The Supreme Court’s tariff decision creates two revenue problems for President Donald Trump. The more obvious one has commanded most of the attention: Trump has to give back more than $175 billion in revenue already collected through the insta-tariffs he imposed, illegally, under the 1977 International Emergency Economic Powers Act, or IEEPA. But that’s the lesser of his two problems. The much bigger one is that Trump just lost $1.4 trillion in projected tariff revenue over the next decade. The only rational solution is to repeal at least some of last year’s “big, beautiful” reconciliation bill.
If it were up to me, I’d repeal the whole thing. The reconciliation bill included $4.5 trillion of tax cuts over the next 10 years, most of which benefited the top 10 percent in income distribution (that is, households earning, roughly, more than $200,000). The Democrats pander to the lower tiers of the top 10 percent by calling them middle class, but that crowd is better described as affluent, and it can afford to pay higher taxes. Still, if pander we must, let’s repeal, as President Joe Biden once proposed, Trump’s 2017 tax cut—the extension of which was the guts of Trump’s One Big Beautiful Bill Act, though Trump added other goodies for the rich—for everybody earning more than $400,000. And, of course, apply the same template to Trump’s 2025 add-ons.
Budget nerds may quibble that the 2025 reconciliation bill added “only” $3.4 trillion to the deficit because the $4.5 trillion in tax cuts was offset by about $1 trillion in budget cuts to Medicaid, food stamps, and student loans. But since these budget cuts are barbaric, we should repeal them too (after Democrats leverage the fact of their barbarism to win back the House and maybe the Senate in the midterms).
The Supreme Court ruling acknowledged what was self-evident: Trump had not a whisker of legal authority to impose the IEEPA tariffs, by which he gave himself power of the purse. Even two of Trump’s three appointees to the Supreme Court could see that the word “tariff” appears nowhere in IEEPA. But striking down those tariffs does not come free. Add $1.4 trillion in lost tariff revenue over 10 years to $4.5 trillion in lost tax revenue over the same period, and the combined cost of ushering Trump back into the Oval Office approaches $6 trillion. (And that’s just the monetary cost.)
Treasury bond yields were already elevated (that’s bad) thanks to Trump’s projected not-quite-doubling the current budget deficit, estimated most recently by the Congressional Budget Office at $1.9 trillion. (All budget figures thus far are from CBO.) After Friday’s Supreme Court decision, bond yields rose higher because now Trump is projected to triple the current budget deficit.
The only reason the bond market didn’t go completely bonkers Friday was that we don’t yet know how much of the lost $1.4 trillion Trump can recoup by reimposing tariffs under different statutes. We also don’t know how the $175 billion in tariff revenue already collected under IEEPA will get refunded. But let’s set that aside because figuring that out will likely require years of litigation, and anyway, $175 billion is a lot less than $1.4 trillion.
Trump would have us believe that he’s recouped much of the lost $1.4 trillion already by reimposing his 10 percent tariff on all countries (the signature tariff of his April 2 “Liberation Day” announcement), simply by substituting for IEEPA section 122 of the Trade Act of 1974. The new tariff takes effect on February 24. On Friday, Trump said the tariff would be 10 percent. On Saturday, in a childish fit of pique, Trump said on Truth Social that he’d raise the global tariff to 15 percent, the maximum permitted under section 122. This gesture amounted to punishing foreign nations for the actions of American jurists. Whatever.
But one problem with using section 122 is that it allows Trump to impose tariffs unilaterally only for a period of 150 days, or about five months. After that, Congress must approve the tariff. Even with a Republican majority, winning such a vote appears doubtful because Trump’s tariffs aren’t popular. (A Washington Post/Ipsos poll in mid-February showed 65 percent disapproved of them.) The Supreme Court ruling Trump’s IEEPA tariffs illegal will weaken his standing with congressional Republicans, some of whom are beginning to distance themselves already.
Furthermore, it’s pretty likely some court will conclude that Trump’s use of section 122 is illegal too. No president ever invoked it before, and now Trump is invoking it against every other country on Planet Earth. The statutory language says section 122 authority can be used only against nations with whom the United States has a “large and serious” balance-of-payments imbalance—that is to say, a serious trade deficit. The United States has a plausibly “large and serious” trade deficit overall—one that’s lately gone up, ironically, not down (and was essentially unchanged in 2025 from 2024). But the United States does not have a “large and serious” trade deficit with every country in the whole world. Indeed, with a little more than half of them we have a trade surplus, and even where we have trade deficits only about half a dozen of these are plausibly “large and serious.” That makes Trump’s blunderbuss 10 percent–15 percent new tariff look pretty illegal to me, at least as imposed on 187 out of the 193 countries on which he’s slapped it.
Trump’s best bet using section 122 tariffs is that the courts won’t move fast enough to render an adverse judgment within five months (or, should any judge impose a swift injunction, that the Supreme Court will overturn it pending appeal, as is its craven habit). But what to do after five months?
Trump can use that time to ready a tariff under a different section of that same Trade Act of 1974, section 301, which Trump has used many times against China. Indeed, U.S. Trade Representative Jamieson Greer said Friday he’s beginning a whole slew of 301 actions. But section 301 requires an investigation and hearings, and all that takes longer than five months—typically six months to a year. Multiply six months to a year times 193 countries, and you’ve going to have a serious problem meeting a five-month deadline. A third option, section 232 of the Trade Expansion Act of 1962, poses the same difficulty.
So yes, that $1.4 trillion hole in the deficit isn’t going away. If politics dictates that we follow Biden’s lead and protect from any tax increase the haut bourgeois earning less than $400,000, that will about cut in half the savings from repealing the “big, beautiful” tax cut. So instead of increasing the deficit by $4.5 trillion, we’d increase the deficit by maybe $2.7 trillion. Add $1.4 trillion in lost tariff revenue, and you get a $4.1 trillion deficit in 10 years. Which isn’t great, either, but it’s better than $6 trillion. Maybe our next Democratic president can find a way to tax the superrich, as Biden tried (and mostly failed) to achieve.
I don’t expect to see Democrats race to embrace my proposal, even in its toned-down Biden-y form, while they lack a congressional majority and are campaigning for the midterms. This is something for them to consider after the midterms. And of course, I don’t expect the Republicans to embrace any tax increase, ever. But the bond market may not leave them any choice. A $6 trillion deficit is not a pretty prospect. And with any luck, Republicans will wield a lot less influence over policymaking in the next calendar year.
