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President-elect Donald Trump has vowed across-the-board tariffs on a scale that hasn’t happened in the U.S. in more than 50 years. The Congressional Budget Office recently estimated that such tariffs would shrink the budget deficit, but also reduce economic output.
Donald Trump made tariffs a centerpiece of is successful presidential campaign, and the Congressional Budget Office recently estimated they could shrink the budget deficit—as well as the economy in the process.
On the social-media platform X on Thursday, the president-elect commented on a post from venture capitalist Marc Andreessen on tariffs as a share of federal revenue from the late 1700s to today.
“The Tariffs, and Tariffs alone, created this vast wealth for our Country,” Trump wrote. “Then we switched over to Income Tax. We were never so wealthy as during this period. Tariffs will pay off our debt and, MAKE AMERICA WEALTHY AGAIN!”
The federal government relied on tariff revenue when its role in society was relatively minuscule compared to today. But that changed over hundreds of years. The first federal income tax was imposed during the Civil War as the Union mobilized a vast army.
In the first half the 20th century, when the U.S. fought two world wars and emerged as a global superpower, reliance on income taxes soared while tariff revenue became less important.
In the latter half of the 20th century, the U.S. pushed for freer trade and lower tariffs around the world. Meanwhile, the social safety net grew, requiring payroll taxes to finance programs like Social Security and Medicare.
But amid a backlash against free trade in the 21st century, Trump imposed targeted tariffs on China during his first term, which President Joe Biden continued. On the campaign trail in 2024, Trump promised even more, vowing to impose duties of 10%-20% across the board while singling out China with duties of up to 60%.
Tariffs on that scale haven’t happened in the U.S. in more than 50 years. Top CEOs have already warned that tariffs would translate to price hikes for consumers. And bond yields have surged as the prospect of stickier inflation prevents the Federal Reserve from lowering rates faster.
With businesses and policymakers bracing for tariffs, Senate Democrats asked the Congressional Budget Office to forecast their impacts. Last month, the CBO responded with an analysis on their budgetary, economic, and distributional effects.
For the purposes of its forecast, the CBO assumed a uniform tariff of 10% and a China tariff of 60%. It estimated that the increase in revenue would help shrink the federal budget deficit by $2.7 trillion from fiscal years 2025 to 2034, after accounting for economic impacts and retaliation from trade partners.