Q&A – Tariff Revs & Debt Reduction
Each day I feature a listener question sent by one of these methods.
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Today’s entry: I just read that tariffs brought in a record $27.7 billion in July. Is it possible that the debt can be paid down with this income? How would that work? Does Congress need to vote to do this? Thank you for remaining in my broadcast reach!!!!
Bottom Line: Well, thank you for listening and for today’s question. In addressing your question today – the tariff revs from July did come in at a monthly record of nearly $28 billion and have now topped $150 billion for the year – also a new record through the first seven months of the year. But of course the most recent pace of tariff collections, following President Trump’s tiered implementation of “Liberation Day” tariffs and trade deals has picked up considerably. For example, July’s tariff revenue was $20 billion, or 350% higher, than July a year ago. While some scoffed at how much revenue generation might take place as a result of tariffs originally, they’re not anymore.
Just under 3% of the federal government’s total revenue this year is the result of tariffs – a figure that would be 5% or higher if rates are left at current levels. In terms of it’s significance, many are taking notice. Just this week the independent watchdog, Committe for a Responsible Federal Budget, released a report entitled: Tariffs Are Generating meaningful New Revenue. A key highlight to the report was this: The new tariffs introduced by the current Trump Administration will generate an estimated $1.3 trillion of net new revenue through the end of his term and $2.8 trillion through 2034, before accounting for economic effects – about $600 billion more than the tariffs in effect as of May.
That’s hugely significant because you might recall that the Congressional Budget Office estimated the cost of the One Big Beautiful Bill Act to be $3.4 trillion over the same window of time. Plus Congress passed a recissions law reducing federal spending slightly since the OBBBA, and there’s talk of additional cost saving measures going forward as well.
In other words, tariff revenue alone holds the potential to nearly cover the entire estimated federal deficit over the next decade resulting from President Trump’s signature legislation, or perhaps could produce surpluses should interest rates come down significantly, lowering the cost burden to service the national debt and/or if the economy grows faster than the CBO’s estimates – as it did following President Trump’s 2017 tax cuts. As it pertains to today’s question about where this money goes and how all of this comes together... Let’s start by breaking down what the tariff process actually is and how it works.
When a U.S. importer pays a tariff on goods entering the country, the process is managed by U.S. Customs and Border Protection. The tariff, determined by what’s called the Harmonized Tariff Schedule, is paid by the U.S. importer (not the foreign seller - though private contracts may shift the cost). CBP collects the tariff (usually electronic) and the revenue is deposited into the U.S. Treasury’s General Fund.
Congress hasn’t specified how tariff revenue is to be used so it supports all government spending, from Social Security to defense, as allocated by Congress through the annual budget process. The Treasury Secretary, nor the president retain the authority to determine what happens with tariff revenue. This can only be determined by Congressional action. Because the federal government is still running deficits, the impact of the revenue has the immediate impact of reducing deficit spending.
Going forward, if tariffs are left in place, Congress would account for these additional revenues. Various ideas have been floated such as issuing “tariff dividend checks” to taxpayers, to deficit/debt reduction. I’m firmly in the debt reduction camp on that side of the issue.
The next dynamic in play, aside from continued trade deals that will likely evolve the tariff picture, is the outstanding legal challenge to the president’s authority to unilaterally impose tariffs. That’s still within the federal court system and could factor in significantly if the judicial system ultimately ruled against President Trump’s authority to issue tariffs through executive orders. More to come...