In a historic 6-3 ruling, the U.S. Supreme Court struck down President Trump’s sweeping global tariffs imposed under the International Emergency Economic Powers Act (IEEPA), holding that the Constitution’s taxing power belongs squarely to Congress — not the executive branch. TCS President Steve Ellis and Director of Research and Policy Josh Sewell break down the ruling in real time.
The court’s majority, which included Trump appointees Gorsuch and Barrett alongside Chief Justice Roberts and the three liberal justices, found that Congress never authorized the president to levy tariffs under IEEPA — and that the word “tariff” doesn’t even appear in the law. Steve and Josh trace TCS’s position back to Liberation Day and the August tariff escalation episodes, arguing that tariffs are taxes, and that speculative tariff revenue could never be a reliable budget offset. Today’s ruling validated that argument.
But don’t pop the champagne yet. Steve and Josh walk through what the ruling doesn’t do: it doesn’t end tariffs. The administration has already signaled that it will pursue tariffs under other statutes — Section 232, Section 301, Section 122, and even the ghost of Smoot-Hawley. They also dig into the fiscal fallout: over $133 billion in tariff revenue collected under IEEPA may be subject to refunds, potentially resulting in $1.5 trillion in losses over the next decade. With a $38.6 trillion national debt and $1.8 trillion annual deficit, that’s not a rounding error.
The bottom line: Congress can no longer hide behind executive tariff revenue to paper over its fiscal failures. The court just slammed shut that escape hatch. Now it’s time for Congress to do its job.
Transcript
Announcer:
Welcome to Budget Watchdog All Federal, the podcast dedicated to making sense of the budget spending and tax issues facing the nation. Cut through the partisan rhetoric and talking points for the facts about what’s being talked about, bandied about and pushed to Washington, brought to you by taxpayers for common sense. And now the host of Budget Watchdog AF TCS President Steve Ellis.
Steve Ellis:
Welcome all American Taxpayers Seeking Common Sense. You’ve made it to the right place for 30 years. TCS that’s taxpayers for common sense, has served as an independent nonpartisan budget watchdog group based in Washington dc We believe in fiscal policy for America that is based on facts. We believe in transparency and accountability because no matter where you are on the political spectrum, no one wants to see their tax dollars wasted. Budget. Watchdog AF Faithful, we are responding to breaking news today and it’s big on Friday, February 20th, 2026, the US Supreme Court issued a six three ruling and Learning Resources Inc. Et all versus Trump striking down President Trump’s sweeping global tariffs imposed under the International Emergency Economic Powers Act a epa. The court held that it is unconstitutional for the president to unilaterally set and change tariffs because that taxation power belongs squarely to Congress under our constitution.
Chief Justice John Roberts wrote for the majority, the framers did not vest any part of the taxing power in the executive branch. Well, that’s pretty straightforward, my friends. We’ve been covering this tariff story since Liberation Day, April 1st of last year, and again in August when the tariff regime escalated. Today the court has spoken and joining me as always to help us unpack what this means for taxpayers is TCS Director of Research and Policy Josh Sewell. Josh, you’ve been saying for nearly a year that these tariffs were attacks on Americans today. Six Supreme Court justices apparently agreed. Welcome back, Josh.
Josh Sewell:
Hey, thanks Steve. It’s another Friday fun day from the Trump administration.
Steve Ellis:
Let’s start with the basics. For the listeners who are just tuning in, walk us through what the court actually decided today.
Josh Sewell:
So the core of the ruling is this President Trump imposed sweeping reciprocal tariffs on nearly every country in the world and additional tariffs on Canada, China, and Mexico using what’s known as the International Emergency Economic Powers Act, as you said, a epa. So that’s a 1977 law that allows the president to regulate commerce during a national emergency
Steve Ellis:
Trade is a national emergency
Josh Sewell:
Apparently. So the administration argued that chronic trade deficits, because they happen every single year, constituted a national emergency and that a EPA gave the President authority to impose import taxes to address that so-called emergency. Now, the court today responded in no uncertain terms. No, Congress never clearly authorized the president or any president to levy tariffs under a epa. And under what’s known as the Major Questions doctrine, when an action has sweeping economic and political significance, Congress must explicitly authorize it here. Congress did not.
