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Indestata > Personal Finance > Taxes > Is It Possible for Tariffs to Replace Income Taxes?
Taxes

Is It Possible for Tariffs to Replace Income Taxes?

TSP Staff By TSP Staff Last updated: June 3, 2025 9 Min Read
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Many questions intrigue economists and policymakers. Right now, one question is being debated more than most: Can tariffs replace income tax? This concept refers back to early American fiscal policy. Before the institution of the income tax, tariffs were the federal government’s primary revenue source. Could this be feasible again? The idea suggests that large duties on imported goods could potentially generate enough revenue to replace income taxes. While this proposition might appeal to those seeking relief from annual tax filings, the economic reality is far more complex.

Does Trump Want to Replace Income Tax With Tariffs?

President Donald Trump has indicated a desire to replace federal income taxes with revenue generated from tariffs. In April 2025, he announced a 10% universal tariff on all imports, effective April 5, 2025, citing the need to address the national emergency posed by the large and persistent trade deficit.

“We’re going to make a lot of money, and we’re going to cut taxes for the people of this country,” Trump told reporters on April 27. “It’ll take a little while before we do that, but we’re going to be cutting taxes, and it’s possible we’ll do a complete tax cut, because I think the tariffs will be enough to cut all of the income tax.”

He has also suggested the creation of an “External Revenue Service” to collect tariff income, potentially replacing the Internal Revenue Service’s role in collecting income taxes.

Trump’s proposal draws inspiration from the 19th-century U.S. economy, which was primarily funded by tariffs before the establishment of the federal income tax in 1913. He has stated, “We were at our richest from 1870 to 1913. That’s when we were a tariff country.”