As US businesses and consumers face higher costs of goods due to the Trump administration’s tariff policies, Senator Josh Hawley (R-MO) has introduced the American Worker Rebate Act (AWRA) to rebate tariffTariffs are taxes imposed by one country on goods imported from another country. Tariffs are trade barriers that raise prices, reduce available quantities of goods and services for US businesses and consumers, and create an economic burden on foreign exporters. revenue to American households to provide financial relief. The proposal takes a similar approach to the stimulus checks issued during the COVID-19 pandemic. However, a better way to provide relief would be to simply repeal the tariffs altogether.
Details of the Proposal
The proposed tariff rebate checks would function similarly to the economic impact payments, colloquially referred to as the COVID-19 stimulus checks, passed in 2020 and 2021. The first round of those payments offered households up to $1,200 per filer, with a smaller amount for qualifying dependents, phasing out at 5 percent when incomes exceeded $75,000/$150,000 for single/joint filers.
The AWRA would apply the same thresholds and phaseout to the tariff rebate, offering up to a $600 tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income rather than the taxpayer’s tax bill directly. per filer and qualifying dependent.
The rebate credit could be claimed in advance of filing and could also increase if tariff revenue continues to climb. The tariffs have raised about $150 billion in revenue so far this year, and will likely raise more if the reciprocal tariffs go into effect on August 1 as scheduled.
Rebate Proposal Would Add to US Debt and Risk InflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power.
While tariffs have undoubtedly raised costs for American firms and consumers—since Americans and not foreigners ultimately pay the tariff—rebating the revenue to consumers would be fiscally irresponsible and also risk increasing inflation. Tariffs are a poor way to raise revenue generally, but the revenue that is collected should be used for deficit reduction rather than rebates.
Tariffs are not an efficient way to raise revenue because imports fall as tariffs increase, eventually reducing the revenue that can be collected when those rates become punitively high. Their revenue-raising potential falls further when accounting for their negative impacts on economic growth, as tariffs impose costs on businesses and consumers.
However, to the extent that tariffs do raise some revenue, with the US running persistent deficits and the cost of servicing the debt becoming more expensive in recent years due to high interest rates, it would be prudential to use that revenue for deficit reduction rather than rebates.
The recently passed One Big Beautiful Bill Act (OBBBA) will also increase deficits further over the next 10 years—by $3.8 trillion on a dynamic basis, including interest costs.
The tariff rebate becomes even less defensible when considering that the current economy does not present the need for additional economic stimulus. GDP grew at 3 percent in the second quarter, and the unemployment rate in June held steady at 4.1 percent. With inflation still hovering around 3 percent, a tariff rebate could risk pushing that number higher, although this would depend on how the Federal Reserve responds. If the Federal Reserve were to raise interest rates, this would offset the inflationary impact of the tariff rebate but increase the interest costs for the government even more.
Better Ways to Promote US Economic Growth
Replacing tariffs with spending cuts and other deficit-reducing tax reforms, such as a broad-based consumption tax, would help address the burgeoning US debt, while reforms like a flat individual income tax combined with a distributed profits tax could boost both government coffers and long-run wage growth. Policies that address our national debt and promote US economic growth are available, if policymakers are willing.
Big Picture
Both the Trump administration and Senator Hawley have been reluctant to acknowledge that the tariffs have harmed American households, and have framed a rebate as sharing the “wealth” that the tariffs have allegedly generated. This is misguided. Policymakers should recognize the benefits of free trade and that tariffs are a poor way to raise government revenue. If they want to give taxpayers relief from the tariffs, the most effective solution is also the simplest: repeal the tariffs altogether.
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