Steve Ellis:
And this was a broad majority, not a narrow one. Six justices including two conservatives, Trump appointed Gorsuch and Barrett who joined fellow conservative Roberts plus the three liberal justices. The dissenters were Alito Thomas and Kavanaugh Kavanaugh writing for the dissenters called the Tariffs clearly lawful, but the majority disagreed and firmly
Josh Sewell:
Right. And Roberts was pointed in the majority opinion. He noted that no previous president had ever used I EPA to impose tariffs. This is over 50 years. And he said that historical absence is strong evidence that such power does not exist in the statute. Also the word tariff, it doesn’t even appear in that law. So courts pay attention to that kind of thing. Details,
Steve Ellis:
Yes. And as you pointed out to me earlier, the ruling notes that a EPA authorizes the president to quote regulate among other things, importation and exportations. Well, if regulate implies tariffs and taxation on importation and exportation as the Trump administration argued,
Josh Sewell:
Yeah, then a EPA would be at least partly unconstitutional because the Constitution expressly forbids taxes on exports.
Steve Ellis:
Oops. Josh longtime budget Watchdog Af Faithful our OG listeners, they’re going to remember our Liberation Day episode last April 1st when we said point blank a tariff is a tax. And they’ll remember our August episode on the tariff regime where we said, you cannot treat tariff revenue as reliable, predictable income to pay for anything. Today. The Supreme Court has validated the constitutional side of that argument. Walk us back through what we said then and what’s today’s ruling confirms.
Josh Sewell:
Sure, Steve. So back on Liberation Day, we made two core arguments. First, these tariffs were tax increase, full stop, pretty simple. The Wall Street Journal editorial board put it plainly and we agreed, if you raise $600 billion a year for the federal government, you are taking that from individuals and businesses. That’s a tax and that’s a tax hike by any definition. Second, and this is the budget watchdog part, we said, you cannot use speculative tariff revenue as an offset for spending or tax cuts. See, these tariffs were Trump’s American Army knife, a multi-tool for foreign policy, reviving domestic manufacturing. Let’s see, generating revenue, maybe solving every problem you can possibly think of, but a policy that’s trying to do those three things at once and maybe many other things cannot reliably do anything at all. And certainly it can’t generate predictable revenue that Congress was relying on.
Steve Ellis:
And then by August we saw exactly that unpredictability play out in real time. Tariff rates have changed constantly by whim, somebody annoys the president or some country annoys the president, and next thing you know their tariff rates going up and the administration has changed the details. By the day, yes, on cars, no on cars, yes, on Canada and Mexico, then a 30 day break, then a 90 day break on Mexico. We said the only thing certain about the Trump tariffs was uncertainty.
Josh Sewell:
Yeah. And the court’s ruling today actually reinforces that point from just a different angle. So this major questions doctrine is essentially when the court’s saying that Congress has to say, we sign off on something. And in this case, Congress did not sign off on this exercise of power. So in implementing the law, you’ve exceeded the scope of our delegation of power. And if Congress didn’t sign off, there’s no institutional stability behind these tariffs. There’s no economic stability behind these tariffs. So they were always one presidential decision, or it turns out one court ruling away from disappearing. And that’s the definition of unreliable revenue,
Steve Ellis:
Which is precisely why TCS has said and continues to say, tariff revenue cannot and should not be used as an offset. And by the way, that argument didn’t just apply to I EPA tariffs. The budgetary argument holds whether the president is using emergency powers or traditional trade statutes. Okay, Josh, let’s talk about what happens next because this is where it gets really complicated for taxpayers. The treasury has collected more than 133 billion in tariff revenue under an interpretation of IEA. The court just struck down the court today did not address whether companies get refunds. Justice Kavanaugh and his dissent flagged this as what he called a mess. What are we looking at here?
Josh Sewell:
This is actually a significant fiscal issue, Steve. If the courts determine in the lower court cases that are already lined up that importers are entitled to refunds, you could be looking at well over a hundred billion dollars flowing back out of the treasury. That’s about two thirds of the tariff revenue collected thus far under these enhanced tariffs. And our friends at the tax foundation estimate, that would be about 1.5 trillion of lost revenue over the next decade if you factor in lost collections going forward. So the numbers are a little fluid, but it’s a significant amount of money,
Steve Ellis:
Right? Because that of course assumes that in three years time, the next president would keep these tariffs in place, but still a trillion dollars. To put that into context for budget watchdog af, we are already sitting at approximately $38.6 trillion in national debt. Our annual deficit is about $1.8 trillion and projected to grow TCS President, that’s me, issued a statement today saying that if recklessly collected tariff revenue has to be returned, it could reduce federal revenues by more than a trillion dollars over the next decade. That money was already being counted on or at least informally assumed by some lawmakers and the president.
