CBO: Tariff changes add $900 billion to projected deficits
The Congressional Budget Office says tariff-policy changes in effect through July 31, 2026, will make projected federal deficits $900 billion larger over fiscal years 2027 through 2036 than in its February 2026 baseline.
The estimate, published August 20, is a projection relative to an earlier forecast—not money already spent and not a final deficit outcome. CBO attributes the increase to lower expected customs revenue and the added cost of financing larger deficits.
What changed from the February baseline
CBO’s February budget baseline assumed tariff rates imposed through executive action by November 2025 would remain in place throughout the projection period. Tariff policy changed repeatedly after that forecast.
On February 20, 2026, the Supreme Court ruled that the administration could not impose tariffs under the International Emergency Economic Powers Act, or IEEPA. The administration ended those tariffs shortly afterward, and refunds began in May.
The administration then used other statutory authorities. A temporary 10% tariff imposed under Section 122 of the Trade Act of 1974 expired on July 24. That same day, the U.S. Trade Representative imposed tariffs ranging from 10% to 12.5% on imports from more than 80 countries under Section 301.
CBO projects that the replacement tariffs will recover a substantial share of the revenue that would have come from the earlier tariffs, but not all of it. The agency’s current projections also exclude announced policy changes that were not in effect by July 31, including potential changes involving certain imports from Canada.
How the $900 billion increase breaks down
Of the projected increase, $700 billion comes from larger primary deficits—deficits before interest costs are included. Another $200 billion reflects additional debt-service costs as the government borrows more.
That distinction matters. CBO is not saying that refunds alone will add $900 billion to the deficit. The estimate captures the broader budget effect of changing tariff collections, replacement duties, borrowing and interest payments over the decade.
Why fiscal 2026 customs revenue is falling short
CBO estimates that net customs revenue for fiscal year 2026 will be about $250 billion below its February projection. That is roughly 60% below the earlier estimate for tariff and customs-duty collections.
Most of the $166 billion collected under the IEEPA tariffs later invalidated by the Supreme Court is expected to be refunded during fiscal 2026. CBO says those anticipated refunds account for about half of the $250 billion reduction in projected net customs revenue. The agency expects tariffs currently in place to replace part of the lost collections.
The estimate remains unusually uncertain. CBO says tariff changes of this size have little recent historical precedent, businesses and consumers may respond differently than expected, and tariff policy has changed frequently. Additional exemptions could also reduce future collections.
The broader deficit and borrowing picture
CBO’s July budget review estimated that the federal deficit totaled $1.8 trillion during the first 10 months of fiscal 2026, $169 billion more than during the comparable period in fiscal 2025. The comparison is affected by the timing of certain payments that otherwise would have been due on August 1.
Based on information available through the end of July, CBO projected a $2.1 trillion deficit for the full fiscal year—$200 billion above the $1.9 trillion projection issued in February. CBO said fiscal 2026 outlays were expected to remain close to the February baseline, while revenue was projected to be lower, largely because customs-duty collections fell short.
Treasury separately estimated that it would borrow $739 billion in privately held net marketable debt during the July-to-September quarter and $628 billion during October-to-December. Those are financing estimates, not the same measure as the federal deficit. Borrowing also reflects cash-balance assumptions and other financing factors.
What the estimate means for readers
Businesses that import goods may face changing tariff rules, exemptions and refund procedures. Households may feel effects through prices or business decisions, but the CBO estimate by itself does not determine whether consumer prices will rise.
For taxpayers, the central budget issue is that lower customs revenue and additional interest costs leave fewer resources for future policy choices. The estimate does not determine whether Congress will change taxes or spending.
The next indicators to watch are additional tariff actions or exemptions, the pace of refunds, monthly customs receipts, future CBO revisions and Treasury financing announcements.
Sources
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