Trump Tariffs Could Fund Tax Cuts, But May Backfire on Economy/ Newslooks/ WASHINGTON/ J. Mansour/ Morning Edition/ President Trump’s plan to use tariffs to pay for massive tax cuts could help cover deficits — on paper. However, economists warn this approach is highly risky, economically damaging, and deeply regressive. The Congressional Budget Office projects $2.5 trillion in tariff revenue, but at a steep cost to consumers and economic stability.
Trump’s Tariff-Funded Tax Cuts: Quick Looks
- Trump’s tax cuts would add $2.4 trillion to deficits, according to the CBO.
- His tariffs could raise $2.5 trillion, nearly offsetting the cost.
- Experts say tariffs are regressive, unreliable, and economically harmful.
- Tariffs could lead to price hikes, retaliation, and higher U.S. borrowing costs.
- Legal and political challenges make tariffs unstable as a revenue source.
- The poorest Americans could lose income, while the wealthiest benefit.
- Economists slam the approach as inefficient and damaging to growth.
- Trump suggests tariffs could replace income taxes entirely.
Deep Look: Trump’s Tariff Plan Could Fund Tax Cuts — But at What Price?
As President Donald Trump pushes forward his massive tax-cut proposal under the “One Big Beautiful Bill Act,” he has also unveiled an unconventional — and controversial — funding source: import tariffs.
On the surface, it seems tidy. The Congressional Budget Office (CBO) estimates the tax cuts would swell the federal deficit by $2.4 trillion over the next ten years. Meanwhile, Trump’s sweeping tariffs — announced up to May 13 — are projected to bring in $2.5 trillion in new revenue. But experts say this “break-even” arithmetic hides a deeper and more dangerous economic reality.
The Tariff Patch
Trump’s proposed tariffs include reciprocal levies of up to 50% on countries with which the U.S. runs trade deficits. These taxes, aimed at rebalancing trade and funding tax cuts, are implemented mostly by executive action — without needing Congress.
“It’s possible we’ll do a complete tax cut. I think the tariffs will be enough to cut all of the income tax.”
But the idea of replacing income taxes — which account for nearly half of all federal revenue — with import duties has alarmed economists and budget experts across the spectrum.
Dangerous Math
According to Kent Smetters, director of the Penn Wharton Budget Model, this is “a very dangerous way to try to raise revenue.” He and others say that while tariffs may look like a financial solution, they function more like a ticking time bomb.
Erica York, a tax policy expert at the Tax Foundation, calls it:
“Perhaps the dumbest tax reform you could design.”
Here’s why:
- Tariffs are regressive: They disproportionately impact lower-income Americans, who spend a larger portion of their income on goods — many of which would become more expensive under tariffs.
- Tariffs are economically damaging: They raise input costs for U.S. manufacturers, make American products less competitive, and lead to retaliatory tariffs from other countries.
- Tariffs reduce growth and wages: Smetters notes that tariffs cause more economic damage per dollar raised than any other tax, including corporate income taxes.
- They destabilize trade relationships: The EU has already threatened “countermeasures” against Trump’s steel and aluminum tariffs.
In short, while tariffs may technically fund Trump’s tax cuts, they could erase the bill’s economic benefits altogether.
Legal and Political Headwinds
Trump’s tariff authority is already under legal scrutiny. A federal court in New York has struck down parts of his “Liberation Day” tariffs, saying he exceeded his legal authority. While an appeals court has paused the ruling — allowing tariff collection to continue — the legal future remains uncertain.
On the political front, a future president could reverse the tariffs with the stroke of a pen, and Congress could step in to restrict unilateral trade powers.
“A $2 trillion tax hike can’t be decided by political whim,” said York, underscoring the volatility of relying on executive tariffs for stable revenue.
Economic Fallout
Trump’s tariff-heavy strategy doesn’t just create fiscal instability — it also directly impacts U.S. businesses and consumers:
- Importers pay tariffs and pass costs to consumers.
- Manufacturers face higher production costs, making U.S.-made goods less competitive.
- Foreign investors might pull back, especially if retaliatory measures hit exports.
- Federal borrowing costs could rise, if foreign investors reduce purchases of U.S. Treasury bonds.
Even without the tariffs, Trump’s tax and spending blueprint already hits the poorest Americans the hardest. According to the Penn Wharton Budget Model:
- The bottom 20% of households, earning under $17,000, would lose $820 in income by 2026.
- The top 0.1%, earning over $4.3 million, would gain $390,070.
Add regressive tariffs on top of those numbers, and the damage to low-income households deepens dramatically.
Regressive and Risky
Tariffs essentially function as a consumption tax, but they’re poorly targeted and difficult to scale responsibly. They don’t adjust for ability to pay and inflict maximum damage on the working class, while providing windfalls to the ultra-wealthy who benefit most from the tax cuts.
“If you layer a regressive tax increase like tariffs on top of that, you make a lot of low- and middle-income households substantially worse off,” York emphasized.
And with the legal, political, and economic risks mounting, experts say it’s simply not worth the gamble.
“Tariffs are a very inefficient way to raise revenue,” York concluded. “If you raise a dollar with tariffs, it causes far more economic harm than any other tax.”
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