President Donald Trump has touted his tax cuts as a major step toward ending the affordability crisis, but a wider analysis of his economic policy reveals that the refunds will likely not offset the burden of tariffs on American households.
“Tariffs are really holding back the potential of the new tax law, both to deliver relief to taxpayers and to grow the economy,” Erica York, vice president of federal tax policy at the Tax Foundation, told Fortune. “The negative impact on investment and on work from the tariffs will really undercut some of the provisions in the new tax law that were designed to boost the economy.”
York says importers are eating some of the cost, but the tariff burden is still being experienced through less hiring and lower wage increases.
“It’s still Americans who are paying the burden, they’re just paying it through less income growth instead of through higher prices,” York said. She explained that businesses will likely change their choice to take on or pass on tariff costs in the future, but the overall long-term effect will be lower after-tax income.
“The new tax cuts will give you relief if you make your income in a certain way, like through tips or overtime, or if you’re a senior, but if you just have regular W-2 income, your tax cut isn’t going to be that large,” she said.
One potential ruling is the court orders the Trump administration to refund all the collected revenue. About three-fourths of the tariff costs would be refunded to importers, even if they passed the costs onto consumers, York said.
The Trump administration has promised to start implementing new tariffs “the next day” if the Supreme Court rules against the use of emergency powers.
York explained that the administration’s options for imposing tariffs would be more limited. However, if an import is deemed to be a national security threat or an investigation finds that a country’s trade practices hurt U.S. businesses, the administration could impose more tariffs. Don’t expect long-term changes, she advised.
“If the tariffs were out of the picture, it would be real relief for American workers and businesses,” she said. “But long-term relief isn’t really on the table right now. It’s a short-term reprieve, and then it’s going to be a pivot to more tariffs in another way.”
