Treasury Hopes to Offset Tax Cut Costs With Tariff Revenue

Treasury Secretary Scott Bessent expressed optimism on President Trump’s 100th day in office about the progress of negotiations with congressional taxwriters on extending Tax Cuts and Jobs Act (TCJA) provisions as the administration expects tariffs to help pay for tax provisions.

Tariffs and tax breaks.

Bessent told reporters Tuesday at a White House press briefing there is “a very good chance” impending tax legislation will reflect “the ability of tariff revenue to give income tax relief.” The bill should also reflect Trump’s campaign promises of “no tax on tips, no tax on Social Security,” and “no tax on overtime.”

Tariff income, Bessent reiterated, “could be used for all those, immediately.” He explained the administration’s approach is based around both long-term tariff revenues and tariffs that could be wound back as part of “trade deal” discussions. This will help boost U.S.-based manufacturing and create jobs, said the Treasury secretary. The “aperture of uncertainty” around tariffs on other countries will be “narrowing” in the near future “as we start announcing deals,” according to Bessent.

As for how anticipated tariff revenues fit into the framework for extending Trump tax cuts enacted during his first term, Bessent said talks with top Republicans in the House and Senate are going “much better” than he could have expected three months ago.

Bessent said he meets regularly with a group referred to as the “Big Six,” comprised of White House National Economic Council Director Kevin Hassett, Senate Majority Leader John Thune (R-SD), House Majority Speaker Mike Johnson (R-LA), Senate Finance Committee Chairman Mike Crapo (R-ID), and House Ways and Means Committee Chairman Jason Smith (R-MO).

“The tax bill is moving forward,” he said. “It will give permanence to [TCJA].” Trump is “also adding things for working Americans,” Bessent continued, such as “making auto payments deductible.” Businesses will also benefit from “very powerful domestic investments” and business tax relief, including the “full expensing of equipment,” retroactive to January 20. “The other thing we are looking to add is full expensing for factories” coupled with “deregulation, cheap energy, and regulatory certainty,” said Bessent.

On the international front, the administration is telling European Union members it is opposed to digital service taxes and would see such a policy “removed” before signing onto a global tax agreement.

IRS restructuring.

Also on Tuesday, Treasury issued a press release claiming it has achieved $2 billion in spending cuts from the IRS’ IT budget without any operational disruptions. Treasury said this was done by “eliminating wasteful contracts, such as auto-renewed licenses unused for years, saving hundreds of millions annually.” Had it eliminated “Blanket Purchase Agreements,” the savings total would have increased by eight times, per the release.

“The IRS has removed non-technical staff from technical leadership roles in engineering and replaced them with experienced engineers, and the IRS is in the process of transitioning all non-technical staff out of engineering,” Treasury announced. The release goes on to outline restructuring efforts to shore up cybersecurity and safeguarding taxpayer data.

The IRS is also looking to cut down on the amount of physical checks it issues for fraud prevention purposes, as well as resources devoted to processing paper returns and communications. “Last year, the federal government spent $450 million on paper processing with nearly 6,500 full-time staff dedicated to this task.” Treasury’s goal is to “reduce this to under $20 million” through “policy changes and automation.”

Taxpayers should also be optimistic about the future of the taxpayer experience at the IRS, according to Treasury, because it created a “coalition” of “long-time career IRS engineers” deemed “the most talented technical personnel.” The coalition is tasked with streamlining “IRS systems to create the most efficient service for the American taxpayer.”