Donald Trump is betting big on tariffs. He claims that by taxing imported goods, federal income taxes for Americans could be “substantially reduced” or even “completely eliminated.” Trump’s focus is on individuals making less than $200,000 per year. He even floated the idea of creating an “External Revenue Service” to replace the IRS. Trump says the U.S. economy would boom as disposable income rises and companies build more factories on American soil. But the real question remains: Can tariffs truly replace federal taxes?
Economists Skeptical of Trump’s Tariff Dreams
Economists are not buying it. Experts argue that even with aggressive tariffs, the U.S. cannot raise enough money to replace federal income taxes. The math just does not add up. The U.S. imports about $3 trillion worth of goods annually, while Americans report nearly $15 trillion in income. Even the most optimistic projections show tariffs raising less than half of what income taxes bring in. Economists warn that relying on tariffs would shrink the economy and hurt the federal budget.
Trump’s Tariffs and the Impact on the Economy
Trump believes tariffs will bring jobs back to the U.S. He says companies are already building new factories, calling it a “bonanza for America.” However, there is a risk. Higher tariffs often lead to higher prices on basic goods. That hits lower-income households the hardest. Plus, if other countries retaliate with their own tariffs, it could spark a trade war. Economists say that could lead to a recession, hurting employment and cutting federal revenue even more.
Why Trump Looks to the Past for Answers
Trump often points to the Gilded Age, a time when tariffs were a major source of U.S. revenue. Back then, there was no federal income tax, and tariffs covered up to 60% of government funding. But today’s U.S. economy is very different. Now, Americans expect federal programs like Social Security, Medicare, and a strong military. Funding these programs requires much more money than tariffs alone can provide. Economists say that simply copying a 19th-century model won’t work in a 21st-century economy.
Can Tariffs Replace Taxes? Not Likely, Say Economists
In the end, most economists agree: tariffs alone cannot replace federal income taxes. Some suggest tariffs could help fund partial tax cuts, especially for lower-income earners. However, the overall impact would likely be regressive, hurting those who already struggle. Trump’s plan could backfire, leaving the federal budget short and the U.S. economy weaker. While the promise of lower taxes sounds great, the road there may be bumpier than Trump admits.