AI Summary. Federal Reserve Bank of New York researchers estimate that about 26% of a uniform tariff passes through into non-oil consumer goods prices over twelve months, with roughly 64% of that effect coming directly from higher import prices and the rest through domestic producers' input costs and markups. Pass-through into import prices is nearly immediate, while domestic price responses build gradually.

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FRBNY estimates that a uniform 10% tariff raised consumer-goods prices 2.6% after 12 months: 1.7pp directly via imported final goods, and 0.9pp mainly via higher imported-input costs for domestically produced goods, with the latter effect building over 9–12 months.

How much of a tariff reaches consumer prices within a year?

Core argument: Amiti, Heise, and Weinstein estimate that a uniform tariff passes through to non-oil consumer goods prices at roughly 26 percent over twelve months, with a 10 percent tariff raising prices 2.6 percentage points, 1.7 points of it via the direct import channel.

Tariff pass-through into U.S. import prices is nearly complete. Instrumenting realized duty rates with statutory tariffs to account for endogenous sourcing and exemptions, tariff pass-through into consumer-goods import prices is about 90.5%; a 10% increase in the duty rate raises import prices about 9.1%. At twelve months, a uniform 10% tariff raises consumer-goods prices 2.639%: 1.694pp through the direct channel, 0.770pp through marginal costs, and 0.175pp through strategic complementarity. Import-price pass-through is essentially immediate, while domestic prices adjust gradually; the contribution of the two indirect channels roughly doubles between six and twelve months, with much of the overall adjustment occurring within nine to twelve months. For the actual 2025–26 tariffs, the direct channel accounts for about 70% of the estimated effect; the marginal-cost channel accounts for about 22%, with strategic complementarity accounting for the remainder. Because the regressions include date fixed effects, the tariff contribution is identified relative to less-exposed goods and should be read as illustrative rather than as the absolute contribution to aggregate goods CPI.

Takeaways by Macro Roundup® AI

  1. Amiti, Heise, and Weinstein estimate that a uniform tariff passes through to non-oil consumer goods prices at roughly 26 percent over twelve months, with a 10 percent tariff raising prices 2.6 percentage points, 1.7 points of it via the direct import channel.
  2. The two indirect channels — marginal costs from imported inputs (0.77 percentage points) and strategic complementarity in domestic markups (0.17 points) — account for 36 percent of the total effect and roughly double between six and twelve months after tariff implementation.
  3. Applied to the actual 2025–26 tariff schedule, the authors estimate the cumulative tariff contribution to goods CPI reached about 2.9 percentage points by February 2026, with import-price pass-through near 90 percent and retail pass-through of 0.56.

AI Summary. Incorporating tariffs into the standard cost-of-capital framework, researchers estimate US tariffs raised the economy-wide marginal effective tax rate on new investment by 4.2 percentage points to 17.0%, with equipment hit hardest at 26.1 percentage points. That increase offsets the 3.5 percentage point reduction from the One Big Beautiful Bill Act.

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The IEEPA tariffs through January 2026 raised equipment’s user cost of capital 9%, from 17.7% to 19.3%. With depreciation unchanged, the required pre-tax net return rose 1.6pp, 4.3% to 5.9%, a tax at purchase that expensing cannot eliminate.

Do tariffs raise the effective tax rate on new investment?

Core argument: Tariffs in force before the February 20, 2026 Supreme Court ruling in Learning Resources v. Trump raised the economy-wide marginal effective tax rate on new US investment by 4.2 points, from 12.8 percent to 17.0 percent, and the cost of capital by 2.7 percent, the AEI authors estimate.

The standard Hall-Jorgenson user cost of capital framework defines the minimum gross required return on an additional unit of capital. The service price of capital (SS) is the minimum pretax gross return required on a new investment; the minimum pretax net return (ρrho) equals SS minus economic depreciation. Consider imported equipment requiring a 25% gross return: 20% to cover depreciation and 5% shareholders’ demanded return. A 10% tariff raises the cost of capital to 27.5%. [Thus the minimum pretax net return—the hurdle rate—rises from 5% to 7.5%]. For equipment, tariffs raise the cost of capital 9%, from 17.7% to 19.3%: 86% of the burden is direct, 14% indirect. 100% bonus depreciation reduced the equipment METR from 19.1% to 4.1%; tariffs raised it to 30.3%, more than offsetting the tax cut.

