Replace the Federal Income Tax with tariffs?

by Scott Emick
1/27/2025

Recent reports indicate that President Donald Trump has been advocating for a shift from the federal income tax system to one primarily based on tariffs. In a recent speech, he highlighted the period before the establishment of the federal income tax in 1913, noting that the U.S. government was funded largely through tariffs during that time. He suggested that returning to such a system could be beneficial for the country.

This perspective aligns with his broader economic strategy, which emphasizes protectionism and economic nationalism. Trump has proposed imposing significant tariffs on imports, particularly from countries like China, Mexico, and Canada. For instance, he announced plans for a 25% tariff on goods from Canada and Mexico, set to begin on February 1, 2025, asserting that such measures would generate substantial revenue for the U.S. and encourage domestic manufacturing.

Business Insider

Additionally, Trump has proposed the creation of an “External Revenue Service” to collect tariffs, duties, and other trade-related revenues. This proposed agency would focus on revenue from foreign sources, distinguishing it from the Internal Revenue Service, which handles domestic taxes.

Wikipedia

Economists have expressed concerns about this approach, noting that tariffs are typically paid by domestic importers and can lead to higher prices for consumers. They argue that relying heavily on tariffs could increase inflation and disproportionately affect lower and middle-income households. Moreover, the revenue generated from tariffs may not be sufficient to replace the income tax entirely, given the scale of federal expenditures.

AP News

In summary, while President Trump has not explicitly asked Congress to abolish the income tax, his recent comments and proposals suggest a desire to shift towards a tariff-based revenue system, reminiscent of the pre-1913 era. This represents a significant departure from the current tax structure and has sparked considerable debate among policymakers and economists.

For a more in-depth analysis, you might find this video informative:

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