Sending $2,000 tariff dividend payments to voters could further fuel inflation, economists caution, even if it offers households short-term relief from the cost of living.
Over the weekend, Trump said he wants to provide “a dividend of at least $2,000 a person” from his tariff agenda. The details of such a plan, and even if one is actually being devised, are still unclear, but sending payments directly to consumers could be inflationary.
Jason Furman, the chairman of former President Barack Obama’s Council of Economic Advisers, told the Washington Examiner that when former President Joe Biden issued stimulus spending during the pandemic recovery, it contributed to higher inflation in subsequent years.
TRUMP PROMISES $2,000 TARIFF DIVIDEND CHECKS: HOW THE REBATE PAYMENTS COULD WORK
“When Biden sent out $2,000 checks, they added to inflation, and when Trump sends out $2,000 checks, they will add to inflation,” he said.
In 2021, Americans earning under $75,000 received full $1,400 stimulus payments as part of the American Rescue Plan, passed by Democrats and signed into law by Biden. The checks were meant to help households recover from the pandemic disruptions. But they came as the economy was already reopening, and are now thought to have contributed to an excess of demand for goods and services and helped stoke inflation to nearly 9% the next year.
Furman, now an economist at Harvard University, was one of the economists who warned about inflation as the United States emerged from the pandemic. Now, he says, the economy is still dealing with too much inflation and is concurrently close to full employment, with the unemployment rate at a low 4.3% as of August, the last month for which data was published by the Bureau of Labor Statistics before the government shutdown.
“And so more money will mean people spend more, but they won’t really be able to buy much more,” Furman said of the $2,000 payments. “Instead, the stuff will become more expensive.”
The degree to which they could affect inflation depends on multiple factors, but one is whether the dividend payments are drawn solely from tariff revenue or are deficit-financed. It appears that tariff revenue may not be sufficient.
Erica York, vice president of federal tax policy at the Tax Foundation, told the Washington Examiner that if you take all the filers who earn less than $100,000 per year and assume spouses earning under that threshold would also qualify, that comes out to roughly 150 million getting those payments. It is worth noting that the $100,000 threshold is arbitrary, and the White House has not suggested an exact income threshold.
She said that places the minimum cost at about $300 billion. However, York’s group estimates that tariff revenue for this calendar year will not be enough to cover the rebates.
“Full year impact, it’s going to be at least $100 billion short for the checks,” she said.
Additionally, the Committee for a Responsible Federal Budget, a nonpartisan fiscal watchdog that advocates lower deficits, released an analysis this week finding that annual $2,000 tariff dividends would cost $6 trillion over the decade, roughly twice as much as Trump’s tariff agenda is expected to raise over that same period.
The CRFB’s analysis, though, showed that current tariffs could be used to pay out a $2,000 dividend every other year without adding to the deficit.
Romina Boccia, director of budget and entitlement policy at the libertarian Cato Institute, said that if the stimulus spending is deficit-financed, it would likely be inflationary. She also highlighted that Trump intends to gear the $2,000 payments toward people who are not wealthy.
Boccia pointed out that when wealthy people get payments like this, they are more likely to put those funds into savings. However, lower- and middle-class taxpayers are far more likely to spend the money.
The Federal Reserve has notably pivoted to cutting interest rates, with the intention of supporting economic activity. If the Fed is loosening its monetary policy stance at a time when the government is sending people $2,000 payments, Boccia said, the combination could be inflationary.
“So if you double that — rate cuts with an inflationary stimulus check — you’re going to likely see a small, one-time uptick in inflation as a result of that,” she told the Washington Examiner.
It is difficult to gauge precisely how much $2,000 tariff rebates could affect the overall rate of inflation, in part because there has been little guidance on what such a plan would actually entail. But Furman said a ballpark range could be one percentage point of cumulative inflation added, or about half a percentage point extra per year for a couple of years.
Still, he said, the Fed could act to mitigate some of the inflation that might arise from adjusting monetary policy, thereby reducing its effect.
“I don’t think they would actually raise interest rates, but they would definitely stop cutting interest rates, and they might be able to stop some of the inflation,” Furman said.
Much about the plan remains uncertain, marked by a question mark. When asked for clarification and specifics about the payments on Monday, a White House official told the Washington Examiner declined to provide information, and instead said that the tariffs are resetting global commerce and safeguarding national and economic security while raising billions of dollars in revenue.
The official said the U.S. is committed to putting the money to good use for the public but did not elaborate on specifics about the payments Trump has floated.
Also, Treasury Secretary Scott Bessent said Sunday that he had not discussed the idea with Trump. He also suggested that it might not come in the form of a stimulus check.
“The $2,000 dividend could come in lots of forms,” Bessent said on ABC.
“You know, it could be just the tax decreases that we are seeing on the president’s agenda — you know, no tax on tips, no tax on overtime, no tax on Social Security, deductibility of auto loans,” he said.
Furthermore, direct $2,000 payments would almost certainly have to be approved by Congress and not done by executive fiat, according to York.
It is also a question of whether Trump’s ambitious tariff policies will even be allowed to stand. The Supreme Court is currently weighing whether Trump had the authority to issue those tariffs after companies and states sued the Trump administration.
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Sen. Lisa Murkowski (R-AK) said Monday that a ruling against the Trump administration could complicate any form of rebate payments.
“There is a very valid case to be made that if the Supreme Court pushes back on tariffs, we’re going to have to repay that,” she told the Washington Examiner. “Now, as an appropriator, I’m looking at that and saying, all right, where do we find this? So, offering $2,000 to everybody out of the tariff proceeds now may be a little bit risky.”