Takeaways by Macro Roundup® AI

  1. Tariffs in force before the February 20, 2026 Supreme Court ruling in Learning Resources v. Trump raised the economy-wide marginal effective tax rate on new US investment by 4.2 points, from 12.8 percent to 17.0 percent, and the cost of capital by 2.7 percent, the AEI authors estimate.
  2. Equipment bore the largest estimated burden, with its marginal effective tax rate rising 26.1 points from 4.1 percent to 30.3 percent and its cost of capital up 9.0 percent, while mainframes and PCs saw a 26.6 percent cost-of-capital increase.
  3. The estimated 4.2 point tariff-driven increase in the marginal effective tax rate offset the One Big Beautiful Bill Act’s 3.5 point reduction, leaving a net 0.8 point rise economy-wide and an 11.1 point net increase for equipment.

AI Summary. An analysis finds a Social Security tax-increase package lowers the debt-to-GDP ratio by 14.3 percentage points, with 97% of that coming from smaller Social Security deficits rather than economic growth. A benefit-reduction package cuts the ratio by 29.2 percentage points, raising long-run GDP by 12.1% versus 0.4%.

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A Penn-Wharton simulation finds that restoring Social Security solvency with tax increases alone would cut debt/GDP by ~14pp by 2060, while a fix based only on benefit cuts would cut it by ~29pp.

How do benefit cuts and tax increases differ in reducing debt-to-GDP?

Core argument: The benefit-reduction package cuts the debt/GDP ratio by 29.2 percentage points in the long run, more than twice the 14.3 percentage points under the tax-increase package.

The first figure [in the gallery] decomposes the tax-increase reform package’s improvement to the debt/GDP ratio into separate effects: how much does it cut debt versus how much does it raise GDP? Almost all of the tax-increase plan’s improvement in debt/GDP comes from lowering federal debt by raising taxes. The plan has a small negative effect on the economy in the short run and a small positive effect in the long run. But 97% of its 14.3 percentage point long-run reduction in debt/GDP comes simply from reducing Social Security’s deficits. The economy is little-changed relative to a baseline in which Congress simply borrows to pay Social Security benefits. The benefit-reduction package [second figure in the gallery] tells a different story. It reduces debt/GDP by 29.2 percentage points, more than twice as much as the tax-increase package. Part of that comes from a larger reduction in debt: 17.2 percentage points versus 13.9. But the real kicker comes from higher long-run GDP: 12.1% under the benefit-reduction package versus just 0.4% under the tax-increase package.

Takeaways by Macro Roundup® AI

  1. The benefit-reduction package cuts the debt/GDP ratio by 29.2 percentage points in the long run, more than twice the 14.3 percentage points under the tax-increase package.
  2. Of the tax-increase plan’s 14.3 percentage point long-run reduction in debt/GDP, 97% comes from reducing Social Security’s deficits, leaving the economy little changed relative to a baseline in which Congress borrows to pay benefits.
  3. Long-run GDP rises 12.1% under the benefit-reduction package versus 0.4% under the tax-increase package, with debt falling 17.2 percentage points versus 13.9.

AI Summary. The gap between French and German 10-year government bond yields has widened at a pace matched only during the euro zone sovereign debt crisis. France and the UK have less room than the US to close deficits with tax increases, as tax revenues equal 43.9% of GDP in France and 35.3% in the UK versus 25.2% in the US.

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The spread between 10-year French OATs and German Bunds has widened at a pace seen only during the eurozone sovereign-debt crisis. John Authers warns that France “satisfies all the classic conditions for a major debt crisis.”

Do high tax burdens limit France and the UK's deficit options?

Core argument: The spread of 10-year French OATs over German Bunds has risen at a pace matched only during the worst days of the euro-zone sovereign debt crisis in 2011 and 2012, fueling talk of a second crisis centered in Paris.

