The More Tariffs Change, the More They Stay the Same
Tariffs are a little outside our wheelhouse, but last week’s Supreme Court decision striking down the IEEPA tariffs has broader implications for the tax policy landscape. Here are some thoughts.
First, as we noted the last time tariffs were on the front page, striking down the IEEPA tariffs doesn’t really change the landscape for the next few years. As Bruce Mehlman posted over the weekend, the President has many options when it comes to tariffs, and has made clear he plans to use them:
Second, the decision is unlikely to affect revenue collections. Secretary Bessent made clear the Administration plans to continue tariffs under different authorities, resulting in “virtually unchanged tariff revenue for 2026.”
Third, revenues might be steady, but the rates paid by specific industries and countries will likely change. As noted by The Budget Lab, effective tariff rates will drop from around 14 percent to 8 percent under the court decision, but that’s before any replacement tariffs are imposed. So Brazil is no longer looking at 40-percent, country-specific rates under IEEPA, but its exports will likely be hit with the 10-15 percent replacement tariffs Trump referenced last week:
Fourth, it’s unclear whether the struck-down tariffs – amounting to about $130 billion – will need to be refunded, or exactly how that would work. Our helpful Search Assist informed us that “Yes, the Supreme Court’s ruling suggests that the tariffs may need to be refunded, but the process for obtaining those refunds is expected to be lengthy and complicated. Importers will likely have to navigate through various legal channels to recover the funds.” Sounds about right.
Fifth, there’s talk the court ruling may encourage Congress to take up another big tax bill this year. Congressional leaders have been contemplating a package for months and some observers suggest the ongoing tariff drama may increase the chances they move forward. That seems unlikely. There’s no consensus on whether a second tax bill is advisable and there’s simply no agreement on what a legislated tariff fix would look like. Congress might do a tax bill, but it won’t be driven by tariffs.
So the more things change, the more they stay the same. Some level of increased tariffs will continue, despite the court decision. Those steady-state tariffs are nowhere near the levels of the original “reciprocal” tariffs and their ultimate cost needs to be netted out by whatever progress the Administration makes in trade negotiations and other initiatives. Meanwhile, Congress may take up a tax bill later this year but, unless something dramatic happens, using it as a vehicle to resolve the tariff question is highly unlikely.
Main Street Backs Regulatory Relief Bill
This week, S-Corp joined more than 70 trade associations in urging House leadership to advance meaningful regulatory relief for Main Street employers.
The effort was led by the National Federation of Independent Business. It backs the Prove It Act (HR 1163), legislation that would strengthen the Regulatory Flexibility Act, a 1980 law that requires federal agencies to analyze the impact of proposed regulations on small businesses and consider less burdensome alternatives. Despite being on the books for 45 years, agencies have routinely found ways to sidestep these requirements.
The letter notes the dramatic regulatory shifts of recent years and the urgent need for Congressional action:
In one four-year term, the Biden Administration finalized an unprecedented $1.8 trillion in new regulatory compliance costs and added 356 million in paperwork hours…However, without Congressional action, this relief will only be short term, and small businesses will suffer from the regulatory pendulum swings that make long-term planning and investments so difficult.
Multiple reports from NFIB, the House Small Business Committee, and SBA’s Office of Advocacy have documented widespread agency noncompliance with the RFA. They find that agencies frequently certify that new rules won’t significantly impact small businesses without properly analyzing the costs, undermining the law’s intent.
This message should find a welcome audience with the Trump administration. President Trump has overseen a massive reduction in regulatory costs to the economy (to the tune of over $128 billion), and making permanent rules to protect Main Street from unelected bureaucrats is squarely in their wheelhouse.
The bill cleared the full House in 2024 but stalled in the Senate. Since the new Congress convened last year a new version of the bill has been approved by both the House Judiciary and Small Business committees. More to come on this front.
OB3 Refund Story Includes Main Street
In October we chatted with Piper Sandler’s Don Schneider to preview what the One Big Beautiful Bill would mean for tax season. Don forecast one of the largest refund seasons in history, with the typical refund level expected to grow by nearly $100 billion.
Now the firm is out with new analysis confirming those predictions. It also details how Main Street businesses can expect to benefit.
Based on the latest numbers, Main Street business owners will receive an estimated $27 billion in additional tax refunds during the 2026 filing season. These immediate savings stem from the restored bonus depreciation, immediate expensing, and expanded interest deduction limits made effective starting last year.
