Tax policy by executive order: The unsettled boundaries of IEEPA

This week, the Supreme Court said it will decide whether the International Emergency Economic Powers Act (IEEPA)—a statute designed as an emergency foreign policy tool—authorizes the across-the-board tariffs imposed by the White House. The outcome of this case could reshape the balance of power between Congress and the president, and with it, the stability of U.S. tax and trade policy.

The problem with tax policy determined “by the stroke of a pen” instead of through the legislative process is that it is inherently volatile. That volatility is on full display with the tariffs imposed by the Trump administration under IEEPA. The effective combined tariff rate, 2.4% before President Trump took office, has since swung as high as 28% under IEEPA and now sits at 18.6%—a level not seen since the Great Depression—all within just a matter of months.

When those same tariffs rest on untested legal claims, the uncertainty only grows. Businesses and consumers must follow not only the rapid shifts coming out of the White House but also the progress of court challenges to those changes. This instability is more than an inconvenience: It raises costs, makes long-term planning harder, and undermines business and consumer confidence that today’s rules will still apply tomorrow. Faced with this kind of financial uncertainty, firms and households are likely to delay major commitments—whether that means holding back on new investments, putting off hiring, or postponing big purchases.

Enacted in 1977, IEEPA grants the president authority to regulate certain economic activity during a national emergency. It replaced the Trading With the Enemy Act (TWEA) with more restricted war-time style powers while permitting the executive branch the flexibility to impose quick executive action in foreign policy and economic crises. Under IEEPA, once the president declares a national emergency, the administration may freeze assets, block transactions, or impose economic restrictions. These tools are designed for immediate crisis response by the executive branch of government, rather than the long-term economic policymaking undertaken by Congress.

On February 1, 2025, President Trump declared a national emergency under IEEPA in response to fentanyl trafficking and immigration concerns and imposed tariffs ranging between 20% and 25% on Mexican, Canadian, and Chinese imports. Then, on April 2, President Trump declared a separate national emergency in response to persistent U.S. trade deficit. This executive order imposed a 10% broad-based tariff on nearly all imports, along with higher “reciprocal” tariffs on countries with which the U.S. has large trade imbalances.

It is Congress—not the president—that has the exclusive constitutional authority to set taxes, including tariffs. But over the last century, lawmakers have gradually delegated portions of this authority to the executive branch through a series of trade acts. For example, the Trade Expansion Act of 1962 and the Trade Act of 1974 gave presidents the authority to raise or lower tariffs in response to national security threats or unfair trade practices. These delegations were intended to make U.S. trade policy more nimble, aligning with the president’s role as head of state and chief trade negotiator. Importantly, however, tariffs imposed under these authorities were generally subject to departmental reviews, findings, public input, and limits on duration and magnitude—checks that are absent from the open-ended tariffs now being tested under IEEPA.

The legality and constitutionality of IEEPA tariffs is being litigated along two tracks, both of which raise hard questions about how IEEPA can be used. One track involves a fentanyl trafficking case in which the emergency declaration is not central; instead, the fight is over whether IEEPA authorizes tariffs as a remedy, harkening back to questions surrounding President Trump’s 2019 threats to impose tariffs on Mexico over border issues. The second track involves the “Liberation Day” case, which by contrast, contests both elements: whether a chronic trade deficit constitutes a “national emergency” at all, and, if so, whether IEEPA permits broad, revenue-raising tariffs in response. Together, the two cases tee up the same fundamental question: Can a law designed for freezing assets and blocking transactions be stretched to let the president unilaterally impose open-ended, broad tariffs?

For tax policy, the stakes are high. If the courts uphold either of the IEEPA tariffs, they would dramatically expand presidential authority to impose what amount to broad-based taxes under the banner of emergency powers. If they strike them down, they would curb executive discretion but might leave unanswered thorny questions about where the boundaries of taxing authority under IEEPA truly lie. These questions contribute to a broader trend that I explore in other research: The Court’s growing role in tax law is not only shifting the balance of authority among branches of government but also injecting more volatility into a system that depends on stability for businesses, workers, and households.

The IEEPA cases now before the Court bring that dynamic into sharp relief. A law crafted for imposing economic sanctions is being tested as a foundation for sweeping tariffs, with consequences that reach well beyond trade. Until the boundaries of emergency declarations and the powers they unlock are clarified, volatility will remain the defining feature of tariff policy—and, by extension, of the tax system itself.