Only in the worst days of the euro zone’s sovereign debt crisis, in 2011 and 2012, has the [spread of 10-Year French OATS over German Bunds] risen so fast. Talk of a second euro-zone crisis, this time with an epicenter in Paris, is growing, and it’s easy to see why. Why is this more of a problem for France and the UK? Beyond their deficits, they also shoulder much higher tax burdens than the US. Tax revenues are 25.2% of GDP in the US, the lowest of the major developed economies - but 35.3% in the UK and 43.9% in France. It’s hard to imagine after decades of tax-cutting, but a US politician could deal with the deficit fairly easily with a tax hike. It’s not clear that option is open to French lawmakers, even if they could somehow persuade voters to go along with them. The populist politicians of left and right, who currently look well placed in next year’s presidential elections, are in any case unlikely to try.

Takeaways by Macro Roundup® AI

  1. The spread of 10-year French OATs over German Bunds has risen at a pace matched only during the worst days of the euro-zone sovereign debt crisis in 2011 and 2012, fueling talk of a second crisis centered in Paris.
  2. Tax revenues equal 25.2% of GDP in the US, the lowest among major developed economies, versus 35.3% in the UK and 43.9% in France, leaving American politicians more room to close the deficit with a tax hike.
  3. Populist politicians of left and right, currently well placed for France’s presidential election, are unlikely to attempt tax increases to address the deficit.

AI Summary. An analysis projects that by 2030 a rapid artificial intelligence growth scenario—3.3% annualized GDP growth with a rising capital share of income—could raise US federal revenues by up to $216bn, 3.3% above the Congressional Budget Office baseline. Because capital income receives preferential tax treatment, a falling labor share of income reduces the revenue gain that output growth would otherwise produce.

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Iselin and Nunn expect AI to increase output growth but to reduce labor’s share of income. “This bias in AI-induced growth reduces the revenue increase one would otherwise expect, given the preferential tax treatment afforded to capital income.”

How much would AI-driven growth raise federal tax revenues?

Core argument: In a rapid AI growth scenario of 3.3% annualized GDP growth with a growing capital share, federal revenues by 2030 could grow by up to $216 billion, a 3.3% increase on top of CBO's 2026 baseline.

The additional output growth that is often expected from AI—a clear positive for the fiscal picture —is not the only potential impact that matters. Another widely expected consequence of AI adoption is a reduction in the labor share of income. This bias in AI-induced growth reduces the revenue increase one would otherwise expect, given the preferential tax treatment afforded to capital income. Further, any labor inequality effects of AI could increase revenues (in the case of increasing inequality) or reduce them (in the case of decreasing inequality). Because these channels are of first-order importance for understanding AI effects on tax revenues, our analysis focuses on their roles. Other channels, not considered here, could also turn out to have meaningful revenue implications. We project that by 2030, in a rapid AI growth scenario (3.3% annualized GDP growth and a growing capital share), federal revenues could grow by up to $216 billion, a 3.3% increase on top of CBO’s 2026 baseline.

Takeaways by Macro Roundup® AI

  1. In a rapid AI growth scenario of 3.3% annualized GDP growth with a growing capital share, federal revenues by 2030 could grow by up to $216 billion, a 3.3% increase on top of CBO's 2026 baseline.
  2. A reduction in the labor share of income from AI adoption would blunt the revenue gains otherwise expected from faster growth, because capital income receives preferential tax treatment.
  3. AI's labor inequality effects could raise revenues if inequality increases or reduce them if inequality decreases, a channel of first-order importance alongside the shift in labor share.

AI Summary. There is little evidence that fears of a Greek-style solvency crisis are driving U.S. interest rates, since long-term "breakeven" inflation expectations have changed little. Prices for credit default swaps, which insure against a U.S. government default, have also moved little.

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Citing the stable long-term breakeven inflation rate and minimal rise in Treasury CDS prices, Krugman argues that high long-term rates reflect heavy federal borrowing, but not fears of outright default or inflation-induced debasement.

Are bond markets signaling fears about government solvency?

Core argument: Bond markets show very little evidence that fears of a Greek-style solvency crisis are driving U.S. interest rates.

There is very little evidence that fears of a Greek-style crisis are driving interest rates now. For example, if markets were really worried about U.S. solvency and the potential for the government to inflate the debt away, this should be reflected in measures that track inflation. But there has been, in fact, very little change in the “breakeven” inflation rate, a measure of long-term inflation expectations. Another indicator is the price of credit default swaps — insurance against a possible US default. These also haven’t moved much.

