The Tariff Tax: The “Largest U.S. Tax Hike” in 30 Years as Bankruptcies Surge

The Tariff Tax: A recent tweet from the Tax Foundation made a striking claim: “The Trump tariffs are the largest US tax increase as a percent of GDP in over 30 years.” This isn’t just an economic talking point, and it’s definitely not political since the Tax Foundation is an independent tax policy research organization cited as non-partisan.

The Tax Foundation’s statement reveals what American households already know based on personal experience: the tariffs are hurting our wallets.

By Alexander Hernandez, J.D., Professor, and Author of Consumer Bankruptcy Law (Routledge).

Tariffs Are A Tax by Another Name

For many, the word “tariff” means international trade disputes, not a tax paid by the consumer. However, economists widely agree: tariffs are taxes paid by domestic businesses when a product is imported, and ultimately, that tax and increase in the product is passed on to the consumers.

Numerous studies have shown that the tariffs imposed during the Trump administration have cost the average U.S. family upwards of $1,200 per year in increased costs. This isn’t theory! It’s money coming out of a household’s budget. And critically, unlike income taxes, these “tariff taxes” are regressive.

A regressive tax is a tax that takes a larger percentage of income from a low-income person than it does from a high-income person.

Lower and middle-income households, which spend a larger proportion of their income on consumer goods, bear a disproportionately heavier load. Just think what $1,200 means financially to a household income of $30,000 versus that of $100,000.

From Policy to Personal Financial Crisis

Because of my background in bankruptcy law, I view the tariffs from the perspective of the average family. An increase of $1,200 annually in the household budget might seem manageable for some, but for millions of Americans, it can be the proverbial straw that breaks the camel’s back.

The example I’ve used consistently is that unless you earn $1,200 more this year or reduce your expenses by $1,200, you will be $1,200 more in debt. Over a four-year term, it increases to $4,800 without adding interest.

Can you afford to get $4,800 more in debt? And once you increase your debt by almost $5,000 assuming there are no financial emergencies that increase the overall debt, how fast can you crawl out of the debt?

Think of the effect over a longer period of time.

Eroding Disposable Income: Higher prices for everyday necessities leave less money for savings, paying down debt, and investing in retirement accounts.

The “Slow Burn” Effect: Unlike a sudden job loss, tariffs are a “slow burn.” It’s a continuous, often unnoticed, drain on finances that, for lack of a better term, creeps up on you, and by the time you notice, it’s too late. Consider the often-used analogy of the frog in a pot of boiling water.

The Boiling Frog Syndrome is used as an example that small, gradually increasing threats over time result in reacting too late, where now the threat is real and unavoidable.

For example, if a frog is placed suddenly into boiling water, it will immediately jump out. But what if the frog is placed in a pot with lukewarm water, and slowly the water is brought to a boil? The frog won’t realize the danger and will be cooked to death. When it comes to our wallets, tariffs are turning up the heat slowly.

While a job loss or a medical emergency is a sudden financial jolt, tariffs result in small increases. A  few extra dollars here and there for clothes, appliances, tools, and especially grocery items. At the end of the year, the total cost has accumulated into thousands of dollars.

The Looming Wave: Bankruptcy Filings and 2026

Recent data shows a concerning, yet predictable trend: bankruptcy filings are on the rise. In 2023, total bankruptcy filings jumped by 16.8% over the previous year, with consumer filings increasing by 16.2%. This increase has continued into 2024.

While the rise can’t be pinpointed to one specific issue, since post-pandemic-era protections are gone, rising interest rates, and persistent inflation, the effects of a “tariff tax” cannot be ignored.

Here’s why I believe we are likely to see this trend continue, resulting in a significant increase in bankruptcy filings by 2026:

Lag Effect: The full economic impact of policies like tariffs often takes time to filter through the economy. As I mentioned earlier, at the end of one year, a household is $1,200 more in debt, the following year $2,400 more, and so on.  So, for tariffs issued in January of 2024, depending on that debtor’s financial situation, bankruptcy may not result for another year or more.

For example, if the debtor has a large amount of available credit, that would delay their bankruptcy filing versus someone who doesn’t, since they can continue to use their credit cards for a longer period of time until maxed out. There are other issues to consider in the lag effect, which I detail in this prior article.

The Professor’s Take: The Unseen Burden and The Visible Fallout

The “largest U.S. tax increase” of the last three decades isn’t likely to be stated in any government publication, especially since the current administration is stating the opposite. But as I have posted endless times on social media: your bank account and credit card balance don’t lie.

Tariffs are hidden in the price tags of the goods we buy. International trade and politics are complex, but the costs to American households aren’t.  As I’ve been saying all year, we all need to be prepared financially as we look towards 2026. The effects of this “tariff tax” will continue to impact our finances, and bankruptcy will continue to rise for large corporations, family-owned businesses, and consumers.

Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. Paralegals and students who are buying single copies can do so via Amazon Books. To access my YouTube channel, click this link. You can also listen to my podcast on Spotify.

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