Washington (AP) — The One Big Beautiful Bill Act proposed by President Donald Trump is stirring significant debate in economic circles, particularly concerning its potential impact on the federal budget.
Recently, the Congressional Budget Office (CBO) released an analysis indicating that the Act could contribute an alarming $2.4 trillion to federal budget deficits over the next decade. This is primarily due to the proposed tax cuts, which would be more rapid in draining government revenues than the savings garnered through spending cuts.
To offset this budgetary impact, President Trump suggests implementing sweeping import taxes or tariffs. These tariffs, which he has been promoting, include reciprocal levies of up to 50% on countries with which the United States maintains a trade deficit. If successfully executed, his tariffs could potentially reduce the federal budget deficits by $2.5 trillion over the same period, effectively balancing the budget consequences of his tax cuts.
However, the reality of relying on tariffs as a primary revenue source for government funding is fraught with complications.
Economists and budget analysts express skepticism about the long-term viability of using tariffs to finance a significant portion of the federal government. Kent Smetters, a professor at the University of Pennsylvania’s Penn Wharton Budget Model and former official in President George W. Bush’s Treasury Department, cautions that this method of raising revenue is dangerously unstable.
President Trump has long touted tariffs as a cure-all for multiple economic woes, claiming they can rejuvenate American industries and generate significant government revenue. He has even posited the idea of replacing federal income tax entirely with tariffs, stating, “It’s possible we’ll do a complete tax cut.’”
Despite Trump’s optimism, experts like Erica York, the Tax Foundation’s vice president of federal tax policy, disagree vehemently with the notion of financing government budgets through tariffs. She referred to it as “a really bad trade” and “the dumbest tax reform you could design.”
One of the major concerns with these tariffs is their unstable nature as a revenue source. President Trump instituted his largest import tax increases through executive orders, bypassing Congress. This opens the door for future administrations to revoke these tariffs at will.
York elaborated on this risk, stating that future political changes could erase the unilateral power granted to the president to impose such significant tariffs. Additionally, ongoing legal challenges could further undermine the tariff framework. For example, a federal court in New York has already invalidated a cornerstone of Trump’s tariff program, indicating that he may have exceeded his authority. Although an appellate court allowed the government to continue collecting these tariffs during the legal process, the uncertainty remains.
Tariffs pose additional economic challenges as they function effectively as a tax on foreign goods, with costs shifted onto American consumers. Domestic importers are affected too, as they face increased expenses due to tariffs on raw materials and components that they rely on. This could reduce their competitiveness against foreign counterparts who are not subjected to such taxes.
Retaliation from foreign markets also complicates this issue, as many countries may respond with their own taxes on U.S. exports, further straining American manufacturers. York pointed out, “You’re not just getting the effect of a tax on the U.S. economy; you’re also getting the effect of foreign taxes on U.S. exports.”
Through careful analysis, economists have concluded that tariffs risk nullifying the anticipated benefits from the proposed tax cuts within the One Big Beautiful Bill. Smetters indicated that this protectionist stance could result in detrimental long-term impacts, as it isolates the U.S economically and lowers foreign investments.
Currently, about 30% of the federal government’s debt is held by foreign investors who view U.S. Treasurys as a safe investment. If foreign investors scale back their holdings due to tariffs, the government might need to increase interest rates on Treasury debt to entice domestic investors, thereby increasing borrowing costs and significantly affecting economic growth.
Smetters remarked that tariffs stand out as one of the most economically destructive taxes available, estimating they could impose costs on economic growth and wages more than double that of corporate income tax.
Another significant factor is the uneven burden that tariffs impose on the population, particularly the lower-income households. Tariffs become a tax on consumers, which disproportionately affects lower-income groups that spend a higher percentage of their earnings compared to wealthier individuals.
The One Big Beautiful Bill could exacerbate the plight of the poorest Americans even further, as it includes deep cuts to government programs such as Medicaid and food assistance. A report from the Penn Wharton Budget Model suggested that the lowest quintile of American households earning less than $17,000 could see their incomes decline by $820 annually, while the richest 0.1% with incomes above $4.3 million would enjoy a windfall of $390,070 by 2026.
York emphasized that layering regressive taxes like tariffs onto existing cuts eminently worsens conditions for low-to-middle-income households.
In conclusion, experts overwhelmingly agree that tariffs are an unreliable means of raising revenue, laden with legal, political, and economic risks. Their implementations could lead to significant economic harm, making them an inefficient alternative to traditional revenue streams.
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