The Coming Fiscal Hit No One Is Talking About

Everyone knows the U.S. faces a number of fiscal challenges. The enormous cost of servicing our national debt, the coming entitlements crisis—these are massive, existential threats to the finances of the United States.

But there is another fiscal hit coming soon that almost no one is talking about. It’s not an existential threat to the nation, but it’s a threat to President Trump’s budget.

At the moment, Republicans are triumphant about the tariff revenue coming into the federal treasury. The Penn-Wharton Business Model estimates that over $125 billion in tariff revenue has been collected in the first half of 2025, and that if this level of revenue continues for ten years, it would result in an additional $2.52 trillion in federal revenue. This figure is roughly in line with Congressional Budget Office (CBO) estimates as well.

Critics of the tariffs, including yours truly, have claimed that such a huge tax increase on trade, paid by US consumers, would hurt the economy, but the hurt hasn’t shown up so far. As a result, many tarifficionados are confidently celebrating their triumph over the nattering nabobs of negativism.

For some, tariff enthusiasm is overwhelming. Missouri Sen. Josh Hawley says he wants to use tariff revenue to rebate $600 to every American worker. Suddenly, $100 billion in tariff revenue seems to have solved trillion-dollar problems.

But Sen. Hawley should slow his roll. For one thing, the reason tariffs haven’t devastated the economy is that most of them were delayed until August 1. In the meantime, there is evidence that the tariffs are causing higher prices to consumers, which doesn’t come without a cost.

But the real problem with the tariff buzz is that the Supreme Court is likely to find that the tariffs are unconstitutional. In the statute the Trump administration is using as a legal basis, the International Energy and Economic Policy Act (IEEPA), the word “tariff” doesn’t even appear, and whatever actions IEEPA authorizes require an "unusual and extraordinary threat ... to the national security, foreign policy, or economy of the United States.” There is nothing unusual or extraordinary about the U.S. having a trade deficit.

And if/when the Trump tariffs are found to be unconstitutional, those who have paid unconstitutional tariffs will be entitled to refunds.

How do we know the tariffs will have to be refunded? Because the Trump administration has already refunded tariff revenue to importers on the several occasions when Trump reversed direction on tariffs.

So the feds might just want to stick that tariff revenue in an escrow account somewhere, because it’s likely inevitable that most of it will have to be refunded . . . to the American businesses that paid it.
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