Tariffs are now funding the government

Customs duties raised $195 billion in gross collections in fiscal year 2025, according to Treasury Department receipts. That makes tariffs the federal government's fourth-largest source of revenue, a historic shift in how Washington pays its bills.

From bargaining chip to budget line

Border duties now bring in more than excise taxes and customs duties combined used to in earlier decades. Tariffs were sold as temporary levers in trade negotiations. They now cover nearly ten per cent of the federal deficit, and the receipts have been folded into general spending.

The annual total understates the current pace. The fiscal year ran from October 2024 to September 2025, and the largest duties arrived only in its second half, after the fentanyl-related tariffs in the spring, the April reciprocal tariffs and the higher country rates that took effect in August. By the autumn monthly collections had climbed to about $30bn, nearly double the year's average. If rates and import volumes hold, the current fiscal year will bring in considerably more than the last.

An old tax returns

For most of the nineteenth century, customs duties were the main source of federal revenue. The ratification of the Sixteenth Amendment in 1913 allowed a permanent income tax, and over the following decades the income and payroll taxes grew to dwarf the tariff. By the start of last year customs had become a minor line in the budget, well behind the individual income tax, payroll taxes and the corporate income tax. It now sits just behind those three, ahead of the excise taxes on fuel, alcohol and tobacco.

The return of the tariff as a revenue source changes who pays. Importers write the cheques to Customs and Border Protection, but studies of the 2018 and 2019 tariffs on Chinese goods found that nearly all of the cost was passed through to American buyers rather than absorbed by foreign exporters. A tax on imported consumer goods takes a larger share of income from households that spend most of what they earn, so the shift from income taxes to tariffs makes the overall tax system less progressive.

Retaliation has also been milder than history would suggest. When Congress raised duties with the Smoot-Hawley Act of 1930, trading partners answered with tariffs of their own and world trade shrank. This time most large partners, including the European Union and Japan, chose to negotiate framework deals over the summer rather than impose matching duties, with China the main exception. That restraint kept import volumes, and therefore customs receipts, higher than many forecasters had expected.

Hard habit to kick

Money like that is habit-forming. Lawmakers in both parties who once complained about the economic damage from border taxes have come to rely on the $16 billion a month, because it spares them from voting for unpopular tax rises or spending cuts.

Budget arithmetic reinforces the habit. The Congressional Budget Office now counts the tariffs as reducing deficits by trillions of dollars over the coming decade, and that projection partly offsets the cost of the tax law passed in July. Removing the tariffs would therefore show up as a large increase in projected borrowing, which any member of Congress proposing it would have to defend.

History offers examples of temporary taxes that outlived their purpose. Britain's income tax was introduced in 1799 to pay for the war against revolutionary France. In America, a federal excise on telephone calls was first imposed in 1898 to help finance the Spanish-American War and, after several repeals and revivals, was still being collected more than a century later. Revenue that arrives without a recorded vote is especially hard to give up, because no one has to own the decision to keep it.

A revenue base built on sand

The receipts are less secure than the budget projections imply. A large share of the duties collected rests on the emergency powers now before the Supreme Court. If the court rules against the administration, the revenue from those tariffs would stop, and duties already paid might have to be refunded, turning a budget gain into a budget cost almost overnight.

There is also a tension in the policy itself. Tariffs meant to bring manufacturing home succeed by reducing imports, and every container that is not shipped is revenue that is not collected. Tariffs meant to raise revenue work best when imports keep flowing. The administration has claimed both aims, and in the long run it cannot fully achieve both.

The case that Congress will let them go

The opposing view is that the tariffs are politically weaker than their revenue suggests. Congress has never voted for them; they rest on executive orders and emergency declarations. The Senate passed symbolic resolutions in the autumn to end some of the emergencies behind them, and polls have shown the tariffs to be unpopular with voters worried about prices. A future administration could remove most of them with the same stroke of a pen that imposed them.

That view underrates the budget trap. A president who lifts the tariffs must explain a jump in the deficit, and a Congress that wanted to replace the revenue would have to raise other taxes or cut spending by a similar amount. Neither party has shown any appetite for either. The easier course, for a government of any stripe, is to keep the duties and describe them as something other than a tax.

What to watch

The monthly Treasury statements will show whether collections hold near $30bn or fall as importers adjust. The Supreme Court's ruling on the emergency tariffs will decide how much of the revenue is legally secure. The budget office's next baseline, expected early in the year, will show how much deficit reduction Washington now assumes from the tariffs.

At $195 billion a year, tariffs have become part of how the government funds itself. Congress will probably keep many of them long after the trade disputes that prompted them are settled. Even if the court strikes down the emergency duties, expect much of the revenue to be rebuilt under other trade laws within months, because the budget now depends on it.