In Washington, there are significant concerns regarding the impact of President Donald Trump’s One Big Beautiful Bill, particularly its tax cuts, on the federal budget. The Congressional Budget Office reports that if the bill passes in the Senate, it could inflate federal deficits by approximately $2.4 trillion over the next decade because the anticipated tax cuts will outpace any savings achieved from spending reductions.
However, President Trump’s proposed tariffs have been presented as a potential revenue source to counterbalance these deficits. The tariffs, including reciprocal levies which could reach up to 50% against countries with whom the U.S. has trade deficits, are predicted to bring in enough revenue to potentially reduce the budget deficit by $2.5 trillion over the next ten years. Thus, theoretically balancing the fiscal scales. Yet, the reality of relying on tariffs to finance such a substantial part of the federal government’s budget is contentious and fraught with risk.
Experts, including Kent Smetters from the University of Pennsylvania, argue that using tariffs in this manner is hazardous and unstable. While President Trump has long championed tariffs as a tool to rejuvenate American industry and offer economic leverage over other countries, experts are skeptical. Trump has even suggested tariffs could supplant federal income tax, which generates about half of government revenue. In contrast, Erica York from the Tax Foundation criticizes this notion, arguing that tariffs are a flawed approach to tax reform.
One significant issue is the impermanence of tariffs as a revenue source. Unlike tax laws passed by Congress, Trump’s tariffs have largely been imposed via executive orders, a method susceptible to reversals by future administrations or legal challenges. A federal court in New York has already struck down central elements of Trump’s tariff program, though an appeals court currently permits continued collection while the issue is litigated.
From an economic standpoint, tariffs are widely criticized for their potential to harm the economy. They effectively function as taxes on foreign goods, costs that are often transferred to U.S. consumers in the form of higher prices. Such tariffs can inflate expenses for domestic manufacturers dependent on imported materials, reducing their competitive edge globally. Furthermore, tariffs could provoke retaliatory tariffs on American exports, exacerbating economic strain. The European Union, for instance, has already threatened countermeasures after Trump’s unexpected increase in tariffs on steel and aluminum.
Adding to these challenges, tariffs have the potential to isolate the U.S. economy internationally. They may deter foreign investment, leading to higher interest rates on Treasury debt, as foreigners currently own a sizable portion of U.S. government debt. If foreign investment dwindles, the federal government may face increased borrowing costs, ultimately hindering economic growth. Smetters notes these heightened costs could surpass those associated with other contentious taxes, such as those on corporate profits.
Moreover, tariffs are regressive; they disproportionately affect the poor, who allocate a larger share of their income to consumption compared to wealthier individuals. The One Big Beautiful Bill already targets the poor with cuts to food programs and Medicaid. Analysis suggests that the bottom 20% of households, earning less than $17,000 annually, could see their incomes drop significantly. In contrast, the wealthiest Americans would benefit substantially.
In conclusion, while tariffs may appear to offset budgetary gaps posed by the One Big Beautiful Bill, they are largely seen as an unreliable and inefficient revenue source. They present legal, political, and economic risks that could have adverse implications for the U.S. economy and disproportionately impact low- and middle-income households.