Economic Claims in the State of the Union

Not adding up.

In his latest State of the Union, the President presented a version of the American economy that exists only in his rhetoric. I use the word "lies" deliberately; these aren’t matters of opinion or "spin." These are knowable, verifiable figures that have been misrepresented for so long that continuing to do so constitutes a willful disregard for the truth.

He said he inherited a “stagnant economy” that is now “roaring like never before.” It isn’t.^¹ He claimed “inflation at record levels.” It wasn’t.² He said prices are “plummeting.” They are rising.³ From misstating income growth⁴ to inflating the impact of the "Democrat shutdown"⁵ the speech was a minefield of statistical fiction.

Receipts with charts here.

As a political matter, people have an immediate fact-check in their wallets. They don’t feel like they’re living in boom times—and every major poll confirms it.⁶

These are lies about the past. (Oh, and he also claimed $18 trillion in investment.⁷ He said he passed the largest tax cut in American history.⁸ He said he eliminated taxes on Social Security.⁹) But while the lies about the past are embarrassing, the misrepresentations regarding tariffs matter more. They aren't just historical revisions; they represent a theory of future economic behavior. The tariff promise is the load-bearing wall of this administration’s economic house. And on the biggest stage in the world, the President just took a sledgehammer to it. Again.

Last night during the State of the Union when the president suggested tariff income would replace the income tax, I went scrambling to find a substack piece I wrote about a similar promise he had made last year. I couldn’t find it. I don’t think I published it in the end. Here is that piece and the new developments:

We all have workplace challenges. Ever had your boss undermine you in a meeting? Imagine if the meeting was the Supreme Court, where you had insisted something was so, or you lectured a TV anchor about economics—and then your boss, with the largest microphone in the world, immediately said the opposite of what you were insisting.

The behavior might come up at the HR 360-degree review.

Treasury Secretary Scott Bessent says tariffs are not a permanent source of enormous tax revenue. His boss says the opposite.

On Thanksgiving 2024, Donald Trump said tariff revenue would essentially replace the income tax:

“Over the next couple of years, I think we’ll substantially be cutting and maybe cutting out completely, but we’ll be cutting income tax. Could be almost completely cutting it because the money we’re taking in is going to be so large.”

When George Stephanopoulos recently pressed the Treasury Secretary on this idea, Secretary Bessent corrected him:

“No, no, no, George. Stop right—no...it’s not about taking in the [tariff] revenue, it’s about re-balancing. And the revenue occurs early on. And then as we rebalance and the jobs come home, then it becomes domestic tax revenue.”

But if income taxes are going to disappear, as the president says, how can tax revenue flood the treasury as Secretary Bessent has said repeatedly? Here he is in April talking about how this works with Tucker Carlson:

What will happen over time is: we’ll have substantial tariff income in the beginning. Manufacturers will build their factories here. The tariffs will drop. But the revenue from the factories—from income taxes, from all the new jobs—will go up.

Either tariffs generate enough revenue to replace income taxes (Trump’s claim), or tariffs fade as factories return and taxes make up the difference and more (Bessent’s claim). Both cannot be true.

This was already a problem in December, when I first drafted these observations. It is now a crisis—because the contradiction didn’t just muddle the messaging. It helped lose a Supreme Court case.

On February 20, the Supreme Court ruled 6-3 in Learning Resources, Inc. v. Trump that the International Emergency Economic Powers Act does not authorize the president to impose tariffs. Chief Justice Roberts, writing for the majority, was unequivocal: “The power to impose tariffs is ‘very clearly a branch of the taxing power’” reserved for Congress. The decision struck down the legal foundation for the administration’s sweeping tariff regime—the reciprocal tariffs, the fentanyl tariffs on Canada, Mexico, and China, all of it.

The government had argued to the Court that tariffs imposed under IEEPA were “regulatory rather than revenue-raising in nature.” To avoid its interpretation of IEEPA being declared an unconstitutional delegation of power, the government needed to show the tariffs were not primarily about raising revenue. Secretary Bessent’s framing—tariffs are transitional, the real payoff comes from domestic manufacturing and jobs—was the more intellectually coherent version of this argument.

When the president claimed tariffs would replace the income tax, he was undermining his own legal team’s argument. Chief Justice Roberts seemed doubtful during oral arguments that the tariffs were regulatory rather than revenue-raising, and the Court’s opinion makes clear it saw through the distinction.

And four days after losing the case, on the biggest stage in American politics, the president did it again.

Standing before a joint session of Congress on February 24—with Chief Justice Roberts and other justices seated in the chamber—Trump declared during his State of the Union address: “As time goes by, I believe the tariffs paid for by foreign countries will, like in the past, substantially replace the modern-day system of income tax, taking a great financial burden off the people that I love.”

So: Bessent tells the country tariffs are temporary and transitional. The government tells the Supreme Court they are regulatory, not revenue-raising. The Supreme Court says they’re illegal. And the president, facing the justices who just ruled against him, reasserts that tariffs will replace the entire income tax.

