Tariff rebate checks may sound awesome but they could be ‘quite dangerous'

Yahoo

6 days ago

President Donald Trump's sweeping tariff regime is generating so much revenue for the federal government that Washington could eventually return some of that windfall to taxpayers.
Even though Trump's historically high tariffs were designed to revive American manufacturing and to help chip away at the national debt, the president sounds open to using tariffs for another purpose: rebate checks.
'We're taking in so much money that we may very well make a dividend to the people of America,' Trump said Tuesday.
Although discussions on rebate checks are preliminary and nothing is imminent, it's easy to see how this idea could be quite popular among voters.
After all, who doesn't like getting a check from Uncle Sam?
These rebate checks could be a lifeline for people struggling to make ends meet, while simultaneously easing lingering frustration among voters about the high cost of living.
Sen. Josh Hawley proposed a bill last week, the American Worker Rebate Act, that would use tariff revenue to send rebate checks of at least $600 per adult and dependent child. A family of four could end up with at least $2,400 in money from the federal government.
But tariff rebate checks, if they become reality, could backfire by intensifying the price hikes caused by tariffs, economists tell CNN.
'Doing stimulus checks might fuel inflation – at a point where tariffs are already inflationary. This just risks making the problem worse,' said Stephanie Roth, chief economist at Wolfe Research. 'It could become quite dangerous.'
Tariff revenue spikes
Of course, it's hard to know exactly how this would play out. Much would depend on the details of the tariff rebate program and the state of the broader economy.
History shows that Americans tend to quickly spend much, or all, of their stimulus checks. Such spending would boost demand – without solving any of the supply problems gripping an economy grappling with an aging population, an immigration crackdown and the trade war.
'You could end up with shortages of certain goods. It risks becoming very inflationary,' Roth said.
But the White House has been celebrating the fact that the federal government is raking in massive amounts of tariff revenue, and rebate checks could help turn around voters' sentiment about tariffs, which is deep under water.
In July alone, the United States collected almost $30 billion in tariff revenue – 242% more than the same month last year, according to the Treasury Department.
Since April, tariff revenue has totaled about $200 billion – triple the same period of 2024.
Normally, direct payments to Americans are reserved for break-the-glass emergencies. Think: Stimulus checks sent out during the Covid-19 pandemic, the Great Recession and following the Sept. 11 terror attacks.
Trump slammed President Joe Biden and Vice President Kamala Harris in 2024 for enacting a stimulus package that 'caused the worst inflation in American history.' (Inflation spiked to a four-decade high in 2022 for a variety of reasons, though some economists do say excessive stimulus contributed.)
By contrast, there is no economic emergency today that would justify stimulus checks.
Although cracks are emerging in the job market and economists are using the dreaded r-word again ('recession'), the unemployment rate remains low at 4.2%. Foreclosures are not skyrocketing. And the US stock market is at or near all-time highs.
'From a political standpoint, it may be clever. But stimulus checks in a full employment economy is like dessert before eating your spinach,' said David Kelly, chief global strategist at JPMorgan Asset Management. 'We're running out of workers. If you give consumers more money to spend, it will just give you higher prices.'
Some economists and Trump officials argue that tariffs will only be a one-time boost to the level of US prices.
However, layering rebate check on top of tariffs risks causing a more widespread and lasting inflation increase, according to David Kotok, co-founder of Cumberland Advisors.
'That is a very serious risk. And if you do it as the workforce is shrinking, which is what we have now, then you risk triggering a wage-price spiral,' Kotok said.
That's why tariff rebates would further complicate the already difficult task facing the Federal Reserve.
Fed officials are already struggling to decide whether to cut rates in a bid to shore up the job market or stay on the sidelines in case inflation continues to heat up.
Hawley: Give money back to blue-collar workers
Asked about concerns tariff rebate checks will fan inflation, a White House official told CNN that tariffs are 'bringing in historic revenue for the federal government.'
The White House official echoed Trump's remarks that rebates are still being considered, but stressed that no formal policy has been unveiled and discussion of how rebates would impact inflation is speculative.
Still, the Hawley bill, introduced last week, would amount to a significant cash injection for families.
'These tariffs are raising incredible amounts of money,' Hawley told Steve Bannon's War Room last week. 'My view is: we ought to give a portion of that back to our working class, blue-collar voters who powered the Trump revolution, who got this president into office multiple times and who are the backbone of this nation.'
The Hawley bill allows for even bigger rebate checks to get delivered if tariff revenue surpasses forecasts.
The legislation is aimed at boosting lower and middle-income Americans, with a phase out for higher-income earners. The size of the rebate would shrink by 5% of adjusted gross income above $150,000 for joint filers. That reduction would start at $112,500 for heads of household and $75,000 for individuals.
'Pandering at its lowest form'
Many Americans could use the cash injection.
Just over half (53%) of Americans say the cost of groceries is a major source of stress, according to a poll released this week by The Associated Press-NORC Center for Public Affairs Research. Another 33% say the cost of groceries is a minor source of stress.
'It's disconcerting to watch those prices go up. I notice it every time I go to the grocery store,' said David Mitchel, a marketing manager who lives in Dallas.
Mitchel said he's unsure if he'd support tariff rebate checks, adding that he's more focused on 'sustainable policy' than short-term fixes.
Douglas Holtz-Eakin, president of center-right think tank American Action Forum, told CNN that tariff rebate checks amount to 'pandering at its lowest form.'
'What's the point? To spend more than the tariffs are bringing in and to buy votes?' asked Holtz-Eakin, who served as an economic adviser to President George W. Bush. 'If you have a high-price problem, you need more supply. Subsidizing demand only makes the problem worse.'
What about the national debt?
Consumer goods are the leading source of tariff revenue, accounting for $9.8 billion, or 13.5%, of the tariff revenue collected in May, according to research from Peterson Institute for International Economics.
Although Trump likes to brag about the billions of dollars tariffs are 'bringing in,' this revenue is not coming from overseas. It's being paid by US importers to the federal government, padding the general fund the Treasury Department uses to pay Washington's bills.
Some companies are opting to pass along at least some of the cost of tariffs to consumers in the form of higher prices.
Procter & Gamble, Nike, Walmart, Adidas, Ford and a series of major companies have said they plan to or have already hiked prices because of tariffs.
'Collecting a tax and then handing it back to taxpayers makes no policy sense,' said Kimberly Clausing, nonresident senior fellow at the Peterson Institute. 'It keeps all the distortions and efficiency losses associated with tariffs, but without any of the fiscal benefit.'
Trump said Tuesday that his goal remains in place to use tariff revenue to ease massive budget deficits.
'The purpose of what I'm doing is primarily to pay down debt, which will happen in very large quantity,' Trump said.
Still, deficit hawks fear that redirecting a chunk of the tariff revenue will undermine that effort at a time when Trump's sweeping tax cuts and spending package is projected to add trillions to the national debt.
'While the money is only a fraction of the borrowing from the recent tax cuts, it will at least help to offset those costs,' said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a deficit watchdog group. 'The last thing we should do is give the money away.'
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