Trump wants to abolish the income tax by offsetting its revenue with tariff profits.

Trump is promoting an idea that could appeal to millions of budget-strapped families: using tariff revenue to reduce or even eliminate the federal income tax for individuals. But experts doubt that import tariffs can completely replace the income tax, writes CBS News.

Experts note that reducing this tax will benefit the country's highest-paid citizens the most.

"I believe that at some point in the not-too-distant future, you won't even have to pay income taxes because we collect so much money," Trump said at a Cabinet meeting on December 2, in reference to tariff revenue.

Trump's proposal comes as the Supreme Court is considering the constitutionality of the tariffs he imposed. These tariffs are trade taxes on imports paid by American companies and typically passed on to consumers through higher prices. Thanks to Trump's policies, the Treasury Department significantly increased tariff revenues this year.

On the subject: Costco is suing the White House over tariffs, demanding reimbursement for lost money.

White House spokesman Kush Desai said Trump "will generate trillions of dollars in revenue for the federal government in the coming years through his trade tariffs, and the burden of those costs will ultimately fall on foreign exporters who depend on the American economy, the largest and best consumer market in the world."

Despite the increase in revenue from duties, tax experts doubt that such revenue can ever replace income tax.

"It's impossible to mechanically replace income tax revenue entirely with tariffs," Erica York, vice president of federal tax policy at the Tax Foundation, told CBS News. "Any real attempt to do so would hurt working-class Americans, damage the U.S. economy, and significantly increase the federal budget deficit."

York estimated that the Trump administration's current tariff policy, if maintained, would generate approximately $2,1 trillion in revenue over the next decade. By comparison, the federal income tax over the same period would generate more than ten times as much—$32 trillion, she noted.

Personal income tax revenues annually amount to approximately $2,7 trillion, according to the IRS. In fiscal year 2025, the United States collected $195 billion in tariff revenue, according to Treasury Department data.

"Even with the maximum possible application of duties, they simply cannot generate that level of revenue—the volume of imports is insufficient to support that tax base," York noted.

According to Scott Lincicome, vice president of economics at the Cato Institute, the revenue from the tariffs could indeed be used to lower taxes. He argues that since low-income families already pay little or no income tax, such a reduction is unlikely to help those who need it most.

"If a single 3% income tax reduction were introduced, only the wealthiest 10% of taxpayers would actually benefit," Lincikom stated.
The top 10% of earners pay about 72% of all income taxes in the country, according to the Tax Foundation.

What about "tax dividends"?

Trump also discussed the possibility of paying Americans a $2000 check as a "tariff dividend"—an idea he brought up again at a cabinet meeting on December 2.

However, according to Lincicome, this proposal also runs into arithmetic problems. A one-time payment of $2000 per household would cost between $300 billion and $600 billion, which is significantly more than the US currently collects from tariffs.

Furthermore, issuing such a payment or reducing income taxes would require Congress to change the tax code. This is a difficult legislative task in the current partisan divide. Some Republican lawmakers have already rejected the idea of ​​a $2000 payment. Senator Ron Johnson of Wisconsin recently declared that the United States "cannot afford it."

Meanwhile, the United States is unlikely to be able to collect enough tariff revenue to fund such payments or replace the income tax. To do so, import trade taxes would have to be raised so high that Americans would stop buying most imported goods, and tariff revenue would cease, Lincicome explained.

"There's a hard limit on the amount that can be raised through tariffs," he clarified. Economists say that "approximately $700 billion per year can be raised with a very high effective tariff rate—that is, with a universal tariff rate of 20–30%. But if you raise it any higher, people will simply stop buying imports."

The Yale Budget Lab research center calculated that American consumers currently pay, on average, nearly 17% in trade tariffs when purchasing imported goods. This is called the "average effective tariff rate." It reflects not individual rates specified in law, but the actual average burden of all applicable tariffs, calculated based on the types of goods imported and in what quantities.

How do duties differ from income tax?

Putting aside the difference in revenue scale, duties are structured differently than income taxes. American companies that import goods and components pay a fee based on the country of origin. For example, American firms pay a 15% duty on imports from the European Union.

So a company importing a $5 Italian chocolate bar will pay the US government an extra 75 cents and then decide whether to pass that extra cost on to consumers or cover it itself.

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In their structure, duties often resemble a sales tax, in which sellers pay a percentage of the cost of goods when paying at the checkout.

In contrast, personal income tax is progressive: low-income individuals pay a lower rate than high-income families. The lower rate is 10%, the upper rate is 37%.

Replacing a progressive income tax with a flat trade tariff would likely result in low- and middle-income families bearing a larger share of the tax burden than high-income families, York said.

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