President Donald Trump has made a bold claim regarding his tariffs, suggesting that they could eventually eliminate federal income taxes for Americans. Speaking to service members in a Thanksgiving video and during a Cabinet meeting on December 2, Trump asserted that the revenue generated from tariffs would be so substantial that it could lead to a significant reduction or even the complete abolition of income taxes.
This assertion is not new; Trump has previously promised that Americans might receive direct financial benefits from tariffs. In November, he indicated that tariff revenue could allow for payments of $2,000 to each American. However, experts have highlighted that such promises rely on flawed mathematical assumptions.
Currently, the U.S. has collected approximately $257 billion in tariff revenues this year, with around $167 billion stemming from tariffs imposed during Trump’s second term. In stark contrast, federal income tax revenue for 2024 is projected to exceed $2.4 trillion—more than 14 times what the tariffs are currently yielding. Steve Ellis, president of Taxpayers for Common Sense, pointed out the implausibility of relying on tariffs to completely replace income tax revenue.
The distribution of federal revenue reveals the challenge of leveraging tariffs in this manner. Individual income taxes account for nearly half of federal revenue, while payroll taxes and corporate income taxes make up substantial portions as well. Tariff revenue is a small fraction when compared to income tax collections. To adequately replace income tax revenue, tariff revenues would need to increase dramatically, reaching about $2.4 trillion.
Forecasts suggest that even under optimistic scenarios, tariff revenues are not projected to surpass $260 billion annually in the near future. For instance, if tariffs remain unchanged through 2026, they are expected to generate $191 billion that year. Even if they persist until 2034, revenues are estimated at $256 billion—a figure dwarfed by current federal income tax collections.
Several potential avenues for replacing income tax with tariff revenue have been suggested, but each presents notable challenges. One option includes increasing government borrowing, which would exacerbate an already significant deficit that falls approximately $1.8 trillion short of government expenditures. Alternatively, significantly reducing the size of the federal government could allow tariffs to fund operations, but public resistance to cutting established programs like Social Security and Medicare would make this unlikely.
Another path could involve drastically raising tariff rates to match income tax revenue needs. Such extreme tariffs—over 60%—could distort market dynamics and both production and purchasing behaviors, leading to decreased import volumes.
The notion of transitioning to a consumption-based tax system has also been explored, similar to the value-added tax structure used in many European countries. However, implementing such a system in the U.S. would prove contentious, particularly for lower-income households who would face an increased financial burden.
Experts agree that achieving Trump’s vision of eliminating income tax through tariffs is not feasible based on current revenue data. The complexities of U.S. taxation and public finance call into question the viability of these promises, leaving many to speculate about the real implications of such tariff policies.