This chart is a nice illustration of how Main Street will benefit from the tax bill this spring, with the orange bars representing pass-through business relief. While the business component is concentrated at the upper end, that’s the natural consequence of a tax system where business income is reported on individual returns, and where higher investment levels translate into higher deductions. (Curious about the lack of relief in the 80th-90th percentile bar, though?)
The table also makes clear that the OB3 provided broad-based tax relief to Americans across the income spectrum, with the vast majority of the tax relief this year (83 percent) going to families, and most of that going to the bottom 90 percent of taxpayers.
Finally, these numbers reflect the pending refunds coming this year, but that’s not the whole picture. OB3 made permanent many provisions benefiting families and Main Street businesses – bigger child tax credits, larger standard deduction, 20 percent small business deduction, increased expensing, etc. — and those provisions will keep taxes low for years to come.
As we’ve said repeatedly, tax cuts don’t sell themselves. Taxpayers need to be reminded that they are paying less due to the action Congress took last summer. These pending refund checks are as tangible as tax policy gets, and they are a great opportunity for proponents of the tax bill to help Americans connect the dots on tax policy.
Talking Taxes in a Truck Episode 47: Jared Walczak on the Wealth Tax Proposal That’s Forcing Californians to Flee
On the latest episode of Talking Taxes in a Truck, we’re joined by Jared Walczak, Senior Fellow at the Tax Foundation, to unpack California’s proposed wealth tax and what it signals for state tax policy nationwide. Walczak explains why the unprecedented 5 percent tax – particularly its aggressive valuation rules for founders with super-voting shares – could dramatically overtax entrepreneurs, invite serious legal challenges, and accelerate capital and job flight. Jared also zooms out to talk national migration patterns, as many states move to cut taxes and boost competitiveness while a small number double down on higher taxes, intensifying interstate tax competition and taxpayer mobility.
Tax Cuts Don’t Sell Themselves (But Big Refunds Help)
As tax season progresses, supporters of the Working Families Tax Relief Act are highlighting the provisions that made it possible.
That’s good news because tax cuts don’t sell themselves. As our friend David Winston pointed out in a recent op-ed, convincing Americans they benefited from tax legislation is often harder than passing it in the first place. Absent a concerted effort, the big refunds that are set to hit bank accounts in the months ahead won’t be connected back to the tax bill passed last summer.
Just to be clear – there’s lots to sell. Tax filing season is officially underway, and by all accounts American families and businesses are in for a pleasant surprise. According to a new analysis from the Tax Foundation, the One Big Beautiful Bill is likely to deliver the largest tax refund season in modern history. Here’s the key chart:
That boost is thanks to the tax bill’s provisions aimed directly at individuals and families, including a more generous child tax credit and standard deduction, increased SALT cap, and new deductions for tips and overtime, among others. The relief was also enacted on a retroactive basis to the start of 2025, so taxpayers will see a full year’s worth of benefits when they file this spring. We previewed this dynamic back in October. As the report reads:
Tax Foundation estimates that, altogether, these seven provisions cut individual income taxes by $129 billion in 2025. In each of the past two tax years, more than 100 million taxpayers have received refunds averaging around $3,000, totaling more than $300 billion in each tax year. Private-sector economic analysis suggests the OBBBA will result in up to $100 billion in higher refunds in 2026 overall, with average refunds up between $300 to $1,000 compared to a typical year.
On Main Street, the bill prevented a massive tax hike on tens of millions of pass-through businesses by making permanent the critical Section 199A deduction, locking in the fair treatment of pass-through SALT payments, and avoiding treating pass-through losses worse than any other form of loss. Those provisions add up to more than $100 billion a year in savings for Main Street employers. That’s real money they can invest right now in new equipment, new workers, and higher wages.
S-Corp and its Main Street Employers Coalition allies championed these policies from the start. We educated stakeholders about why Section 199A matters, hosted several roundtables bringing together experts from across the tax policy world, commissioned economic studies demonstrating the jobs and growth supported by 199A, and built a broad coalition of hundreds of trade associations backing permanence.
Now it’s time to follow through. That means telling the story of Main Street businesses using their tax relief to support their workers and their communities. It also means connecting the dots between the refunds people see this spring and the policies that made them possible. That’s going to be our focus for the next several months.