Josh Sewell:
Yeah, reckless is the right term because people in the Trump administration, they knew this path to setting tariffs was legally dodgy. That’s why they didn’t try it in the first trumpet administration.
Steve Ellis:
But now they generated all this revenue while still running a $1.8 trillion deficit in fiscal year 2025.
Josh Sewell:
Right? And this is exactly the trap we warned about some in Congress treated tariff revenue like found money Commerce Secretary Lutnick. He claimed that tariffs would eliminate the entire deficit. And it was projected, I think at 25 trillion over the next decade. And lawmakers, some of them claimed that increased tariffs would cover the price tag of the reconciliation bill that became oba, the president himself floated replacing the entire individual income tax with tariff revenue. All of that was fantasy. And today’s ruling just makes it official,
Steve Ellis:
Right? Because if you look at what tariffs were originally designed to do, you essentially, one is if you’re trying to protect domestic industry, well then the tariff revenue is going to go down over time because the products will be produced domestically. And if you’re trying to use that as a foreign policy tool to change a government’s operations, well, once they change their operations, you’re expected to lower the tariffs. So it’s always going to be this fluid and a dynamic situation. Now, and this is important for listeners, the ruling does not stop President Trump from imposing tariffs under other legal authorities. The administration has already indicate and intends to maintain the tariff framework using different statutes. So we are not necessarily in a tariff free world tomorrow morning.
Josh Sewell:
Yeah, correct. And that’s why a colleague at another organization posted something today and his analysis was titled, good Ruling Congratulations, but don’t pop the champagne yet. And probably mostly because of what we’re talking about here, but also because that champagne will still be subject to excessive tariffs. So the president stated that he will push for new tariffs in his press conference today under section 1 22 of the 1974 Trade Act, justifying tariffs to address large and serious trade deficits. Also, there’s a thing called Section 3 38 of the Tariff Act of wait for it 1930. Famously, the Smoot Hotly Act known as a contributing factor to the Great Depression. For those of us who have read our history, that section allows tariffs on any country that discriminates against the United States. So we’ll see if that happens, because again, these things haven’t been litigated in the past. So there’s a lot up in the air. But President says he’s moving full steam ahead on tariffs.
Steve Ellis:
Side note, during the debate over the original North American Free Trade Agreement, AKA nafta, then Vice President Gore and Ross Perot, who had run for president in 1992 under the reform party, appeared on Larry King’s CNN show to argue the merits. In an early trolling, gore presented Perot a picture of Smoot and Holly, and it really threw Perot off his game.
Josh Sewell:
All right, Steve, just reinforcing how we’ll say aged you are back to tariffs today. So the administration also reiterated in its press conference that tariff increases not a part of the lawsuit. So not justified under a EPA are still in effect. And these are what’s known as 2 32 tariffs applied after the Secretary of Commerce determines an imported product threatens national security. So that covers things like aluminum, steel, auto parts, maybe fertilizer. I forget if they’ve done that one yet. It’s an incorrect understanding of national security threat, but it is technically legal. Also a thing called Section 3 0 1, which relates to tariffs in response to unfair trade practices. And this is what is being used. Most of the tariffs put in place on China and a few other countries,
Steve Ellis:
But those other authorities have more constraints, require different processes, and won’t be as sweeping or as fast predictability just went up. Or at least the uncertainty became a little more bounded.
Josh Sewell:
Yeah, exactly. And though 2 32 and 3 0 1, we had a lot of experience under that on the first Trump administration, and they do involve some investigations. Even if the investigations are predetermined, we know what the outcome’s going to be. There’s at least a process and it takes time. So it can’t just go up and down and change on a whim. And from a budget standpoint, that’s actually meaningful. So if tariffs have to go through more deliberate congressional or regulatory processes, they just become somewhat more predictable, which means the revenue, while still volatile, at least has a firmer legal foundation and some degree of confidence and expectation. That still doesn’t mean that Congress should be counting on it completely to pay for tax cuts or new spending programs, but it is marginally better, at least fiscally than a policy that could change with a true social post. It doesn’t mean it’s good policy, but at least there could be some slight bit of predictability. But we’ll see.
