On the accidental invention of a new fiscal instrument, its structural advantages over existing debt ceiling workarounds, and the question of whether the next administration does this on purpose
I. Introduction
The trillion-dollar coin required a legal fiction. TACOs do not.
On February 20, 2026, the Supreme Court struck down the IEEPA tariffs imposed by the Trump administration in a 6-3 decision, ruling that the International Emergency Economic Powers Act does not delegate to the president the authority to impose tariffs. The ruling invalidated approximately $175 billion in collected duties. Interest began accruing on the outstanding balance immediately — at rates published quarterly by the IRS, currently running at roughly $22 million per day. CBP stood up an entirely new processing platform, the Consolidated Administration and Processing of Entries (CAPE), to handle the volume.
The refund obligations are, at this moment, being treated as financial assets. Law firms are advising lenders on financing arrangements secured against pending refund claims. Claims purchasers are acquiring importer refund rights in secondary transactions. Putative class actions have been filed by consumers seeking a share of the proceeds. The tariff refund market has, in other words, already emerged — spontaneously, without design, as a consequence of a legal ruling no one planned for.
What follows is an innovation built on this functioning but illiquid market.
II. The Instrument
A Tariff Accrual Compensating Obligation, or TACO, is a tradable financial instrument representing a claim on a future government tariff refund, inclusive of statutory interest.
The interest component is not a structural add-on. It is already the law. When CBP owes refund duties, interest accrues by statute at the applicable IRS quarterly rate from the date of original payment. A TACO therefore carries a legally mandated coupon — not by contractual promise, but by operation of the same legal system that invalidated the underlying tariff. Their yield is not a matter of negotiation but of arithmetic.
The instrument works as follows. An administration imposes tariffs explicitly under a statutory authority it openly acknowledges to be constitutionally questionable, if not outright illegal — IEEPA being the established vehicle, its limits now clearly delineated by the Supreme Court. The tariffs generate immediate revenue until restrained by the courts. Here is the innovative element: the administration simultaneously announces its intention to refund all collected duties upon conclusion of the expected legal proceedings, with an indicative settlement date stipulated, contingent on a successful legal challenge.
Importers are encouraged to sell their refund claims to financial institutions, with the government explicitly guaranteeing transferability — promising to honour refunds to any party that can demonstrate a legitimate claim to the proceeds. Financial institutions can then, under the administration’s facilitation, structure these claims into TACOs and sell the instruments to institutional investors — pension funds, credit funds, structured finance desks, and money market funds.
The critical feature is the settlement schedule. The instruments would embed a government-guaranteed refund date: “This tranche of tariffs carries an expected refund date of Q4 2028, at a statutory interest rate currently running at 6% per annum,” the offering document might read. Investors would then assess whether the yield compensates for political and timeline risk. Given that the refund obligation is sovereign, interest-bearing by statute, and backed by the full faith and credit of the United States government — the same guarantee that underlies conventional Treasury securities — the spread demanded over Treasuries would, in theory, be modest.
III. Tariff is Revenue Not Debt
Tariff revenue is receipts. It has been a source of government income as old as the republic itself, arriving on the income side of the federal ledger, reducing the deficit and with it the required pace of debt issuance. It does not interact with the statutory debt ceiling on the way in. This distinguishes TACOs from every other proposed workaround: they require no creative argument about why a novel form of borrowing falls outside the ceiling’s scope, because the initial collection is not borrowing at all.
The net fiscal effect of a TACO program, properly structured, is a temporary increase in revenue from the tariffs, followed by a deferred, interest-bearing repayment obligation that sits outside conventional debt issuance channels. The government’s cost of funds — the statutory IRS rate — would likely compare favourably to conventional Treasury borrowing in a stress scenario, as the legal backing of the refund obligation is considerably less ambiguous than the debt ceiling itself.
IV. Why TACO trumps the Coin
Let us be clear: if neither Trump nor Biden was willing to mint the trillion-dollar coin to break through a debt ceiling impasse, the prospect of it ever becoming policy is now remote. This is understandable. The coin is ingenious but politically toxic; most voters find it incomprehensible; and the Federal Reserve made clear it would not accept the coin on deposit. The idea has remained, for fifteen years, a thought experiment with no constituency.
TACOs rest on entirely different ground. The refund obligation is not a theoretical construct — illegally collected tariffs and the statutory interest that accrues on them are a present-day reality. They have, in the truest sense, presidential precedent. The administration’s use of IEEPA was not its last attempt: on the same day the Supreme Court handed down its ruling, President Trump invoked Section 122 of the Trade Act of 1974 to impose replacement tariffs. On May 7, 2026 — five consecutive tariff defeats into this saga — the Court of International Trade ruled those tariffs illegal as well, on the grounds that no balance-of-payments deficit existed to justify them, which the statute expressly requires.
The TACO does not invent the refund. It makes the refund schedule predictable, the transferability guaranteed, and the obligation free of procedural uncertainty. The underlying mechanism has been tried. It has been found out. What remains is to design it properly.
V. Conclusion
The IEEPA tariff episode is, on one reading, a straightforward account of executive overreach followed by judicial correction and an expensive refund programme. On another reading, it is an accidental proof of concept.
The refund obligations exist. The interest accrues. The secondary market for refund claims is forming. CBP has built the processing infrastructure. The legal framework for sovereign tariff liabilities has been established by the Supreme Court. What is missing is an administration that treats the entire sequence — tariff imposition, legal challenge, settlement schedule, secondary market — as a designed instrument rather than an unfortunate series of events.
The debt ceiling remains what it has always been: a political commitment dressed as a legal constraint, maintained by the shared agreement of all parties to treat it as binding rather than examine what happens if someone does not. The trillion-dollar coin demonstrated this in theory. TACOs demonstrate it with receipts.
The author notes that “Tariff Accrual Compensating Obligation” was the most fitting name available and declines to elaborate further.
