Daijiworld Media Network - Washington

Washington, Feb 27: US President Donald Trump has again floated the idea of using tariff revenue to offset income taxes, reviving a proposal he first raised during his 2024 presidential campaign.

Speaking during his State of the Union address, Trump said, “As time goes by, I believe the tariffs paid for by foreign countries will, like in the past, substantially replace the modern-day system of income tax.” Any changes to federal income taxes would require action by the US Congress.

However, several policy experts have expressed skepticism, arguing that tariff revenue is far too small to replace income taxes in the modern US economy.

Alex Durante, senior economist at the Tax Foundation, said the numbers do not add up. He noted that while tariffs were a primary source of US revenue in the 19th century, federal spending at the time was just over 2 percent of gross domestic product, compared to nearly 23 percent in 2023.

White House spokesman Kush Desai clarified to CNBC that Trump did not claim the current tariff regime could fully replace income taxes, but reiterated his belief that a strong tariff policy could fund the federal government, as it did for much of early American history.

Trump’s remarks came days after the Supreme Court of the United States struck down a significant portion of his tariff agenda. The administration’s Department of Justice is also facing a court deadline regarding potential tariff refunds, though it remains unclear whether importers will recover billions collected under higher rates.

Kimberly Clausing, a nonresident senior fellow at the Peterson Institute for International Economics, described the proposal as implausible. In a 2024 report she co-authored, Clausing compared the tax base for tariffs and income taxes, noting that in 2023 the US imported $3.1 trillion in goods, while more than $20 trillion in income was subject to taxation.

Treasury data show that in fiscal year 2025, the federal government collected about $2.66 trillion from individual income taxes, accounting for nearly 51 percent of total revenue. In contrast, customs duties amounted to roughly $195 billion in the same year.
As of January 31 in fiscal year 2026, which began October 1, the government had received approximately $924 billion in individual income taxes, compared to about $118 billion from customs duties.

Clausing said even if tariffs were raised to a revenue-maximising level above 40 percent, they would generate less than one-fifth of the revenue collected from individual income taxes. She warned that such high tariffs would be “ruinous for the economy,” potentially reducing imports and further limiting tariff revenue.