Tariffs are bringing in enough revenue to have an impact on the national debt.

 

President Trump. Fortune.

A new report from the Committee for a Responsible Budget (CFRB) says that the revenues from tariffs is impactful enough that it could reduce national debt. Fortune. The revenue gained is roughly the equivalent of a 1/5th military budget cut or a new payroll tax. Roughly $25 billion was collected in July, a huge increase from last year. The tariffs, if sustained at the current rate, could bring in $1.3 trillion in new money that could be used to pay down debt. Tariffs are now 2.7% of federal income and that number could rise up to 5%. If tariffs are kept permanent they could reduce the debt by $2.8 trillion over 10 years. However, tariffs revenue does not make up for high spending and debt commitments and may have other downsides. 

The CRFB report is here. 

My Comment:

I'm generally pretty bullish on tariffs. They obviously bring in a lot of revenue and the damage they cause is generally overstated. Tariff costs aren't always paid by the consumer, many companies are eating the cost so their products still get bought. And even when they are paid by the consumer, the higher prices generally lead to folks buying American products when possible, which is good for the economy. Believe it or not, tariffs tend to either be inflation neutral or even deflationary in nature (which can be a problem if taken too far). Tariffs also strengthen the dollar, making our money worth more. 

I do have to say that I think that it's optimistic that the CFRB thinks this money will go to paying down the debt. Both Trump and Congress are floating the idea that folks should get a refund check from this money and I have mixed feelings on that. I know the theory is that folks will spend that money, thus helping the economy, but the money really should just go to paying the debt down first. 

Washington really does have a spending problem and I am sure the folks in Congress are salivating at the thought of spending all this new income. If it's not rebate checks, it will be something else that they want to spend their money on. With a GOP congress there would at least be some resistance to new spending but if the Democrats take the House in 2026 (which I don't think they will) they will almost certainly spend the money on nonsense instead of the debt. 

There is also quite a bit of uncertainty with the tariffs. Trump is sometimes mercurial when it comes to his policies (his critics call him TACO, Trump always chickens out) and though it is exaggerated there is some truth to it. Trump has used tariffs as both a threat and a reward to countries when they do things he doesn't like. Both scenarios could significantly raise or lower the revenue gained by tariffs. 

And though the economy is strong now, it might not remain so due to instability and the ever present threat of AI. A lot of folks are losing jobs to AI right now and it's possible that reducing tariffs will be used as a way to prop up the economy if it really starts to take a hit. After all, tariffs were a big thing in Trump's first term, before the pandemic put a kibosh on it. 

Regardless, I do think that paying down the debt is an important thing. Tariffs are part of the solution, but it really does hurt that we are spending so much money. Much of that money is wasted on stupid things (like the Ukraine war) and if something isn't done we will end with a major debt crisis. Tariffs aren't a panacea but it's at least evidence that, one party at least, cares about reversing the debt and paying it down.