Starting today, the federal government is accepting claims through its new Customs Automated Processing Environment portal for refunds on tariffs the Supreme Court declared unconstitutional two months ago. NPR’s Alina Selyukh reports that U.S. Customs and Border Protection estimates it owes 127 billion. The rest will follow once the agency finishes building the infrastructure to handle older, finalized payments.
It is worth pausing on that last sentence. The government stood up the tariff system in a matter of weeks. Unwinding it, apparently, requires constructing entirely new agency infrastructure and will take months. The inconvenience runs in one direction only.
In Learning Resources, Inc. v. Trump, 607 U.S. ___ (2026), the Court held 6-3 that the International Emergency Economic Powers Act does not authorize the President to impose tariffs. Chief Justice Roberts, writing for the majority and joined by Justices Sotomayor, Kagan, Gorsuch, Barrett, and Jackson, was unambiguous: the power to impose tariffs is a core congressional function, and IEEPA’s language authorizing the President to “regulate importation” does not extend to taxation. The Tax Foundation estimates that more than $160 billion was collected illegally under IEEPA before the ruling. The refund process begins today.
Here is the problem. The refunds go to importers of record. And the people who actually paid the tariffs are largely not importers of record.
Tax Incidence Is Not the Same as Legal Liability
This distinction matters enormously, and it is one that the political coverage of the refund has mostly glossed over.
A tariff is legally owed by the importer of record, the company that brings goods across the border and files the customs paperwork. That is where the legal liability sits. But legal liability and economic burden are not the same thing. Tax incidence is the branch of public economics that studies where the burden of a tax actually falls, as opposed to where the law says it falls. The Britannica definition puts it plainly: the statutory incidence is on whoever writes the check, but the economic incidence is on whoever ultimately bears the cost. On tariffs, those are frequently different parties. And the answer to who bears the economic cost is determined largely by the price elasticity of demand for the goods involved.
The mechanism is straightforward. An importer facing a new tariff has two options: absorb the cost, reducing its margin, or pass it along in the form of higher prices. In practice, most importers do some of both. How much gets passed along depends on how much market power the importer has and, critically, on how sensitive buyers are to price changes. That sensitivity is what economists mean by price elasticity of demand: the percentage change in quantity demanded for a given percentage change in price.
For goods with highly elastic demand, buyers respond strongly to price increases. If an importer tries to pass a tariff along as a price increase, buyers switch to substitutes or simply buy less. The importer ends up absorbing most of the cost. For goods with highly inelastic demand, buyers need the product regardless of price, so the importer can pass most of the tariff through without losing significant volume. The burden falls on the consumer. As the Institute on Taxation and Economic Policy summarizes the research consensus: taxes on overall sales tend to be ultimately paid by consumers.
The tariffs in question were broad and applied across categories with very different elasticity profiles. Some of that variation is predictable.
- Medications and medical supplies are highly inelastic. Patients do not stop taking their prescriptions because the price went up. Importers and distributors passed tariff costs through aggressively in this category, and consumers had no practical recourse. The same logic applies to medical devices and equipment.
- Staple foods and household necessities are moderately inelastic. People will make substitutions at the margin, switching from one brand to another or adjusting quantities, but they cannot stop buying food. The burden was shared, but consumers bore a significant portion.
- Consumer electronics present a more complicated picture. Demand for a specific product can be fairly elastic, as consumers will wait for a sale or choose a competing model, but demand for the category is inelastic. You still need a phone. Importers in this space absorbed more of the cost than in inelastic categories, but the tariff costs still showed up in retail prices over time.
- Discretionary goods with readily available domestic substitutes are the closest to elastic demand. Here, importers absorbed the most and consumers escaped relatively lightly.
The aggregate picture, across all these categories, is that consumers bore a substantial fraction of the economic burden of the tariffs. Research from the period of the 2018-2019 tariffs, which involved similar mechanisms, found that tariff costs were passed through to consumers at rates approaching 100 percent in many product categories, with virtually all of the burden falling on domestic buyers rather than foreign exporters. The IEEPA tariffs were broader and in some cases higher, but the incidence mechanism is the same.
The Refund Does Not Follow the Incidence
None of that matters to the refund structure. Customs law knows one party: the importer of record. The refund goes there, full stop.
The hardware store owner quoted in NPR’s coverage put it plainly. He paid tariffs indirectly, through higher wholesale prices charged by his suppliers. He does not expect a refund check. He hopes, charitably, that some manufacturers might offer future discounts. The retailers who paid inflated wholesale prices to suppliers who paid inflated import costs to importers who paid the tariff to Customs: each link in that chain absorbed some portion of the burden, and none of them are importers of record.
Consumers are the furthest from importers of record and the least likely to see anything. Some class-action lawsuits have been filed against retailers, and a handful of companies, FedEx among them, have pledged to pass refunds downstream. Costco’s CEO indicated the company would return value through lower prices. These are voluntary gestures by individual companies. They are not structural remedies. Most importers have no legal obligation to pass a cent of the refund to anyone.
What this means in practice is a transfer payment. A significant fraction of the $166 billion flowing through the CAPE portal over the coming months represents money that was economically borne by consumers and retailers but will legally be returned to importers. The size of that fraction depends on the elasticity distribution across product categories, which is not something Customs calculates or reports. But given what we know about incidence in comparable tariff episodes, it is not a small fraction.
To be precise about what is happening: this is not fraud, and it is not malfeasance on anyone’s part. Customs law works the way it works. Importers of record paid the tariff legally, and they are entitled to the refund legally. The problem is that “legally owed the refund” and “economically bore the cost” are different populations, and the law has no mechanism to bridge that gap.
What Would a Remedy Actually Look Like?
It is worth asking, if only academically at this point, what a more equitable remedy would have required. The honest answer is that it would have been extremely difficult to design and politically impossible to implement.
A true incidence-based remedy would require knowing, for each category of tariffed goods, what fraction of the cost was passed through to buyers and at what point in the supply chain. That data does not exist in the form needed to distribute refunds, and constructing it retroactively would be an enormous undertaking even if Congress had the appetite for it.
A simpler approach would be a consumer rebate, a flat per-household payment funded from the refund pool, analogous to the stimulus payments of the pandemic era. This would not be perfectly targeted, but it would at least distribute some of the economic benefit to the population that bore most of the economic cost. There is no indication anyone in the current Congress or administration is considering anything like this, and given that the administration continues to pursue tariffs under other statutory authorities, the political incentives do not point in that direction.
What we have instead is the CAPE portal, opening today, with tens of thousands of importers ready to file claims for money that, in a significant number of cases, they passed along to their customers months ago.
The tariffs were unconstitutional. The refund is real. It is just not going to the people who paid.