmans-news/wyden-merkley-neal-boyle-release-staggering-new-cost-estimate-of-republican-tax-plan-blast-giveaways-to-corporations-and-the-wealthy. Accessed 7 May 2025.
Totals provided in the JCT estimate were adjusted for the 2026-2035 budget window. Original totals provide estimates for the 2025-2035 budget window.
[1] Congress.gov. "H.Con.Res.14 - 119th Congress (2025-2026): Establishing the congressional budget for the United States Government for fiscal year 2025 and setting forth the appropriate budgetary levels for fiscal years 2026 through 2034." Library of Congress, 10 April 2025, https://www.congress.gov/bill/119th-congress/house-concurrent-resolution/14/text. Accessed 7 May 2025.
Senate instructions in H. Con. Res. 14 allow the Senate Finance Committee to increase the deficit by no more than $1.5 trillion, however it is well known the Senate intends to pursue a current policy baseline that can cost $4.5 trillion on it’s own per the JCT table in endnote 2.
Yale Budget Lab. “State of U.S. Tariffs: May 12, 2025. Yale Budget Lab, 12 May 2025, https://budgetlab.yale.edu/research/state-us-tariffs-may-12-2025. . Accessed 12 May 2025. And; McKibbin, Warwick J., and Shuetrim, Geoffrey. “The US revenue implications of President Trump’s 2025 tariffs.” Peterson Institute for International Economics PIIE Briefings 25-2, April 2025, https://www.piie.com/publications/piie-briefings/2025/us-revenue-implications-president-trumps-2025-tariffs. Accessed 7 May 2025. And; York, Erica, and Durante, Alex. “How Much Revenue Can Tariffs Really Raise for the Federal Government?” Tax Foundation, 10 April 2025, https://taxfoundation.org/research/all/federal/universal-tariff-revenue-estimates. Accessed 7 May 2025.
To keep tariff estimates consistent with JCT tax cut estimates over the same 10-year budget window, totals were adjusted by Third Way for the 2026-2035 budget window. These numbers reflect the high end or conventional scoring mechanism when given by the estimators. The Budget Lab estimated that in total all the specific tariffs combined with the 10% minimum tariff increase effective tariffs rates by about 15%. For PIIE and Tax Foundation’s modeling we chose their 15% across the board tariff scenario to best match this estimate.
Yale Budget Lab. “State of U.S. Tariffs: April 15, 2025. Yale Budget Lab, 15 April 2025, https://budgetlab.yale.edu/research/state-us-tariffs-april-15-2025. Accessed 7 May 2025. And; McKibbin, Warwick J., and Shuetrim, Geoffrey. “The US revenue implications of President Trump’s 2025 tariffs.” Peterson Institute for International Economics PIIE Briefings 25-2, April 2025, https://www.piie.com/publications/piie-briefings/2025/us-revenue-implications-president-trumps-2025-tariffs. Accessed 7 May 2025. And; York, Erica, and Durante, Alex. “How Much Revenue Can Tariffs Really Raise for the Federal Government?” Tax Foundation, 10 April 2025, https://taxfoundation.org/research/all/federal/universal-tariff-revenue-estimates. Accessed 7 May 2025.
To keep tariff estimates consistent with JCT tax cut estimates over the same 10-year budget window, totals were adjusted by Third Way for the 2026-2035 budget window. These numbers reflect the net revenue totals with both dynamic effects and retaliation effects when given by the estimators. The Budget Lab estimated that in total all the specific tariffs combined with the 10% minimum tariff increase effective tariffs rates by about 15%. For PIIE and Tax Foundation’s modeling we chose their 15% across the board tariff scenario to best match this estimate.
Lynch Baldwin, Sarah, and Picchi, Aimee. “Trump tariffs are ‘negotiating strategy,’ Treasury chief Scott Bessent suggests as pause announced.” CBS News, 9 April 2025, https://www.cbsnews.com/news/trump-tariffs-negotiating-strategy-treasury-secretary-scott-bessent-pause/. Accessed 7 May 2025. And; Bade, Gavin, and Schwartz, Brian. “U.S. Plans to Use Tariff Negotiations to Isolate China.” The Wall Street Journal, 15 April 2025, https://www.wsj.com/politics/policy/u-s-plans-to-use-tariff-negotiations-to-isolate-china-177d1528. Accessed 7 May 2025. And; Confino, Paolo. “Scott Bessent says it’s China’s responsibility to ‘de-escalate’ trade war.” Fortune, 28 April 2025, https://fortune.com/article/scott-bessent-china-responsibility-deescalate-trade-war/. Accessed 7 May 2025. And; Gangitano, Alex. “Bessent announces no new trade deals, hints India close.” The Hill, 29 April 2025, https://thehill.com/homenews/administration/5272549-bessent-trade-deals-india/. Accessed 7 May 2025. And; Heddles, Claire. “Scott Bessent Pushes ‘Strategic Uncertainty’ to Defend Trump Tariffs.” NOTUS, 6 May 2025, https://www.notus.org/trade-tariffs/bessent-treasury-congress. Accessed 7 May 2025.
Farge, Emma and Le Poidevin, Olivia. “US and China reach deal to temporarily slash tariffs, easing slump fears.” Reuters, 12 May 2025, https://www.reuters.com/world/china/us-china-reach-deal-slash-tariffs-officials-say-2025-05-12/. Accessed 12 May 2025.
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