| During a White House address last week, President Donald Trump announced that he was in the process of sending “warrior dividend” checks of $1,776 each to every military service member, funded from tariff revenue. He added that “the checks are already on the way” and implied that the payments were made possible by the supposed fact that the United States took in “more money than anybody thought because of tariffs.” | | Those claims are partly accurate. Many military service members will in fact soon receive bonus payments. However, they are not the product of a magnanimous king president dispensing the proceeds of an unexpected tariff windfall. The reason the payments will go out is that Congress appropriated $2.9 billion “to supplement the basic allowance for housing” for eligible service members in Section 20001(a)(5) of the “One Big Beautiful Bill” (OBBB) it enacted last summer. Secretary of War Defense Pete Hegseth made an administrative decision to package and brand the payment as the “warrior dividend” that President Trump announced last week. | | Nor does the money for the payments come from tariffs in particular. Congress can and sometimes does write laws directing that funds from a particular revenue stream should be used for a specific purpose. It did not do so for the supplemental housing provision of the OBBB. Rather, as with most expenditures, that money comes from general revenues, which include tariff proceeds but also money the federal government derives from income taxes, borrowing, and other sources. It is no less accurate to say that your income tax dollars fund the warrior dividend than to say that tariffs fund it. | | Nonetheless, President Trump has repeatedly announced plans to fund specific payments from tariffs. He has, at one time or another, claimed that his tariffs could be used for a variety of mutually inconsistent purposes. I will focus on what appears to be his most frequent suggestion: using tariff revenue to send checks for $2,000 each to Americans earning under $100,000. Is that legal? Is it a good idea? | | Is it Legal? Yes, But Only With an Act of Congress | | The Constitution assigns the power to spend money to Congress, not the president. To be sure, when Congress makes appropriations, it is the president and the Secretary of the Treasury who actually take the steps needed to spend the money for its intended purposes. Moreover, Congress can and frequently does grant the president and/or various department heads considerable discretion over how to spend appropriations. When Congress appropriates billions of dollars to the Department of Transportation for highway, airport, or mass transit infrastructure improvements, it does not—nor could it possibly—specify exactly how all of the money should be allocated. Still, there must be some law that makes the appropriation before the executive branch can lawfully exercise discretion in deciding the details of how to spend it. | | Indeed, a federal statute specifically forbids federal government officers and employees from spending money that Congress has not appropriated. A related federal statutory provision even provides for criminal penalties for violation of that prohibition. Under the Supreme Court’s 2024 immunity decision, President Trump could not be prosecuted for illegally directing tariff revenue towards rebates, but other members of the administration could be. Thus, Treasury Secretary Scott Bessent and government officials working under him should be extremely wary of any scheme to send out tariff rebate checks unless and until Congress authorizes them to do so. | | Is congressional authorization a realistic possibility? In July, Missouri Republican Senator Josh Hawley introduced a bill that approximates President Trump’s plan to issue tariff rebates, although it would not result in flat payments of $2,000 each. The Hawley bill would use tariff revenues to provide refundable tax credits (which are functionally equivalent to payments) beginning at $600 and scaling up based on income, tariff revenue, and other factors. So far, the Hawley bill has not moved out of the Senate Finance Committee, but in principle, it or a substitute could be enacted. Under certain conditions, it could even be passed with a simple majority in the Senate because, as a spending measure, it could be included in a budget reconciliation package that would not be subject to the filibuster. | | Is it a Good Idea? No, for Many Reasons | | To say that there is a legal pathway to provide Americans with tariff rebates is not to say that doing so makes policy sense. In fact, it does not, for many reasons. I shall identify three. | | First, there might not be any tariff revenue to distribute in the event that the Supreme Court rules that President Trump’s invocation of the International Emergency Economic Powers Act does not grant him the authority to impose tariffs. That is a possible outcome of the case in which the Justices heard oral argument last month. Based on how that argument went, invalidation of the tariffs—which could result in massive refunds to the importers that paid them—seems like the most likely result. | | Hence, a statute that tied rebates to tariff revenues could result in smaller-than-projected or even non-existent rebates. Alternatively, if Congress were to authorize direct cash payments (as opposed to refundable tax credits of the sort in the Hawley bill), and those payments were made before the Supreme Court rules, any resulting refunds to importers would have to come out of non-tariff revenues. That would result in a very substantial increase to the deficit that, in turn, would result in more government borrowing, which would contribute to inflation. | | That brings us to a second reason tariff-funded rebates are a bad idea. They are inflationary. President Trump has gone back and forth between decrying the affordability crisis as a hoax and saying that his policies are addressing it. But the notion that one effectively addresses affordability—which is simply another word for inflation outstripping income—by sending people money is naïve at best. | | In tight times, when people receive extra money, they spend it, because they do not have the ability to save it. The phenomenon is even more pronounced when the money is received as a lump sum rather than in smaller incremental additions over time, but Trump appears to favor lump sum payments because they are splashier. In the short run, people who receive the lump sum are able to make some purchases they had been putting off to cover bare necessities, but the extra spending is extra demand, which anyone who has taken an introductory economics class understands, leads to higher prices. No one who was genuinely concerned about inflation and understood basic economics would favor injecting cash into the economy. | | To be sure, it is possible that a Trump-backed cash infusion could have net salutary effects, because recent data indicate rising unemployment. To the extent that the U.S. economy is on the verge of recession, cash payments—whether or not funded by tariffs—could be part of a sensible government program to combat it. Even if so, however, they will make the inflation problem worse. | | Third and finally, and regardless of where the U.S. economy is headed, tying cash payments to Americans to tariff revenue is a bad idea because it entrenches a commitment to Trump’s high-tariff policy. As nearly all economists agree, Trump’s tariff policy is harmful. The tariffs are not paid by foreign countries, as Trump frequently claims, but by U.S. importers, who eventually must pass the costs on to U.S. consumers. That means higher prices, so the tariffs drive inflation. In addition, retaliatory tariffs from U.S. trading partners harm U.S. producers and exporters. | | Trump’s tariffs are both inflationary and a drag on the economy. Any approach that depends on the tariffs is part of the problem, not a solution to it. |
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