We're going to make a lot of money and we're going to cut taxes for the people of this country. It will take a little while before we do that, but we're going to be cutting taxes and it's possible we'll do a complete tax cut because I think the tariffs will be enough to cut all of the income tax.
- President Trump, April 27, 2025
The line from the White House Information Minister, various Cabinet Secretaries and the President himself is that we are awash in tariff revenue wealth. Millions, billions and trillions of dollars; all willingly paid by other countries. The president has even floated the notion about creating an External Revenue Service to collect the tariffs and replacing the Internal Revenue Service in collecting income taxes.
We were at our richest from 1870 to 1913. That's when we were a tariff country. Perhaps the president has drawn his inspiration from 19th century America immediately before the establishment of the federal income tax.
Of course if you know your American history when tariffs were the primary source of federal revenue government was much smaller; federal spending was barely two percent of Gross Domestic Product (GDP). Nowadays, federal spending is north of 23% of GDP. It would be impossible to rely on tariffs to meet current spending levels. Heck, we're already running ginormous annual deficits that are slated to increase further with the passage of recent legislation.
Tariffs (sometimes called a duty) are a tax imposed on imported goods and services. The tariff is not paid by other countries; the US import company is required to pay the tax. This makes imported goods more expensive to US companies and consumers. Consequently, domestic producers may benefit from reduced competition potentially protecting domestic jobs and industries. Decreased competition may also result in domestic producers raising their prices as we have seen in the steel industry.
In 2024 individual income taxes generated roughly $2.4 trillion in revenue to the government representing nearly half of all federal revenue. Because tariffs apply to the narrow sector of imported goods they would likely generate only a fraction of that amount resulting in ballooning deficits.
Furthermore, because tariffs apply to imports (as opposed to broad-based income) this would result in a disproportionate economic impacts with industries relying on imported materials or components being hit the hardest.
Tariffs also increase costs to domestic companies and consumers.
Conversely, if tariffs replaced the income tax your wages/salary would theoretically become tax-free. This shift would allow you to keep more of what you make. Sound appealing? As a trade policy tool tariffs are probably more effective than as a revenue generator.
The economic reality is the challenge of replacing income tax revenues with tariffs would require import taxes on a scale of enormity so high as to become disruptive to consumers, business, supply chains, trade relationships and the US dollar. They won't fix our country's persistent problem with annual deficits or balance the budget. The notion of issuing everyone a government check and calling it a tariff rebate is absurd. Tax the citizenry with import duties and then return a small piece and call it a tariff dividend? PT Barnum had a term for this so if you have a rational explanation I want to hear it.
Meanwhile, the best summation of this challenge can be found over here at the Tax Foundation. It's a short read of only a few minutes and worth your while.
Finally, revenues from import taxes have been growing for months, and the latest data shows that the U.S. has collected $130 billion from them as of August 15. That is $73.8 billion, or 131.2% more, than the same time last year. But that’s still far short of the $2.4 trillion federal income taxes brought in last year. The running totals are updated daily and can be found here at the Trump Tariff Income Tracker. You might want to bookmark this web page so you can follow along.
Bottom line? The math doesn't work.....
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