The Congressional Budget Office (CBO) today released an analysis of the impact of tariffs implemented by executive action earlier this year. Key findings include:
If left in place, tariffs implemented by executive action will raise taxes by $2.5 trillion over the next 10 years. Measured in real dollars, this is the biggest tax increase since World War II ended. On average, the tariffs are equal to a $158 per month tax on U.S. households. For comparison, this tariff increase is almost 70% larger than the $1.456 trillion 10-year tax cut provided by the 2017 Tax Cuts and Jobs Act.
Tariffs and foreign retaliation will reduce investment, productivity, and real economic output. By 2035, the level of U.S. real GDP will be 0.6% lower than it was in CBO’s January 2025 forecast.
Tariffs will cause inflation to increase by an annual average of 0.4 percentage points in 2025 and 2026, reducing Americans’ purchasing power.
After accounting for the direct revenue impact of tariffs, potential reductions in federal interest payments, and reduced economic activity, CBO estimates that federal budget deficits will be reduced by $2.8 trillion over the next 10 years.
CBO will continue to evaluate the distributional impact of tariffs. At this time, it concludes that tariffs will increase prices for households across all income groups.
CBO notes the challenge of providing accurate estimates, since there have been no comparable tariff increases of this magnitude in recent years to use for comparison purposes. The actual cost will depend on factors including whether tariffs remain in place on an ongoing basis and how consumers and businesses respond to them. And it is not clear whether the CBO’s economic model fully accounts for changes such as the impact on U.S. borrowing costs if our trading partners respond to tariffs by reducing purchases of Treasury securities.
But CBO’s underlying logic is clear. While it may be tempting to look to tariffs as a magic bullet to reduce deficits, these estimates provide a timely reminder that tariffs are a costly way to raise revenue. The federal government should address budget deficits by controlling spending and adopting pro-growth economic policies, not by imposing tariffs or other policies that will make Americans poorer.