Takeaways by Macro Roundup® AI

  1. Bond markets show very little evidence that fears of a Greek-style solvency crisis are driving U.S. interest rates.
  2. The breakeven inflation rate, a measure of long-term inflation expectations, has changed very little, which would be expected to move if markets feared the U.S. government would inflate away its debt.
  3. Prices of credit default swaps, which insure against a possible U.S. default, also have not moved much.

AI Summary. Tariff refunds are boosting US corporate earnings and economic growth, with the Atlanta Federal Reserve's GDPNow tracker pointing to 4.3% growth this quarter, of which roughly 0.2 percentage points is estimated to come from tariff refunds.

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Net tariff receipts turned negative in May as refunds outpaced custom duties. The Atlanta Fed projects GDP growth of 4.3% at an annual rate in Q3, of which Sløk estimates ~.2pp will be driven by tariff refunds.

Are tariff refunds adding to corporate earnings and GDP growth?

Core argument: The Atlanta Fed's GDPNow points to 4.3% US growth this quarter, of which roughly 0.2 percentage points are estimated to come from tariff refunds.

The tailwinds behind the US economy are not just AI spending, the industrial renaissance and the One Big Beautiful Bill. Tariff refunds have now joined the list. Not only are tariff refunds boosting corporate earnings, they are also boosting GDP growth. The Atlanta Fed's GDPNow currently points to 4.3% growth this quarter, of which we estimate roughly 0.2 percentage points come from tariff refunds. The bottom line is that the US economy continues to be supported by a growing set of tailwinds. Rates will stay higher for longer.

Takeaways by Macro Roundup® AI

  1. The Atlanta Fed's GDPNow points to 4.3% US growth this quarter, of which roughly 0.2 percentage points are estimated to come from tariff refunds.
  2. Tariff refunds are boosting both corporate earnings and GDP growth, joining AI spending, the industrial renaissance and the One Big Beautiful Bill as tailwinds behind the US economy.
  3. With the US economy supported by a growing set of tailwinds, rates are expected to stay higher for longer.

AI Summary. China is pursuing hundreds of billions of dollars in unpaid taxes from the ultra-rich, scrutinizing overseas capital gains and investments dating back as far as 2000 while also seeking to expand control of outbound capital flows. Budget revenue fell 1.7% to Rmb21.6tn ($3.2tn), and land sale revenue dropped from a Rmb8.7tn peak to Rmb4.15tn after a property slump.

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China has launched a tax crackdown on the overseas capital gains of China’s rich, as Beijing looks to offset a worsening fiscal outlook. Total government revenue from land sales has fallen ~52% since 2021.

Is China chasing decades of unpaid taxes to offset falling revenue?

Core argument: China has launched a global hunt for hundreds of billions of dollars in unpaid taxes going back decades, targeting the ultra-rich as Beijing seeks to fill a deepening fiscal hole.

China has launched a global hunt for hundreds of billions of dollars in unpaid taxes going back decades as Beijing seeks to fill a deepening fiscal hole by targeting the ultra-rich. Authorities have stepped up scrutiny of overseas capital gains and investments, in some cases going back as far as 2000, in a campaign that comes as Beijing also seeks to significantly expand control of outbound capital flows. China’s budget revenue, largely dependent on tax, has mostly plateaued since the pandemic, falling 1.7% to Rmb21.6tn ($3.2tn) in 2025. Total government revenue from land sales, once a core revenue source for the state, collapsed from a 2021 peak of Rmb8.7tn to Rmb4.15tn after a property market slump.

Takeaways by Macro Roundup® AI

  1. China has launched a global hunt for hundreds of billions of dollars in unpaid taxes going back decades, targeting the ultra-rich as Beijing seeks to fill a deepening fiscal hole.
  2. China's budget revenue, largely dependent on tax, has mostly plateaued since the pandemic, falling 1.7% to Rmb21.6tn ($3.2tn) in 2025.
  3. Total Chinese government revenue from land sales, once a core revenue source for the state, fell from a 2021 peak of Rmb8.7tn to Rmb4.15tn after a property market slump.