Americans may not have to pay income taxes anymore if Donald Trump gets his way
Citing the years 1870–1913 as a model for growing American prosperity, President Donald Trump has suggested doing away with federal income taxes in favor of a tariff-based economic structure.
Trump’s Economic Vision: A Tariff-Based Economy to Relieve Tax Burden
In a bold proposal to ease the tax burden on Americans, Donald Trump unveiled his plan for an External Money Service (ERS), a new entity designed to manage tariffs and international funds. This initiative is aimed at reducing reliance on income taxes by tapping into global trade flows.
Trump presented his economic blueprint during a speech to Republican leaders at the 2025 Republican Issues Conference held at Trump National Doral Miami on January 27. The event, a crucial part of shaping his legislative agenda, lasted three days and served as a platform for advancing his vision for America’s financial future.
Drawing on historical precedence, Trump emphasized that the United States thrived prior to 1913 without an income tax, relying instead on tariffs to fund government activities. Referring to the period between 1870 and 1913 as one of the nation’s most prosperous eras, he remarked, “The U.S. operated entirely on tariffs from 1870 to 1913—and that was the richest period in American history, relatively speaking.”
Trump pointed to the Tariff Commission of 1887, which was tasked with managing the vast sums of money generated by tariffs. In fact, the influx of tariff revenue was so large that officials at the time struggled to determine how to allocate it. Trump noted that President Teddy Roosevelt used these funds to finance national parks and other significant projects. He concluded, “Income taxation didn’t exist until 1913.”
“Tax Foreign Countries, Not Our People” – Trump’s Vision for a Tariff-Based Economy
In a sharp contrast to traditional tax policies, Donald Trump advocates for imposing tariffs on foreign nations rather than burdening American citizens. He firmly believes that by taxing foreign imports, the U.S. can reduce taxes on its people while enhancing its economic prosperity. Trump’s optimistic outlook suggests that America could become “very rich again” in a short amount of time by focusing on tariffs as a key revenue source.
This idea isn’t new for Trump, who has long championed the notion of replacing income taxes with tariffs—a stance he repeatedly voiced during his presidential campaign.
Could Tariffs Replace Income Taxes in the U.S.?
Currently, U.S. Customs and Border Protection officers assess tariffs at ports of entry on imported goods, typically based on a percentage of the product’s value. However, this revenue source remains controversial.
Mainstream economists remain skeptical, arguing that while tariffs can generate funds, they are not a reliable or sustainable way to finance government programs. Furthermore, they warn that tariffs could drive up the cost of imported goods, ultimately raising prices for U.S. consumers, which may undermine the economic benefits Trump envisions.
Nonetheless, the idea of relying on tariffs as a major revenue source has sparked substantial debate among policymakers and economists. Critics argue that tariffs essentially function as import taxes, which are often passed down to consumers through higher prices. This would particularly impact lower- and middle-income households, potentially negating any benefits from the removal of income taxes.
Another point of concern is the feasibility of using tariffs alone to fund the federal government.
For example, a 10% tariff is projected to generate $350 to $400 billion annually, but this is far less than the $4 trillion needed to maintain current tax cuts for the next decade. To fill the budget gap, substantial changes might be necessary to vital programs like Social Security and Medicare.
The External Revenue Service (ERS) proposal, which Trump has suggested, could be part of his effort to manage tariffs and overseas revenue. However, without a comprehensive overhaul of the federal budget, the path to balancing the nation’s finances remains complex and uncertain.
Trump’s proposal for the creation of the External Revenue Service (ERS) to manage tariffs and international trade income would require Congressional approval. With Republicans controlling both the House and Senate, the idea has a strong chance of becoming law. However, the plan raises some concerns.
While Trump has long pledged to reduce federal bureaucracy, the creation of the ERS would involve setting up a new agency to handle functions that are currently managed by established departments like the Commerce Department and U.S. Customs and Border Protection. This has prompted fears that the proposal might actually expand government rather than streamline it, potentially leading to more governmental growth and complexity, contrary to Trump’s stated goal of reducing federal size.
In contrast to the Internal Revenue Service (IRS), which handles domestic taxes, Trump’s proposed External Revenue Service (ERS) would focus on generating revenue from overseas sources. This would mark a significant shift in how the U.S. collects money, with an emphasis on international trade rather than domestic taxation.
Central to Trump’s economic strategy are high tariffs, including proposals like a 60% tariff on Chinese goods and a 25% tax on imports from key allies such as Canada and Mexico. The primary objective behind these tariffs is to boost domestic revenue while easing the tax burden on American citizens. By imposing these significant tariffs, Trump aims to bring in funds from foreign nations and shift the financial burden away from American workers and consumers.
Economists warn that since companies often pass tariff costs onto consumers, these proposed tariffs could lead to higher prices for everyday goods. Many analysts remain skeptical about using tariffs as a reliable revenue source, arguing that they may be ineffective for both government funding and economic growth. Critics contend that while tariffs could generate revenue, they might also stifle consumer spending and economic activity, ultimately undermining the very prosperity they aim to support.
In conclusion, while the proposal aims to lower taxes for Americans and increase national wealth through tariffs, it raises significant concerns about its economic impact, viability, and potential repercussions on consumers and vital government programs. The approach may inadvertently lead to higher consumer prices, strain low-income households, and introduce uncertainties about its long-term sustainability. As policymakers evaluate this plan, these challenges will play a crucial role in determining whether it can truly deliver on its promises.
