CBO: Trump Tariffs Loss Swells 2026 Deficit to $2.1 Trillion

The Congressional Budget Office (CBO) has confirmed that the United States federal deficit for fiscal year 2026 is projected to reach $2.1 trillion, an increase from the $1.9 trillion forecast in February. This upward revision is primarily attributed to the evaporation of revenue from tariffs previously imposed under the Trump administration, which the Supreme Court struck down. The nonpartisan scorekeeper's Monthly Budget Review, released on a Monday, detailed that federal spending is largely in line with February's baseline projections, indicating that the deficit increase is almost entirely a consequence of reduced revenue. CBO estimates that tariff and customs-duty collections for 2026 will fall short of earlier projections by $250 billion. This significant shortfall, representing a 60% decrease, directly stems from the Supreme Court's February 20 ruling. The ruling determined that the Trump administration lacked the legal authority to impose these specific tariffs under the International Emergency Economic Powers Act (IEEPA). While stronger-than-anticipated income and payroll tax collections, which are running approximately $75 billion above the February baseline, have partially offset this revenue loss, other government revenue streams are tracking $25 billion below projections. This results in a net revenue gap of roughly $200 billion that cannot be explained by outlays alone. Maya Macguineas, president of the Committee for a Responsible Federal Budget, highlighted the scale of the borrowing, stating, "We’ve borrowed an astounding $1.8 trillion this fiscal year, with $431 billion in the month of July alone, and equating to nearly $6 billion per day." She further commented, "We’re on track to surpass $2 trillion in borrowing this fiscal year despite not being in a recession. That is not normal." The administration has been improvising to replace the lost tariff revenue. Following the Supreme Court's decision on IEEPA tariffs, the administration initially implemented duties under Section 122 of the Trade Act of 1974. However, this temporary authority expired on July 24, leading to a subsequent shift to tariffs under Section 301 of the same law. The CBO anticipates that these new tariff measures will not fully compensate for the revenue lost from the invalidated tariffs. The fiscal implications of these tariff changes underscore the significant impact of trade policy on the national budget, particularly in the absence of a recessionary environment. The CBO's analysis provides a clear, data-driven assessment of how legal challenges to executive actions on trade can directly influence federal fiscal projections and borrowing requirements.