Trump’s Tariff Windfall Ignites Debate Over Spending

August 5, 2025 1

Billions are set to pour in from Trump’s tariffs. The question now: How should the government spend it?

There’s a new battle emerging over President Donald Trump’s sweeping tariffs, many of which could finally take effect this week: How to spend the billions the new duties are pouring into federal coffers.

As of the end of July, the United States has pulled in more than $150 billion this year from all “Customs and Certain Excise Taxes,” according to the Treasury Department’s “Daily Statement.”
The Yale University Budget Lab predicts that, if all of Trump’s announced tariffs stick, they will generate $2.7 trillion through 2035, $2.3 trillion after “negative dynamic revenue effects.”
“Tariffs are bringing Billions of Dollars into the USA!” the president said Friday after the release of disappointing official jobs figures.

Yes, there’s something a little obvious about headlines that effectively say “tax increase increases tax revenues.” Tariffs are import duties paid by importers and often ultimately passed along to consumers. They are not, contra Trump, generally paid by foreign countries.

It’s not the $2.4 trillion the government took in from personal income taxes just in 2024. But it’s not play money, either.

The Tax Trump Doesn’t Call a Tax

Trump has suggested tariff income could replace the income tax.

“There is a chance that the money from tariffs could be so great that it would replace” the income tax, Trump told Fox on April 15.

That’s at best a long shot. In fiscal year 2025 to date, the federal government has taken in more than $2 trillion from individual income taxes, according to the Treasury Department.

But that agency also pays lip service to Trump’s aspirations, noting on its website that “from 1868 until 1913, 90% of all federal revenue came from taxes on liquor, beer, wine and tobacco.”

Shifting from taxing income to taxing goods would disproportionately hurt lower-income Americans, who spend a greater share of their income on products, while helping Americans who make the most money.

How About a Rebate?

“The big thing we want to do is pay down debt, but we’re thinking about a rebate,” Trump told reporters in late July. “We have so much money coming in from tariffs that a little rebate for people of a certain income level might be really nice.”

The president recently signed a law, colloquially dubbed the Big Beautiful Bill comprising the bulk of his legislative agenda. It’s expected to add at least $3.4 trillion to the national debt.

Republican Sen. Josh Hawley of Missouri recently introduced a bill that would give taxpayers a $600 tax rebate, plus $600 for each dependent child. But it, too, is a long shot amid bipartisan concerns about the country’s approximately $36 trillion debt.

…or Debt Relief?

Despite Trump’s words, it remains to be seen whether there will be a determined effort to direct the tariff revenues to paying down what the United States owes.

“There could be a distribution for dividend to the people of our country,” the president said over the weekend. “I would say for people that would be middle income people and lower income people. We could do a dividend. But one of the things we’re going to be doing is reducing debt.”

Taxing Challenges

There are challenges to any approach to using tariffs as revenue generators.

Consumers and import-dependent manufacturers may change their spending patterns to avoid those duties, generating less revenue. (This is, in fact, a goal of Trump’s trade policy: Getting more things made in the United States with U.S. inputs.)

Because tariffs are expected to ultimately raise consumer prices, there could also be a broad backlash that makes repeal politically popular. But we should note that former President Joe Biden kept most of the import duties from Trump’s first term.

We could still be in for a tariff-ic fight over how to use the money.

Source: https://www.usnews.com/news/u-s-news-decision-points/articles/2025-08-04/trumps-tariff-windfall-ignites-debate-over-spending

Written by: Joshua Stuart

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