NEED TO KNOW

• The Supreme Court's IEEPA ruling will add $2 trillion to federal deficits over the next decade, the CBO now estimates
• The White House was counting on $300 billion a year in tariff revenue to fund tax cuts and debt reduction, math that didn't work before the ruling either
• Bessent says replacement tariffs restore the revenue within five months; independent analysts say the gap runs to at least $700 billion

WASHINGTON, DC (TDR) — For more than a year, President Donald Trump and his economic team told Americans that tariffs would pay for everything: the tax cuts, the debt, the rebate checks. Then, on Feb. 20, the Supreme Court ruled that the administration's primary tariff authority, the International Emergency Economic Powers Act, was being used unlawfully. The revenue machine the White House built its fiscal blueprint around was switched off in a single ruling. The Congressional Budget Office has now put a price tag on the silence: $2 trillion.

What the CBO Found

The nonpartisan budget office released its damage assessment Thursday. CBO Director Phillip Swagel reported that the termination of IEEPA tariffs will produce primary deficits (not accounting for broader economic effects) that are $1.6 trillion larger over the 2026-2036 period than they were in last month's baseline projections. Because less revenue means more borrowing, the CBO estimates an additional $400 billion in debt-service costs over the same period, on top of net interest costs already projected to exceed $2.1 trillion a year by 2036.

The combined figure: deficits that are $2 trillion deeper over a decade than what the government was counting on just weeks ago. The Committee for a Responsible Federal Budget put the number slightly higher, up to $2.4 trillion if refunds of already-collected duties are included, and projected national debt would reach 125% of GDP, or roughly $58 trillion, by 2036.

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There is one genuine upside in the CBO's accounting. Swagel noted that removing the tariffs dampens the inflationary and economic drag the CBO had previously built into its models. Lower levies ease pressure on business investment, consumer prices and employment.

"In the most recent outlook, we projected that changes in trade policy since January 2025 would temporarily raise the rate of inflation, reduce real investment, lower the level of real gross domestic product, and reduce employment. The termination of IEEPA tariffs dampens those effects." — CBO Director Phillip Swagel

The Revenue That Was Never Really There

The fiscal stakes are this large because the One Big Beautiful Bill Act, the Trump administration's sweeping tax and spending package, was structured around the assumption that tariff revenue would offset its cost. The CBO estimated that legislation would increase the deficit by roughly $4.1 trillion over a decade. The IEEPA tariffs were expected to generate nearly $3 trillion over the same window to help absorb that hit.

But independent analysts had been warning the arithmetic was shaky long before the court acted. Even with elevated tariff revenue of approximately $120 billion in fiscal year 2025 from Trump's new levies, the federal deficit remained essentially unchanged from 2024. The revenue was real. It just wasn't remotely close to the scale the White House was projecting.

Rep. Richard Neal (D-MA), the top Democrat on the House Ways and Means Committee, put it plainly.

"They were counting on that revenue. So I think that's really problematic. The numbers never added up, and now they're further complicated." — Rep. Richard Neal (D-MA)

Sen. Elizabeth Warren (D-MA) went further, arguing the tariff strategy was always designed to subsidize tax relief for wealthy interests.

"It never made any sense for the Republicans to count on keeping that money, but they did it because they were determined to pass through tax breaks for billionaires and lie to the American people about how they were going to pay for it." — Sen. Elizabeth Warren (D-MA)

Bessent's Replacement Plan and Its Limits

Treasury Secretary Scott Bessent has not conceded fiscal ground. Speaking before the Economic Club of Dallas on Feb. 20, the same day the ruling came down, Bessent said new tariffs under Section 122 of the Trade Act of 1974, combined with expanded use of Section 232 (national security) and Section 301 (unfair trade practices), would produce "virtually unchanged tariff revenue in 2026." On CNBC this week, he went further, predicting tariff rates would return to their pre-ruling levels within five months.

"It's my strong belief that the tariff rates will be back to their old rate within five months." — Treasury Secretary Scott Bessent

The Section 122 tariff now in effect, currently 10% with Trump signaling a move to 15%, carries a statutory 150-day limit unless Congress grants an extension. The CRFB calculated it will generate roughly $35 billion at 10% over that window, or $50 billion at 15%. Even if extended or replicated through other authorities at 15%, the 10-year revenue projection tops out at $1.3 trillion, leaving a gap of roughly $700 billion against the $2 trillion hole the ruling opened.

Senate Minority Leader Chuck Schumer (D-NY) pledged to fight any replacement tariffs on the same grounds as the original ones.

"He is imposing new tariffs that will still raise people's costs and they will hurt the American people as much as his old tariffs did." — Sen. Chuck Schumer (D-NY)

Who Actually Pays

The political argument over tariff revenue tends to obscure a more concrete question of incidence: who actually bears the cost. Trump has consistently described tariffs as payments from foreign countries. Economists and the CBO have consistently described them as taxes on U.S. importers, with costs typically passed through to American businesses and consumers.

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The Cato Institute calculated that the $175 billion in IEEPA duties sitting in Treasury, collected before the ruling, is now accruing interest that must ultimately be paid by American taxpayers, at roughly $700 million per month across 130 million taxpaying households. Goldman Sachs economists estimated that existing tariffs added approximately 0.7% to consumer price inflation over 10 months, and warned that companies are unlikely to lower prices at the same rate they raised them, regardless of what happens to tariff policy.

The CRFB has called on Congress to move quickly, urging lawmakers to "enact revenue or offsets sufficient to fully replace lost IEEPA revenue" and codify any replacements in law. Whether a Republican-led Congress has either the tools or the appetite to close a $2 trillion gap, while simultaneously defending the tax cuts the tariff revenue was supposed to fund, is a question the CBO report has made impossible to defer.

If the administration's replacement tariff strategy falls hundreds of billions short of what the ruling erased, which gets cut first: the tax benefits already written into law, or the spending programs that were never fully funded to begin with?

Sources

This report was compiled using information from the Congressional Budget Office's tariff ruling analysis, the Committee for a Responsible Federal Budget, Fortune's CBO coverage, Roll Call, CNBC, the Boston Globe, Marketplace, and Fortune's national debt analysis.

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