Trump’s tariffs could help Congress clear the path of bigger tax cuts as it drops potential revenues and shrinks the economy

• President Donald Trump’s much higher planned tariffs It crushed stocks, but in the process it could shrink the economy while also generating significant amounts of revenue. Import taxes could generate $700 billion in revenue per year. Tariffs also amount to a massive tax hike on consumers, but they could help clear the larger income tax approach in Congress.

Wall Street suffered a massive case of sticker shock when President Donald Trump announced the latest tariffs on “Liberation Day,” sweeping out $6 trillion in market capitalization.

But the back of the far higher obligation than planned is the windfall of revenue that could help clear the path to getting a bigger tax cut in Congress.

Lawmakers have already taken an important step towards that goal. Early Saturday morning Senate Republicans approved the framework To extend Trump’s tax cuts from his first semester, he will add new cuts, such as a closing tax on Social Security income, to cut spending.

Some GOP’s fiscal conservatives Large deficits and debt More tax cuts could result. But an economist at City Research said in a memo Thursday that aggressive tariffs “may now justify a bigger tax cut.”

While his powers imposed by Trump could also face legal challenges, it is unclear whether tariffs remain as high as announced, as suggesting he is open to negotiating percentages.

But for now, they have been able to provide political coverage to lawmakers to push forward with Capitol Hill’s tax cuts.

“As long as tariffs are in effect, the administration can also refer to approximately 700 ln of annual revenues. “Treasury Secretary Becent yesterday proposed that it could be used to offset new individual tax cuts. It is an argument used to beat fiscal conservatives, consistent with previous management statements that tariff revenues will be redistributed to Americans.”

Tax cuts help mitigate the impact of tariffs on the economy.

On Friday, JP Morgan analysts said Hope GDP will shrink by 0.3% this yearinverts the view before expansion of 1.3%. It can be seen that the unemployment rate has risen from the current 4.2% level to 5.3%.

Another Analysis from the Tax Foundation He also estimated the costs and benefits of Trump’s tariffs.

With the addition of new duties to the already announced duties, tariffs will cut GDP by 0.7%, generating nearly $2.9 trillion in revenue over the next decade. Foreign retaliation will further reduce GDP by 0.1%.

Customs taxes also reduce income after tax According to the Tax Foundation, an average tax increase of over $1,900 per US household in 2025 is an average tax increase of over $1,900, according to the Tax Foundation.

On the other hand, the estimates vary depending on the valid tariff rate. The Tax Foundation said it would increase it to 16.5% and tariffs would increase federal tax revenue by $258.4 billion (0.85% of GDP) in 2025, representing the largest tax increase since 1982.

However, Fitch’s rating estimated that the overall effective tariff rate would be around 25% –Best since 1909– From an 18% rate from previous estimates and an increase of more than 10 times the 2.3% last year. City said it’s over 25%.

In a memo on Thursday, JPMorgan chief economist Bruce Kassman called tariffs the largest tax increase since the 1968 income law prior to the 1969-70 recession, suspecting that income tax cuts could be adequately offset by the results.

“The impact of this tax hike could be widened — through retaliation, a slide in business sentiment in the US, supply chain disruption,” he writes. “The shock could be modestly damped by the hiking of the flexibility tariffs provided for further fiscal policy easing.”

This story was originally introduced Fortune.com