Could Trump’s tariffs replace the income tax? What policy experts say

As President Donald Trump begins imposing tariffs on imported goods, some experts question his revenue expectations — including the possibility of replacing the federal income tax. 

During his presidential campaign, Trump floated an “all tariff policy” at a June meeting with Republican lawmakers, where he said the plan would allow the U.S. to eliminate income tax.

Some policy experts have been skeptical of the idea.  

“It’s just not a realistic proposal,” said Alex Durante, senior economist at the Tax Foundation, which analyzed the idea in June.  

More from Personal Finance:
Stockpiling ahead of higher tariffs is a big mistake, experts say
As markets absorb tariff news, it’s a wake-up call for investors, experts say
Tariffs ‘slammed shut’ the window for interest rate cuts in 2025, economist says

While tariffs were a major source of federal revenue during the 19th century, U.S. spending levels have since increased significantly, Durante said.

The U.S. federal government in 2023 spent 22.7% of its gross domestic product, which is about 10 times the share of the economy compared with when tariffs were a primary source of revenue, according to the Tax Foundation analysis. 

“You can’t have 21st century government spending with a 19th century tax system,” Durante said.

Over the past 70 years, tariffs haven’t accounted for much more than 2% of total federal revenue annually, according to the Congressional Research Service.

During fiscal year 2024, U.S. Customs and Border Protection collected $77 billion in tariffs, which was roughly 1.57% of total federal revenue, the organization reported. 

However, the bigger issue is the relative size of the tax base from tariffs, compared with individuals paying income tax, according to the Tax Foundation analysis.  

The Trump administration did not respond to CNBC’s request for comment.

“The math doesn’t work,” wrote Erica York, vice president of federal tax policy with the Tax Foundation’s Center for Federal Tax Policy.   

During tax year 2021, the IRS collected about $2.2 trillion from individual taxpayers, the latest IRS data shows. Replacing that would require “astronomically high tariff rates,” York wrote.

Plus, several factors, including noncompliance and consumers’ behavioral changes, could reduce the amount of tariff revenue collected.  

“Tariff rates would have to be implausibly high on such a small base of imports to replace the income tax,” wrote Kimberly Clausing and Maurice Obstfeld, fellows at the Peterson Institute for International Economics, who co-authored a June report on the topic. 

“As tax rates rose, the base itself would shrink as imports fall, making Trump’s $2 trillion goal unattainable,” they wrote.