President Trump’s renewed push to replace federal income taxes with tariffs has reignited debate in Washington and across the economic landscape, as experts question both the feasibility and consequences of such a dramatic policy shift.

Trump’s Tariff Proposal: Echoes of the Past

In recent weeks, President Trump has floated the idea that tariffs—taxes on imported goods—could entirely replace the federal income tax, citing the period from 1870 to 1913 when tariffs were the primary source of government revenue. At a recent event, Trump stated, “You could wipe out your income tax. You could maybe not even have an income tax system when this thing works out... Our country was the richest ever from 1870 to 1913. That’s when we were actually the richest and we were a full tariff country”. Trump’s administration has already announced a series of new tariffs, including a 25% duty on lumber and additional levies on automobiles, chips, pharmaceuticals, and imports from Canada, Mexico, and China.

Economic Reality: Can Tariffs Replace Income Taxes?

Leading economists and policy analysts are deeply skeptical. The U.S. currently collects about $3 trillion annually from income taxes, while total imports hover around $3 trillion per year. To match income tax revenue, tariffs would need to be imposed at rates of at least 70%—possibly even 200%—on all imported goods, according to independent analyses. Such drastic increases would likely cause import volumes to plummet, as higher prices reduce demand, further shrinking the revenue base. In 2024, tariffs accounted for only 1.7% of the more than $4.9 trillion in federal revenue, a stark contrast to the nearly 50% share from income taxes.

“It is literally impossible for tariffs to fully replace income taxes. Tariff rates would have to be implausibly high on such a small base of imports to replace the income tax, and as tax rates rose, the base itself would shrink as imports fall, making Trump’s $2 trillion goal unattainable,” wrote economists Kimberly Clausing and Maurice Obstfeld.

Economic and Social Consequences

Experts warn that such a policy would have far-reaching effects:

• Consumer Prices: Tariffs are typically passed on to consumers, raising the cost of goods like automobiles, electronics, clothing, and energy.
• Regressive Impact: Unlike the progressive income tax, tariffs are regressive, hitting lower- and middle-income households hardest as a proportion of their income.
• Domestic Industry: While tariffs are intended to boost domestic manufacturing, they also raise costs for American producers reliant on imported parts, potentially reducing profits and employment.
• Global Retaliation: Trading partners have already responded to recent tariffs with retaliatory measures, harming U.S. exports and further eroding potential revenue.
• Federal Deficits: Even optimistic estimates suggest that tariffs would generate less than half the revenue needed to replace income taxes, risking larger deficits unless spending is cut or other taxes are raised.

Farmer Bailouts and Trade Tensions

The agricultural sector remains a flashpoint. As tariffs disrupt global trade, American farmers—already facing retaliatory tariffs from China and other partners—are seeking federal assistance to offset losses. Discussions are underway in Congress regarding additional bailout packages for affected farmers, underscoring the ongoing strain in rural America due to shifting trade policies.

Historical Context: Then vs. Now

While Trump references the late 19th and early 20th centuries as a golden era of tariff-driven prosperity, historians and economists caution against drawing direct parallels. The U.S. economy was far less integrated globally, federal spending was much lower, and the population was smaller. Today’s federal government relies on a much broader tax base to fund social programs, defense, and infrastructure.

Conclusion

Trump’s proposal to abolish the IRS and fund the government through tariffs alone has captured headlines and energized parts of his political base. However, the overwhelming consensus among economists is that such a plan is unworkable in the modern economy, would likely trigger higher prices, economic disruption, and a heavier burden on working Americans, while failing to deliver the promised fiscal windfall. As the administration moves forward with new tariffs and Congress debates relief for farmers, the nation’s trade and tax policies remain at the center of a contentious and consequential debate.