The legality of the Trump administration’s tariff regime is currently under review, with the US Supreme Court set to rule on whether the use of the International Emergency Economic Powers Act of 1977 (IEEPA) to impose worldwide tariffs was lawful.
The administration has argued that striking down the IEEPA tariffs would cause “financial ruin,” threatening vital programs like Social Security and Medicare due to resulting refunds and lost revenue. However, a closer look at the numbers shows that the IEEPA tariff revenue is not a decisive factor in the federal government’s challenging long-term fiscal situation.
Fiscal Impact of IEEPA Tariffs
While eliminating the tariffs would certainly have a negative impact, its scale is modest relative to the overall fiscal picture:
- Conventional Revenue: If the IEEPA tariffs remain in effect from 2025 to 2035, they are estimated to raise about $2.0 trillion on a conventional basis.
- Dynamic Revenue: This conventional estimate is significantly reduced when factoring in the tariffs’ negative economic impact. The IEEPA tariffs are projected to shrink the US economy by about 0.7 percent in the long run, thereby lowering income and payroll tax collections. When this dynamic effect is included, the tariffs would only raise $1.2 trillion over the 2025-2035 period. (These figures exclude revenue from Section 232 tariffs).
IEEPA Revenue vs. Total Federal Income
To put the dynamic revenue ($1.2 trillion) into context, consider the broader federal revenue projections for 2025-2035:
- The Congressional Budget Office (CBO) initially projected $73.5 trillion in revenue.
- After accounting for the One Big Beautiful Bill Act (OBBBA), this estimate drops to about $70.2 trillion.
- Collecting the IEEPA tariff revenue would raise the total to $71.4 trillion.
This means that the IEEPA tariffs would only account for roughly a 1.7 percent increase in federal revenue over the 10-year period.
Minor Effect on Debt-to-GDP Trajectory
Even if the tariffs are upheld, they do little to change the unsustainable upward trajectory of the federal debt.
- 2035 Projection: The dynamic federal debt-to-GDP ratio (debt held by the public) is already projected to be 126.6 percent after the OBBBA. Fully collecting the IEEPA tariff revenue would only reduce this to 124.1 percent.
- Long-Term Projection (30 Years): Post-OBBBA, the debt-to-GDP ratio is projected to hit 171.5 percent. Fully collecting the IEEPA tariff revenue over the 30-year span (2025-2054) would only lower this figure by less than 7.5 percentage points, bringing it to 164.1 percent.
In any scenario, publicly held debt is set to surpass the all-time high of 106 percent of GDP within the next few years.
Ultimately, the potential “financial ruin” the administration warns of is driven by the massive, structural gap between projected entitlement spending and overall federal revenue, a problem that dwarfs the revenue generated or lost by the IEEPA tariffs. The US fiscal path is unsustainable regardless of the Supreme Court’s ruling on the tariffs.