Trump says tariffs could substitute income tax
(MENAFN) U.S. President Donald Trump has floated the idea that revenue generated from his newly imposed tariffs might be sufficient to replace the federal income tax. The proposal came during an interview with Fox News host Rachel Campos-Duffy, where Trump referred to his latest round of "Liberation Day" tariffs, targeting nearly 90 countries for what he claims are unfair trade practices.
Although the tariffs initially caused a sharp downturn in global markets, Trump responded by instituting a 90-day pause and lowering most tariffs to a base rate of 10%. China, however, faced even steeper duties under the new measures.
When asked whether the tariffs could eventually replace the income tax, Trump praised the question and remarked that, despite discussions with numerous financial experts, no one had previously raised the idea. He pointed to the late 19th and early 20th centuries – between 1870 and 1913 – when tariffs were the primary source of federal revenue before the introduction of income tax. He described that era as a time when the U.S. was "the richest" it had ever been.
Calling himself a "tariff man," Trump asserted that his trade policy could bring in over $1 trillion within a year, which he believes could help lower the national debt and potentially replace income taxes. He also claimed tariffs are boosting the U.S. economy and funneling billions of dollars daily into government accounts.
However, economists have expressed doubts about the feasibility of replacing income tax with tariff revenue. They argue that increased import prices could dampen consumer spending and overall demand. Historical data from the Congressional Research Service shows that tariffs have contributed only a small portion—no more than 2%—of total federal revenue annually over the past seven decades. In 2024, tariffs accounted for just 1.7% of the $4.9 trillion in federal revenue.
Economists at ING acknowledged that while broader tariffs, especially those on China, might benefit American workers and the economy in the long run, the short-term impact could be severe and economically disruptive. They also warned that if trade tensions ease and tariffs are rolled back, the government could lose financial flexibility for implementing further tax cuts.
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