Tariffs are duties imposed on goods coming into the United States. Levying duties on foreign imports allows the government to mitigate against externalities, correct for market failure, protect domestic industries, eliminate trade deficits, and address anticompetitive practices of other countries (e.g. anti-dumping duties). When duties are imposed, American companies initially pay tariff revenues to the Department of Treasury before they gradually pass costs on to consumers through higher prices. As such, tariffs function as a government surcharge on imported goods with the ultimate burden falling on American consumers and businesses.
For local governments, tariffs can have indirect but significant fiscal consequences by reducing revenues and raising operating costs. Municipal governments rely on three common revenue sources—sales tax, income tax, and property tax—each of which can be affected by tariff policies. Higher import prices increase the cost of everyday goods, in turn reducing household purchasing power. As a result, household income drops, which lowers spending and property tax revenues. In addition to reducing revenues, tariffs can also raise local government operating expenses. Higher price tags on construction materials drive up costs for local infrastructure and capital projects, which hinder long term capital planning efforts. Repairs to public facilities, bridges, and roads may be delayed or cancelled as supply chain disruptions occur and budgets run over. Trickle-down effects create a deeper layer of financial uncertainty for local governments that are contending with constrained revenues and rising costs.
Despite these local fiscal repercussions, tariff revenues do not flow to local governments. They are collected exclusively at the federal level, deposited in the Treasury’s general fund, and used for federal purposes (e.g. debt servicing). While local governments receive funds from the federal government through Intergovernmental Transfers, tariff revenues are not directly shared with municipalities. There is no statutory or administrative mechanism that redistributes these funds to subnational recipients. Fuel taxes and other similar revenue streams have formula-based allocations to state and local governments; tariffs, on the other hand, are treated as federal receipts only. Consequently, local governments may experience indirect economic impacts from tariffs without receiving any share of the associated revenues.