Tariffs May Raise Prices Slightly But Will Deliver Tax Relief for Bottom 50 Percent, Bessent Says

Money generated by the tariffs will fund proposals to scrap taxes on tips, overtime, and Social Security benefits, the Treasury secretary says.

Treasury Secretary Scott Bessent speaks to reporters outside the West Wing of the White House on March 13, 2025. Andrew Harnik/Getty Images

Treasury Secretary Scott Bessent said consumers could see a one-time price increase of about 2 percent for every 10 percent of new tariffs imposed on foreign goods, and that the revenue from tariffs would be used to reduce living costs for lower-income Americans.

He noted that under President Donald Trump’s first term, the actual inflationary impact of tariffs was significantly lower.

Bessent made the comments during an April 4 interview with Tucker Carlson, in response to a question about how much tariff revenue the Trump administration expects to collect and how it plans to use it to offset the effects of upcoming tax cuts.

“If there’s a 10 percent tariff, then the currency would appreciate 40 percent of that—so 4 percent of it. Then the producer in the other country would eat about 4 percent, and then the U.S. consumer might have a one-time price adjustment of 2 percent,” Bessent said, citing a standard “classical” economic model. “So in a 10 percent tariff, maybe the consumer pays 2 percent of it.”

However, Bessent noted that real-world data suggest the actual cost to consumers may be significantly lower. For instance, he referenced a study showing that the roughly 20 percent tariffs imposed on China during Trump’s first term increased U.S. consumer prices by just 0.7 percent.

“If we could put on a 20 percent tariff and have the foreigners pay that, and use that money to bring down our government deficit and keep taxes low here, that’s a very unique formula that hasn’t been tried in this country for a long time,” Bessent said.

He said that the administration has already collected several hundred million dollars from the new China tariffs, on top of the $35 billion per year generated by tariffs from Trump’s first term. Bessent projected that annual revenue from the full slate of tariffs announced on April 2—dubbed by Trump as “Liberation Day”—could eventually reach $300 billion to $600 billion.

That income, the treasury secretary added, would fund four key proposals aimed at helping lower-income Americans: eliminating taxes on tips, Social Security, and overtime pay, and making interest payments on U.S.-made auto loans tax-deductible.

“Think what the president is doing here,” Bessent said. “He is backing into an affordability solution for the bottom 50 percent of wage earners because they’re the ones who will benefit from all four of those programs.”

The classical tariff model Bessent cited is one of several used to estimate inflationary effects. The Yale Budget Lab recently projected an even lower impact, suggesting that foreign producers might absorb a greater share of the tariff burden than traditional models assume.

According to Yale’s estimate, the April 2 tariffs raised the average effective tariff rate to 11.5 percent, with an expected 1.3 percent rise in consumer prices. When factoring in all 2025 tariffs—including those on steel and aluminum and foreign retaliation—the average effective rate reaches 19.8 percent, with a projected inflationary increase of 2.31 percent.

Later in the interview, Bessent voiced concern over persistently high interest rates, especially the yield on the 10-year Treasury note, which heavily influences mortgage rates and business investment. When Bessent was confirmed as Treasury secretary on Jan. 27, the 10-year yield hovered near 5 percent. It has since declined to just over 4 percent.

The interview coincided with a speech by Federal Reserve Chair Jerome Powell, who said that tariffs would likely cause a temporary increase in inflation, and that the impact could last longer under certain conditions.

“While tariffs are highly likely to generate at least a temporary rise in inflation, it is also possible that the effects could be more persistent,” Powell stated in prepared remarks at the Society for Advancing Business Editing and Writing Annual Conference. He noted that the announced tariff hikes were larger than anticipated and could slow economic growth while fueling inflation.

Powell said the Fed’s job is to ensure a one-time price hike does not evolve into a sustained inflation problem. That, he said, requires long-term inflation expectations to remain anchored around the Fed’s 2 percent target.

Recent consumer surveys have highlighted higher near- and long-term inflation prospects.

The University of Michigan’s March Consumer Sentiment Index, for example, recently reported the one- and five-year outlooks rising to 5 percent and 4.1 percent, respectively. The New York Federal Reserve’s latest inflation expectation figures were lower—3.1 percent at the one-year horizon, and 3.0 percent at both the three-year and five-year outlooks.

Powell also reiterated that the economic outlook remains uncertain, and the Fed’s interest rate cuts are on hold indefinitely while policymakers await clearer data on inflation, employment, and growth.

Meanwhile, Trump took to Truth Social to urge Powell to lower interest rates.

“This would be a perfect time for Fed Chairman Jerome Powell to cut Interest Rates,” Trump wrote. “He is always ‘late,’ but he could now change his image, and quickly.”

“Energy prices are down, Interest Rates are down, Inflation is down, even Eggs are down 69%, and Jobs are up, all within two months—A big win for America,” the president continued, partially in capital letters. “Cut interest rates, Jerome, and stop playing politics!”

His remarks followed a 7 percent drop in oil prices on Friday, bringing them to their lowest level in over three years. Trump has previously said he would push for lower interest rates once oil prices fell.