President Trump’s frequent suggestion that he could eliminate the federal income tax and instead finance the government through high tariffs levied on foreign imports would undoubtedly upend America’s fiscal status quo.
On day one, the president ordered that a hiring “freeze” be placed on government departments and agencies, and recently floated the idea of either terminating or relocating Biden-approved hires at the Internal Revenue Service (IRS) “to the border.”
Taken together, these actions suggest that Trump may be entertaining the idea of abolishing the IRS—a long-standing goal of Libertarians and certain Republican lawmakers—or at least scaling back its operations and replacing it with a newly established External Revenue Service.
Experts have weighed in on this prospect, detailing to Newsweek how such plans could play out, while also offering assessments of the president’s overall approach to tariffs and taxes.
Newsweek has reached out to the White House via email for comment and will update this article if a response is received.
Why It Matters
While its duties are varied, the IRS’s primary mandate is to enforce U.S. tax law and, in doing so, see that the government has the necessary funds to operate and support public services like healthcare, defense, education, and infrastructure.
What To Know
Trump’s objective of reducing taxes for Americans while boosting revenue from foreign sources was reiterated throughout his presidential campaign.
In October, during a barbershop interview with Fox News, Trump recounted America’s economic successes of the late 19th century, saying: “When we were a smart country, in the 1890s, you know, this is when the country was relatively the richest it ever was. It had all tariffs, it didn’t have an income tax.” When asked whether he could abolish the tax, Trump responded: “There is a way…if what I’m planning comes out.”
When asked days later by Joe Rogan whether he was considering “getting rid of income taxes and replacing it with tariffs,” Trump answered, “Yeah, sure, why not?”
Last week, Trump followed up on these suggestions with an inaugural address pledge.
“Instead of taxing our citizens to enrich other countries, we will tariff and tax foreign countries to enrich our citizens,” Trump said during his speech at the West Front of the Capitol building. “For this purpose, we are establishing the External Revenue Service to collect all tariffs, duties, and revenues.”
What Do Experts Think?
Kimberly Clausing, economist and Professor of Tax Law and Policy at the UCLA School of Law:
“In general, this is a deeply impractical plan,” Clausing, who previously served as Deputy Assistant Secretary for Tax Analysis in the U.S. Department of the Treasury, told Newsweek.
“First, we already have a Customs and Border Protection office…including officials who collect tariffs. Second, it seems like an odd move for an Administration supposedly focused on efficiency (see DOGE) to suggest a redundant government agency as a solution.”
Asked whether there was any way the revenue generated from tariffs on Canada, Mexico and China, among others, could make up for the elimination of income tax, Clausing said: “Simply put, no. It wouldn’t even be close.”
A June report for the Peterson Institute of International Economics, co-authored by Clausing, found that the tax base on incomes vastly outweighed the tax base on traded goods, $3.1 trillion compared to over $20 trillion in 2023, respectively.
Considering this, as well as an anticipated reduction in trade as duties come into effect, Clausing said that “even very high tariffs could only replace a minority of the revenue raised by income taxation, and such high tariffs would cripple the economy.”
“Abolishing the IRS makes no sense for a modern country that would like to collect some income tax revenue and have a fair and well-functioning tax system to help fund public services,” Clausing told Newsweek when asked about the potential elimination of the agency. “The U.S. is a low tax country, collecting much less revenue as a share of GDP than peer nations.”
Daniel Shaviro, Professor of Taxation at the New York University School of Law
Shaviro referred to the creation of an External Revenue Service as “just empty phrasemaking,” adding that the bureaucracy needed by the IRS greatly exceeds that potentially required by this new body.
“Higher tariffs would presumably require more of an enforcement network than we have now, but wouldn’t involve the likes of people filing annual income tax returns with all their deductions and then being audited.”
Asked whether tariffs could be sufficiently enforced to replace income tax as a source of government revenue, Shaviro said: “In a word, no.”
“What the IRS mainly needs is more money and good leadership,” he added.
Alan Wolff, Senior Fellow at the Peterson Institute for International Economics
“No, it can’t happen,” Wolff told Newsweek, regarding the replacement of income taxes with tariffs. “There just isn’t enough tariff revenue to offset tax revenue. You can’t substitute one for the other.”
Wolff argues that tariffs carry with them “diminishing returns,” limiting the rate at which duties can be raised before “it just chokes off the trade.
He also questioned the ability of Trump’s External Revenue Service to “collect all tariffs, duties, and revenues” as promised in his inaugural address.
“I don’t understand it. Tariffs are paid by the importer, everywhere, that’s how you collect tariffs. You don’t have jurisdiction to go into somebody else’s country and tax the export, and then take the money home.”
“It sounds to me [like] a semantic distinction the president would like to make: That foreigners would pay the tariff,” Wolff added, “but I don’t know what jurisdiction one would have to go abroad and get external revenues.”
What Are Others Saying?
Gerald Celente, business consultant and publisher of The Trends Journal, in response to Trump’s recent comments, via X: “Trump says he will abolish U.S. income tax and ‘instead of taxing our citizens to enrich foreign nations, we should be tariffing & taxing foreign nations to enrich our citizens.” I totally agree. Bravo!”
What Happens Next
It is unlikely Trump will make any serious moves toward abolishing the IRS, having recently tapped lobbyist and former Representative Billy Long to serve as commissioner of the agency, pending Senate approval.
However, the president still appears committed to phasing out taxes on U.S. citizens, while offsetting the resulting revenue loss with tariff-derived income.
Speaking at the annual House Republicans retreat in Florida on Monday, Trump said: “Instead of taxing our citizens to enrich foreign nations, we should be tariffing and taxing foreign nations to enrich our citizens. Does that make sense?”
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