Improving through 2025Q3. But taking out the revenue associated with the illegal IEEPA tariffs, well…

Figure 1: Federal budget balance excluding automatic stabilizers (blue), and excluding IEEPA tariffs (red), as a share of potential GDP. Assumes amounts above Q1 tariff revenue is IEEPA related tariff revenue. Source: CBO, Effect of Automatic Stabilizers (August 2025) and author’s calculations.

I show the ex-customs revenue associated with IEEPA tariffs (actually a guesstimate) adjusted budget balance because we know that these are in principal supposed to be fully refunded (starting in 2026Q1, which is after the sample shown, as CBO only provides projections through Q3).

CBO estimates FY2027 cyclically adjusted balance to potential GDP at -5.8%. This single statistic informs why we should expect real rates to remain elevated.

It’s unclear to me how the ongoing war, tariff refunds and challenges to the newly announced tariffs will affect the cyclically adjusted balance, as all these issues are in a state of flux.

With respect to customs revenue, one can show the uncertainty be referring to Paweł Skrzypczyński’s calculations of the revenue, net revenue and refunds:

Source: Paweł Skrzypczyński.