But this is never going to happen anyway. The math has never worked, and now it works even less. Tariff revenue was substantial in fiscal year 2025—about $195 billion, a 150 percent increase over 2024. But individual income tax revenue in FY 2025 was $2.68 trillion. To replace income taxes with tariffs, tariff revenue would need to increase more than thirteenfold.

That was never plausible; with the IEEPA tariffs struck down and a replacement 15 percent surcharge limited to 150 days under Section 122 of the Trade Act, it is now mathematically absurd.

On the signature economic policy of this administration, the president and his top economic spokesperson are still telling the world two different things. Is this a purposeful mischaracterization to the American people, or does the president misunderstand how his policies work?

Also, when we say “tariffs,” what we’re really saying is import taxes paid by American companies and consumers, despite what the president claims—the New York Federal Reserve found that nearly 90 percent of the tariffs’ economic burden fell on U.S. firms and consumers. (They’re not the only ones to say this. Goldman, Morgan Stanley, etc.).

Nevertheless, several times during the State of the Union the president said foreign countries pay tariffs.

One last point. The manufacturing story is also more complicated than advertised. Secretary Bessent’s entire theory of the case is that factories will come home and generate domestic tax revenue. But according to revised Bureau of Labor Statistics data, the manufacturing industry lost approximately 103,000 jobs between January 2025 and January 2026—13 consecutive months of factory job losses before a modest 5,000-job gain in January. If the factories are coming home, they’re not hiring when they get here. Factory construction spending tells a similar story. According to Census Bureau data, manufacturing construction spending peaked in the third quarter of 2024 and has been declining since—down 6.7 percent under Trump, with the American Institute of Architects forecasting further declines of 4 percent this year and 1 percent next year. The boom in factory building that does exist appears largely driven by Biden-era semiconductor and clean energy investments that preceded the current tariff regime.

In December, the contradiction between Trump and Bessent was an interesting tension. Today it is a material fact that helped collapse the president’s tariff policies and undermines his claims about them in the future. The legal argument didn’t work. The math doesn’t work. The manufacturing renaissance hasn’t arrived. But the president, undeterred by a Supreme Court loss, the laws of arithmetic and politics, took the podium Tuesday night and said it again.

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1. “Stagnant” vs. “Roaring.” GDP grew 2.8 percent in 2024 (Biden’s last year) vs. 2.2 percent in 2025 (Trump’s first)—the slowest since 2020. The economy added just 181,000 jobs in 2025, compared with 1.46 million in 2024. Unemployment rose from 4.0 percent to 4.3 percent. The employment-population ratio fell from 60.1 to 59.8 percent.

2. “Inflation at record levels.” He inherited a year-over-year rate of 3.0 percent, already falling. It peaked at 9.1 percent in June 2022—a 40-year high, but far from the actual U.S. record of 23.7 percent, set in 1920.

3. “Plummeting” prices. The CPI fell from 3.0 to 2.4 percent, but prices are still rising, not falling. Since January 2025: groceries up 2.1 percent, electricity up 6.3 percent, housing up 3.4 percent, medical care up 3.2 percent. Ground beef hit a record $6.75 per pound. Ground coffee up 34 percent. (CNBC breakdown)

4. After-tax real income grew 0.9 percent in 2025, down from 2.2 percent in 2024—the weakest gain since 2022. Real average hourly earnings rose 1.2 percent year-over-year, positive but below prior pace.

5. The shutdown and Q4 GDP. GDP grew 1.4 percent in Q4, down from 4.4 percent in Q3. Trump claimed the shutdown cost “at least two points.” BEA estimated about one percentage point. Goldman Sachs estimated 1.15 points. Even adding a full point back yields ~2.4 percent—still a deceleration. (CBO analysis; CNBC)

6. Polling. AP-NORC (Feb 2026): 39 percent approve of Trump on the economy, 59 percent disapprove. Seventy percent describe the economy as poor. AP-NORC (Dec 2025): approval fell to 31 percent—the lowest in any AP-NORC poll in either Trump term. NPR/PBS/Marist: nearly 60 percent say the country is worse off than a year ago. Fox News: 76 percent rated economic conditions negatively. ABC/WaPo/Ipsos: 57 percent disapprove on economy, 65 percent disapprove on inflation.

7. $18 trillion in investment. Unverifiable. The White House's own website lists $9.6 trillion, a figure that includes Biden-era commitments. PolitiFact and Cato have questioned the methodology.

8. “Largest tax cuts in American history.” The Tax Foundation, which leans right, found it is the sixth largest since 1940 as a share of GDP.

9. “No tax on Social Security.” The bill created a temporary $6,000 deduction for individuals 65 and older that expires in 2028. Millions of Social Security recipients—including all those under 65—still pay taxes on their benefits.