President Donald Trump has shared an ambitious idea to remove federal income taxes and replace them with a tariff-based system, inspired by how America operated from 1870 to 1913.
He suggests the creation of a new agency, the External Revenue Service (ERS), to manage tariffs and foreign income, aiming to ease the tax load on Americans.
Trump’s Vision for a Tariff-Based Economy
During the 2025 Republican Issues Conference held at Trump National Doral Miami on January 27, Trump detailed his economic plan in front of GOP leaders. This three-day event aimed to shape the legislative priorities of the party.
In his address, Trump noted the historical success of America before 1913, a period when the nation flourished based on tariffs instead of income tax. He described this era as remarkably prosperous for the country.
“From 1870 to 1913, the U.S. ran on tariffs—that was the richest period in American history, relatively speaking,” he stated. He mentioned the Tariff Commission of 1887, tasked with managing the massive money generated through tariffs.
“The amount was so significant that they didn’t know what to do with it all. Teddy Roosevelt managed to fund national parks and other projects—all through tariffs. Income tax only started in 1913,” Trump explained.
‘Tax Foreign Nations, Not Our Citizens’
Trump’s argument is simple: instead of taxing American citizens for the benefit of foreign nations, America should impose tariffs on other countries to enhance its own wealth. He believes that a shift to tariffs can swiftly make America “very rich again.”
Throughout his campaign, Trump has consistently advocated for replacing income taxes with tariffs.
Could the U.S. Replace Income Tax with Tariffs?
Typically, tariffs are a percentage levy on imported goods, collected by U.S. Customs and Border Protection at entry points. Many economists have voiced skepticism, stating that tariffs are inefficient for funding government programs and could increase consumer costs.
This proposal has ignited a discussion among economists and policymakers. Some criticize that tariffs are, in essence, a tax on imports, which businesses often pass on to consumers through higher prices. This impact could be harder on lower- and middle-income families, possibly outweighing the benefits of no income taxes.
Moreover, there are doubts about generating enough revenue to fund federal operations from tariffs alone. It’s estimated that a 10% tariff might bring in $350 to $400 billion yearly, which doesn’t cover the $4 trillion needed for tax cuts over ten years. This gap might require major cuts in programs like Social Security and Medicare to balance the budget.
The External Revenue Service Proposal
Trump proposes forming an External Revenue Service (ERS) to manage tariffs and foreign trade revenue. However, setting up such an agency needs Congress’s approval. With a Republican-led House and Senate, the proposal could advance.
Questions arise about growing the government, given Trump’s pledge to shrink federal bureaucracy. The plan involves forming a new agency to perform duties covered by existing departments like Commerce and U.S. Customs and Border Protection. The ERS would target foreign revenue, unlike the IRS, which deals with domestic taxes.
Major Tariffs at the Core of Trump’s Economic Plan
In his broader economic aims, Trump suggests hefty tariffs, like a potential 25% levy on imports from Canada and Mexico and a 60% tariff on goods from China. These actions aim to boost domestic revenue and remove the tax load from Americans.
But economists warn these tariffs could lead to raised consumer prices. Businesses might push these costs down to customers. Many experts remain doubtful, arguing tariffs are an inefficient way to generate government revenue and support economic growth.
In conclusion, while this proposal seeks to lessen the tax burden on Americans and grow national wealth through tariffs, it brings up considerable concerns about its economic impacts, practicality, and potential effects on households and government initiatives.
