Trump Doubles Down on Tariffs in His Long SOTU Speech

USA Today Network
USA Today Network
By Yuval Rosenberg and Michael Rainey

Happy Wednesday! On this date in 1913, the 16th Amendment, which gave Congress the power to levy and collect income taxes, was declared in effect.

Here's your fiscal update.

Trump Doubles Down on Tariffs in His Long SOTU Speech

President Trump's record-long State of the Union Tuesday night - a 108-minute marathon of more than 10,000 words - was a triumphalist effort to convince Americans that, as the country reaches the 250th anniversary of it founding, it has seen "a turnaround for the ages" and is now booming under his leadership, contrary to the predominantly downbeat views and sagging approval ratings that polls have routinely found lately.

"Our nation is back: Bigger, better, richer and stronger than ever before," Trump said early on in his speech.

Much of Trump's speech centered on such exaggerated celebratory claims, attacks on Democrats and defenses of controversial policies in areas such as tariffs and immigration.

State of the Union speeches can turn into long lists of promises and legislative action items. Trump touted a slew of initiatives he and Republicans enacted over the past year, including the tax cuts in the "One Big Beautiful Bill Act," the new Trump accounts for children, and his efforts to lower prescription drug prices.

Despite its length, Trump's speech was relatively light on new policy pronouncements and items for Congress to tackle. He asked Congress to take up a ban prohibiting large investment firms from buying up single-family homes. He urged lawmakers to pass the "SAVE America Act," which would require proof of citizenship from anyone registering to vote. He called for a law banning undocumented immigrants from getting commercial drivers' licenses. And he urged Congress to pass the Stop Insider Trading Act restricting lawmakers' stock trading.

Trump also blamed Democrats for shutting down the Department of Homeland Security and demanded "the full and immediate restoration of all funding for the border security, homeland security of the United States, and also for helping people clean up their snow."

Here are some other areas related to fiscal policy that Trump touched on:

The economy and affordability: Trump claimed that the U.S. economy "is roaring like never before," incomes are rising fast and his administration is rapidly bringing down high prices caused by Democratic policies. "We are doing really well," he said. "Those prices are plummeting downward."

Voters have made clear that the economy and the cost of living are their top concerns ahead of this year's midterm elections. Trump took the risky route of telling those voters that, whatever hardships they might feel, the economy really is humming along thanks to him. "Trump did not have an 'I feel your pain' moment in this speech," NPR's Domenico Montanaro notes.

Touting his tariffs: Trump credited his tariffs for much of what he called a "stunning economic turnaround," arguing that they had both raised huge sums of money and strengthened his hand in cutting deals with other countries.

He did not attack the Supreme Court justices sitting just feet in front of him for their ruling last week that struck down a sweeping set of his "Liberation Day" global tariffs, but he called the decision "very unfortunate" and promised to pursue other routes to impose the tariffs he wants, claiming that "almost all countries and corporations want to keep the deal that they already made."

"Congressional action will not be necessary," Trump said about enacting new levies.

Then he repeated an essentially impossible claim about the effects of his trade policies: "As time goes by, I believe the tariffs, paid for by foreign countries, will, like in the past, substantially replace the modern-day system of income tax, taking a great financial burden off the people that I love."

The claim that tariffs are paid by foreign countries has been largely refuted by studies that have found American consumers and businesses have borne some 90% of the costs so far.

The notion that tariff revenues might someday replace income taxes is also fanciful at best. The revenue that Trump's tariffs would raise annually falls far short of that generated by income taxes. For fiscal year 2025, for example, the Treasury Department took in more than $2.6 trillion in individual income taxes compared with about $195 billion in customs duties. The Congressional Budget Office had projected that Trump's tariffs in place as of November 20, 2025, would generate roughly $3 trillion in savings over 10 years - nowhere near enough to replace income taxes.

And economists warn that raising tariff rates does not lead to proportional increases in revenue, because the higher tariffs lead consumers and businesses to shift to lower-cost options, limiting how much money increased tariffs may raise over time.

