Recent shifts in U.S. tariff policy could add more than $1 trillion to federal budget deficits over the next decade, the director of the Congressional Budget Office said Monday.
In February, the Supreme Court ruled that the tariffs President Trump imposed on trading partners around the world under the International Emergency Economic Powers Act are unconstitutional, forcing the administration to cease collecting the tariff fees and initiate a refund program for those that have already been paid. That decision will add about $2 trillion to budget deficits over 10 years, CBO Director Phillip Swagel told Bloomberg.
The Trump administration has taken steps to replace the lost revenues with tariffs imposed under different legal authority, and those measures could increase federal revenues by $800 billion to $900 billion.
Taken together, the changes mean that the deficits will be about $1.1 trillion higher than previously estimated, though the situation is dynamic and more changes in the tariff structure could be ahead. “We haven’t gotten to a point at which we’re comfortable making that kind of long-term” estimate, Swagel said.
Swagel also said that higher energy prices in the wake of the Iran war appear to be diluting the expected positive economic effects from the tax cuts passed by Republicans last summer, though CBO analysts are still looking at the data.
“It looks like the higher energy prices affecting households is roughly offsetting the benefits” from the tax cuts, Swagel said. “There’s of course effects on business investment and effects on inflation and all that is in mix. We haven’t had to do another budget update, so we haven’t done the economic forecast yet that would underpin that.”