President Donald Trump’s signature tax cuts, touted as a boon to American households, are increasingly being offset by the economic drag of his administration’s widespread tariffs, according to a growing body of analysis. While the “One Big, Beautiful Bill Act” (OBBBA) aims to make expiring tax provisions permanent, the benefits are being eroded by a tariff burden that is expected to reach levels of $1,300 per household.
The Tax Foundation estimates that the OBBBA will reduce individual taxes by $129 billion, with up to $100 billion potentially returning to taxpayers as refunds, adding as much as $1,000 to average returns compared to the previous year. However, this potential relief is largely negated by the tariffs, which the same organization now calculates at an average of $1,000 per household in , rising to $1,300 in .
“Tariffs are really holding back the potential of the new tax law, both to deliver relief to taxpayers and to grow the economy,” explains Erica York, vice president of federal tax policy at the Tax Foundation. “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.”
The impact of these tariffs isn’t solely felt through higher prices at the consumer level. While data from the Kiel Institute for the World Economy indicates that 96% of the tariff burden falls on U.S. Importers and consumers, the effects are also manifesting in slower wage growth and reduced hiring. Importers are absorbing some of the costs, but What we have is translating into constrained investment and a dampening effect on overall economic expansion.
The OBBBA, despite being heralded by the Trump administration as the “largest tax cut in American history,” is proving to be unevenly distributed. The benefits are concentrated among specific income groups, such as those earning income through tips, overtime, or seniors, while those with standard W-2 income are seeing comparatively smaller reductions. The bill raises the cap for the state and local tax deduction to $40,000, offering relief to the middle class, but a significant portion of the population, particularly those in the bottom 20% of households, will see little to no benefit as they do not pay income taxes.
The Tax Foundation estimates that tariffs will generate $1.9 trillion in revenue between and , while the OBBBA is projected to reduce revenue by $4.1 trillion over the same period. Altogether, tariffs are estimated to offset nearly two-thirds of the long-run economic effect of the OBBBA, while covering less than half of its cost.
A recent study by the Cato Institute found that the top earners are gaining significantly more from the tax cuts than those with the lowest incomes. The Yale University Budget Lab estimates that the bottom 10% of households will experience a 7% reduction in income, while those at the top will see a 1.5% increase. This disparity underscores the K-shaped economic recovery, where higher earners are benefiting disproportionately while lower-income households struggle.
The situation is further complicated by the ongoing Supreme Court case regarding the constitutionality of President Trump’s use of emergency powers under the International Emergency Economic Powers Act (IEEPA) to impose tariffs. While the Court has repeatedly delayed its ruling, analysts anticipate a decision against the administration. A potential outcome is an order to refund all collected tariff revenue, which would primarily benefit importers, even those who passed the costs onto consumers.
Despite the potential for a Supreme Court ruling to temporarily alleviate the tariff burden, the administration has signaled its intention to implement new tariffs through alternative legal avenues if necessary. The administration maintains that it can impose tariffs if an import is deemed a national security threat or if trade practices are found to harm U.S. Businesses. York suggests that any relief would be short-lived, with the administration likely to pivot to new tariffs imposed under different justifications.
“If the tariffs were out of the picture, it would be real relief for American workers and businesses,” York 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.”
On , the House of Representatives voted to strike down tariffs against Canada and end the national emergency declaration used to justify them, in a vote of 219-211. However, this measure is unlikely to become law without President Trump’s signature, making it largely symbolic.
