The Congressional Budget Office’s latest projections help allay fears over the fiscal fallout of Donald Trump’s tax legislation.
Donald Trump’s push for tariffs is projected to slash U.S. deficits by $4 trillion over the next decade, according to the Congressional Budget Office, easing fears that his tax overhaul could further strain the nation’s finances.
The Congressional Budget Office (CBO) reported Friday that tariffs imposed so far this year are expected to shrink primary deficits by $3.3 trillion through 2035, with interest payments projected to decline by an additional $700 billion.
“As a result, the changes in tariffs will reduce total deficits by $4tn altogether,” said Phillip Swagel, director of the non-partisan CBO, which operates within the legislative branch.
The total impact of the tariffs on debt over the period is roughly one-third greater than the $3 trillion previously projected by the CBO, based on measures announced between January and mid-May.
Recent estimates indicate that revenue from tariffs will help offset the fiscal impact of Trump’s landmark spending law, the One Big Beautiful Bill Act, which is expected to drive up debt by $4.1 trillion over the period.
The president highlighted the report on Friday, asserting that it proved “that Trump was right” and that tariff revenues “are going to reduce the deficit by numbers far greater than they ever expected — unheard of”.
Public finances in the U.S. have become a focal point for investors in recent months, with some fund managers warning that the nation’s debt-to-GDP ratio—hovering around 100 percent—has dimmed the appeal of Treasury securities.
The CBO’s analysis does not factor in the tariffs’ effect on overall economic growth, which economists anticipate will be negatively impacted by the levies.
Swagel also warned that the estimates remain “subject to significant uncertainty” pointing to “questions about timing, possible exceptions, and a lack of precedents”.
The report nevertheless provides a boost for Trump and his administration, who have consistently maintained that the tariffs would generate sufficient revenue to counterbalance the impact of increased government spending.
Treasury Secretary Scott Bessent said on Tuesday that he now expects tariff revenues this year to increase "substantially" beyond his earlier projections.
“We’re going to bring down the deficit to GDP. We’ll start paying down the debt, and then at that point that can be used as an offset to the American people,” he told CNBC.
According to the CBO, current tariffs are projected to generate roughly $200 billion in revenue this year alone, a significant jump from the $80 billion average collected annually over the past five years.
This week, credit rating agency S&P Global cited the boost from tariff revenues in its decision to maintain its rating on U.S. government debt, despite the fiscal pressures from the spending bill.
Lisa Schineller, S&P’s director of sovereign ratings, acknowledged that considerable uncertainties remain regarding the tariffs “you’re going to have what we think is some pretty important tariff revenue”.
“We think . . . that the tariff revenue could potentially offset some of what we see as the fiscal deterioration or weakness that would come from that bill,” said Schineller.
Fitch, another credit rating agency, highlighted the impact of a "surge in tariff revenues" on government finances in its Friday decision to maintain its rating on U.S. debt. However, it warned that "large fiscal deficits" are likely to continue, with the overall government deficit projected to rise again in 2026 and 2027 after declining this year.
Some analysts warned that the long-term impact of tariffs may be overstated, with their beneficial effect on U.S. public finances likely to diminish over time.
“It’s a temporary fillip, but not something that’s really going to change the overall story,” said Thomas Torgerson, managing director at Morningstar. “There’s not a lot of clarity on how much of that revenue will actually be durable and be received year after year after year.”
He warned that once tariff rates stabilize, there is a risk of "trade diversion," with exporters redirecting their focus away from the U.S. toward countries with lower levies. “So what you ultimately have is weaker revenue flow over the medium term.”
U.S. President Donald Trump holds a chart next to U.S. Secretary of Commerce Howard Lutnick as Trump delivers remarks on tariffs in the Rose Garden at the White House in Washington, D.C., U.S., April 2, 2025. REUTERS/Carlos Barria/File Photo Purchase Licensing Rights