A 'war on fraud': Trump said that Vice President JD Vance will lead a war on fraud, adding that if his administration can find enough fraud, "we will actually have a balanced budget overnight." That's virtually impossible. As CNN's Tami Luhby notes: "The annual budget deficit far exceeds the estimated amount of money the federal government loses to fraud each year."

A 2024 Government Accountability Office estimate cited by Luhby found that the federal government loses between $233 billion and $521 billion to fraud annually. That's a large dollar amount, to be sure, but it's far less than last year's annual deficit of about $1.8 trillion, or the even larger budget gaps projected ahead.

Healthcare and drug prices: The president asked Speaker Mike Johnson and Senate Majority Leader John Thune to "codify" his "most favored nation" agreements with pharmaceutical companies to lower prescription drug prices. "I'm not sure it matters, because it's going to be very hard for somebody that comes along after me to say, let's raise drug prices by 700 or 800%. But, John and Mike, if you don't mind, codify it anyway," he said.

That may not happen, given that the pharmaceutical industry and many Republican lawmakers oppose Trump's price-setting approach.

As for other healthcare reforms, Trump made only a passing mention of the so-called "Great Healthcare Plan" that he unveiled last month, an outline that largely repackaged previous Republican proposals. And he ignored the enhanced Obamacare subsidies that Republicans allowed to expire at the end of 2025, which were at the heart of last fall's shutdown standoff with Democrats.

The bottom line: If it is remembered in future years, Trump's speech will likely be noted for its length, its tributes to the U.S. men's Olympic hockey team and others, and its attacks on Democrats. As this year's elections draw closer, the speech may also be notable - and problematic - for key topics that it did not dwell on: the affordability crisis, the Epstein files, the killings of Renee Good and Alex Pretti, and the great powers competition between the United States and China.

'Tax Nerd' Bets Against DOGE, Wins Big

Elon Musk swept into Washington at the beginning of President Trump's second term promising to cut federal spending by more than $1 trillion through an aggressive assault on the unholy trinity of waste, fraud and abuse. Powered by the latest technology and a nearly superhuman work ethic, the world's richest man aimed to use the newly created Department of Government Efficiency to finally do what conservatives had been trying to accomplish for decades: forge a greatly diminished federal apparatus that cost far less to operate while being more responsive to the immediate demands of political leaders.

While enthusiasm for the project was high, inspiring new congressional committees to aid the effort and big promises about how to use the savings windfall, some observers were skeptical. One skeptic, a tax policy analyst at a conservative-leaning think tank, decided to put his money where his thoughts were by betting big on DOGE's failure - a bet that paid off handsomely.

As The Wall Street Journal's Richard Rubin explains Wednesday, Alan Cole of the Tax Foundation concluded that the reality of basic federal budget math would overwhelm Musk's grand promises. In short, Cole bet that the driving forces behind U.S. spending - an aging population, a massive military, rising interest costs and soaring healthcare spending - were not going to bend to Musk's desire for savings, no matter how good the technology or determined the cost-cutters.

"From Cole's perspective, even if Musk cut government contracts and shrank the federal workforce-which he did-he couldn't meaningfully dent Social Security and Medicare benefits," Rubin writes. "And that left no plausible path for cutting overall federal spending."

Using Kalshi, which allows users to wager on the outcomes of real-world events, Cole jumped into a $12 million prediction market that focused on federal spending levels, betting that annual spending would not fall by more than $50 billion. He was so sure of his position that he put most of his savings - a total of $342,195.63 - on the line.

The final spending figures for the federal government were published last week, and as anyone who follows fiscal news generally - and tracked the fate of DOGE specifically - knows, Cole won easily, with federal spending continuing to rise each quarter. Cole's profit on the bet was a bit more than $128,000.

Jessica Riedl, a budget expert at the Brookings Institution who discussed the bet with Cole, said she was not surprised that he won. "It should have been completely obvious to anyone who knows anything about the government, the budget and public administration," she said.

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