FACT FOCUS: Trump says tariffs can eventually replace federal income taxes. Experts disagree

President Trump’s claim that tariff revenue could replace federal income tax draws criticism from economic experts who point to stark financial realities contradicting this vision.

President Donald Trump has repeatedly suggested that tariff revenue could eventually eliminate the need for federal income taxes, most recently during a Cabinet meeting on Tuesday. The president, who has long championed tariffs as wealth generators for the United States, claimed that “the money we’re taking in is so great, it’s so enormous, that you’re not going to have income tax to pay” in the “not too distant future.”

However, Treasury Department data reveals a substantial disconnect between this assertion and fiscal reality. In the last fiscal year, individual income taxes generated approximately $2.66 trillion, representing over 50% of the federal government’s total revenue of about $5.23 trillion. Corporate income taxes added another $452 billion. By comparison, customs duties and tariffs generated just $195 billion, accounting for merely 3.7% of total revenue.

The current fiscal year shows similar proportions. In October 2024 alone, individual income taxes brought in $217 billion out of approximately $404 billion in total revenue, while tariffs generated around $31 billion, representing 7.75% of the month’s revenue.

“It’s not possible. It’s not feasible mathematically or economically,” said Brandon DeBot, senior attorney adviser and policy director at New York University’s Tax Law Center. “Even the very substantial tariffs imposed this year, which are at the highest levels in the postwar era, raise nowhere near the revenue that income tax does.”

Steve Wamhoff, federal policy director at the Institute on Taxation and Economic Policy, described the proposal as “nonsensical.”

Trump has expressed admiration for Gilded Age economic policies that preceded the modern federal income tax, which was established with the ratification of the 16th Amendment in 1913. During that earlier era, tariffs were a primary revenue source for the federal government, but the economy and government were vastly different.

“We would be talking about living in a completely different world than the one we live in now,” noted Wamhoff. “There was a time when the government’s finances were provided through tariffs. But I believe people were getting around with a horse and buggy back then and not cars. I mean, that was a completely different time.”

White House spokesman Kush Desai defended the president’s position, saying: “President Trump is set to raise trillions in revenue for the federal government in the coming years with his tariffs — whose costs will ultimately be paid by the foreign exporters who rely on the American economy, the world’s biggest and best consumer market.”

However, economic experts point out that it’s actually American importers who directly pay tariffs, typically passing these costs to consumers through higher prices. While foreign producers might sometimes lower their profit margins to maintain market share, the burden of tariffs largely falls on domestic businesses and consumers.

Beyond the raw numbers, experts highlight several fundamental flaws in replacing income taxes with tariffs. Higher tariff rates could trigger retaliatory measures from trading partners and disrupt supply chains. The unpredictability of tariff revenue makes budget planning difficult, as import volumes can fluctuate and trading patterns shift in response to tariff policies.

There’s also the question of equity. Tariffs tend to function as regressive taxes, with a disproportionate impact on lower-income households that spend a greater percentage of their income on consumer goods. Unlike the progressive structure of income taxes, tariffs can’t be adjusted based on ability to pay, and they don’t allow for deductions or credits that benefit families and charitable giving.

“Inequality is very highly skewed toward the top,” observed Michael Graetz, professor of tax law at Yale University. “We’ve got more billionaires than we’ve ever had. We’ve got more millionaires than we’ve ever had. So it’s a strange time to be reducing the tax burden on the top and increasing it on the middle.”

Trump’s tariff policies also face legal challenges. The Supreme Court is currently considering whether the president has the authority to implement certain tariffs, though experts note that the administration would still have multiple avenues to maintain aggressive import taxation regardless of the court’s decision. Meanwhile, companies like Costco have filed lawsuits seeking refunds for tariffs already paid.

As the administration continues to champion tariffs as an economic solution, the mathematical reality remains clear: tariff revenue falls trillions short of what would be needed to replace federal income taxes, creating what experts across the political spectrum view as an unfeasible fiscal proposal.