Steve Ellis:
Josh TCS statement today says something that I want to make sure the budge watchdog AF faithful hear clearly. This ruling should be a prompt for Congress to reassert its constitutionally mandated power to raise revenue. Because here’s the thing, the tariff debate was always, at its core, a symptom of a bigger disease. Congress has been AWOL on fiscal responsibility for a long time. And that’s on both parties.
Josh Sewell:
Absolutely. And the court, the Supreme Court today just slammed shut one escape hatch. The idea that the executive branch can generate revenue unilaterally to cover up fiscal responsibility. That was always an end run around Congress’s explicit constitutional authority over taxing and spending the court. Put it simply, the framers didn’t give any part of the taxing power to the executive branch period.
Steve Ellis:
And now Congress has to look in the mirror, like we said, we’re $38.6 trillion in debt. Interest to service that debt is at $1 trillion in rising annual deficits around $1.8 trillion. The one big beautiful bill act, the reconciliation bill carried a price tag of more than $4 trillion over 10 years plus trillions more if you add in other proposed tax changes. And certainly if the ones that were supposed to expire are made permanent, you cannot close that gap with phantom tariff revenue. You can’t close it at all without both real spending restraint and stable, predictable revenue.
Josh Sewell:
Hey, and the farm bailout issue is still sitting out there because now’s our time to talk about the farm bill. We talked in our August episode about how the administration had already committed 31 billion in agricultural disaster aid, plus 67 billion in additional farm subsidies in the reconciliation bill. And the first Trump administration handed out 23 billion in trade assistance to farmers during that first trade war. Money that was never recouped, even when farm losses didn’t materialize as predicted. So if tariff revenue now has to be refunded, where’s that money coming from?
Steve Ellis:
And Josh, agriculture really gets to one of the issues that the harm of this tariff policy, this trade policy, and that is markets shift and then they don’t come back. And so we saw that with the last trade war in the first Trump administration where China bought their soybeans from Brazil. Well, we didn’t recover. They didn’t turn away from Brazil and come back to the United States after that, at least not fully. And so there are some impacts that have already happened from this year of a trade war that are unlikable that not just our relations with our allies, but also markets shifting. And somebody second guessing of American markets, particularly as the president continues to talk about tariffs. And I guess I didn’t answer your question. Where’s that money coming from? I went on to my rant about the trade war, but the spoiler, it’s coming from the deficit.
That’s where that money is coming from, and that’s already too high Budget watchdog AF faithful. This is not an academic exercise. This is your money and your kids and grandkids money. Every dollar of deficit spending today is a dollar of debt tomorrow. And as I said, we’re already paying more than a trillion dollars a year just to service the national debt. That’s a trillion dollars that could going to defense, infrastructure, healthcare, anything other than interest payments to bond holders. Josh, let’s bring it home. What’s the bottom line for taxpayers today coming out of this ruling?
Josh Sewell:
Well, a few things. First, today’s ruling is a reaffirmation that Congress controls the power to tax. That’s not just a constitutional technicality. It means that when you pay a tariff, which is a tax, it must be because your elected representatives voted for it. That’s accountability. That’s the system working. Second, the fiscal mess created by nearly a year of sweeping so-called emergency tariffs, it’s not going away with today’s ruling. It may actually get more complicated as the courts work through refund questions and the administration transitions to other legal authorities, some of which, many of which are going to be litigated because some of them haven’t been addressed in the past. So taxpayers, you’re going to have to stay engaged.
Steve Ellis:
And third, Congress must now use this moment to do its job. That means passing a budget. That means making real decisions about spending and revenue, not hiding the ball, not using current policy baseline gimmicks to pretend $5 trillion in tax cuts cost nothing. Not counting on speculative tariff revenue to paper over deficits. Real math, real accountability. That’s what taxpayers deserve.
Josh Sewell:
And we’ll be here to hold ’em to it.
Steve Ellis:
Well, there you have it. Budget watchdog A of faithful, a historic Supreme Court ruling today. And a reminder that the Constitution still works. The power to tax belongs to Congress now. Congress needs to use it responsibly. This is the frequency market on your dial, subscribe and share and know this taxpayers for common sense has your back. America. We read the bills, monitor the year marks, and highlight those wasteful programs that poorly spent our money and shift long-term risk to taxpayers. We’ll be back with a new episode soon. I hope you’ll meet us right here to learn more.
