As the Trump administration kicks off its affordability tour, a new Tax Policy Center analysis highlights how current tariff policies are burdening households and how plans to alleviate those burdens might help.
According to TPC, tariff policies in place as of December 4, 2025 will raise families’ federal tax burden by an average of $2,100 in 2026. Overall, the average federal tax rate will increase by 1.6 percentage points, up to 21 percent, and after-tax income will drop by 2.0 percent. In total, the tariff policies will yield $2.3 trillion in federal revenues from 2026 through 2035.
President Trump has proposed using tariff revenues to finance a dividend of up to $2,000 per person (e.g., $8,000 for a family of four, nearly four times the average tax increase from tariffs incurred by families). Those dividends would cost up to three times the yield from the administration’s tariff policies for some taxpayers. But the dividend—if approved by Congress—also has the potential to transform the tariffs from a regressive tax to a progressive tax policy: On average, a flat per-person $2,000 dividend could more than cover low-income families’ tariff costs but not those of higher-income families.
TPC’s analysis suggests that there are lower-cost ways to offset the tariff burden incurred by low- and middle-income families—through, for example, a lower maximum credit and linking both the amount and phase-out rates to income and family characteristics.
Tariff impact on families varies broadly depending on income
President Trump has repeatedly said that foreign countries pay US tariffs—not US residents—and frames his dividend plan as a tax cut funded by those collections. But economists generally agree that people in the US ultimately bear the burden of tariffs.
TPC’s analysis finds that the impact of the Trump administration’s tariffs on families differs widely depending on their income. Families in the top income quintile will see their 2026 taxes rise by $7,330, on average, due to the Administration’s tariff policies. For those in the top 1 percent, taxes will rise by nearly $40,000. In contrast, the average tax increase will be $400 and $1,610, respectively, for families in the lowest- and middle-income quintiles.
Although the average tax increases climb substantially with income, lower-income families will owe the government a larger share of their before-tax income. On average, the federal tax rate will rise by 1.9 percentage points for families in the bottom quintile—substantially more than the increase experienced by those in the top 1 percent of the income distribution (Figure 1).
FIGURE 1
Marriage and children affect tariffs’ impact
The impact of tariffs on tax burdens varies somewhat with taxpayers’ family characteristics. Single filers will face an average tax increase of $1,180, about one-third of the $3,770 increase for joint filers. However, the overall increase in the average tax rate will be about the same for the two groups: 1.6 percentage points.
Similarly, when comparing heads of households and all filers with children, the average tax increase is $1,300 and $3,030, respectively, but the average rate increase for both is 1.6 percentage points.
Differences narrow among family types in the lowest-income quintile. Average taxes will rise by $310 for single filers, $510 for joint filers, and about $450 for families with children and heads of households.
Lower-income older taxpayers face larger average tax rate hike than other taxpayers
Overall, taxpayers who are 65 or older will see their tax burdens rise by somewhat less than the general population. Their tax liabilities and federal tax rate will increase, respectively, by nearly $1,800 and 1.6 percentage points. But older taxpayers in the lowest income group will experience larger changes in their federal tax rates than other filers: For example, in the bottom income quintile, the increase in the average tax rate will be 2.2 percentage points for older taxpayers compared to 1.9 overall and 1.6 for taxpayers with children.
Trump’s dividend proposal would be costly and progressive
Together, the administration’s tariffs and $2,000 per capita dividends would reduce average taxes by $1,510 per family. The average tax would fall by about $2,300 for families in the lowest-income quintile while increasing by $2,000 for those in the highest quintile. On net, the combined policy would lower receipts by $4.7 trillion over the next decade.
Trump states that the dividends would not be paid to people with high incomes but hasn’t yet shared the income threshold. If the dividends were to phase out once income exceeded $75,000 ($112,500 if head of household and $150,000 if jointly filing)—the same thresholds contained in Senator Josh Hawley’s (R-MO) tariff rebate plan—the net ten-year costs would fall to $3.2 trillion.
Goals and hurdles
Despite the president’s call for dividend payments, tariff offsets have not been a priority for lawmakers, with many lawmakers focused instead on the elimination or reduction of tariff rates or reserving tariff receipts for deficit reduction.
And while still proposing costly dividends, Trump also repeatedly says that tariffs could raise sufficient revenues to eventually replace the much higher-yielding income taxes.
Uncertainty over the future of tariffs presents another challenge. Frequent changes to tariff rates make it hard to design the most effective offsets when finally enacted and implemented. And the future of the administration’s tariff policies depends on the yet-to-be announced Supreme Court decision on their legality.
