From Yahoo Finance: 2025-04-22 05:07:00

President Donald Trump is proposing tariffs to potentially replace income taxes, but economists doubt it’s feasible. Consumers currently face a 28% average effective tariff rate, the highest since 1901. Estimates for tariff revenue vary from $2.4 trillion to $6 trillion over the next decade, far less than the $2 trillion collected from income taxes annually.

The idea of replacing income taxes with tariffs faces significant challenges. Economists warn that tariffs would struggle to generate enough revenue to cover the loss from income taxes. Even if tariffs were increased, the math would still not add up, making it an impossible task according to experts.

Tariffs are essentially taxes imposed on imported goods, paid by importers, not foreign countries as Trump claims. Higher tariffs may lead to reduced imports, impacting federal revenue. Economists caution that increasing tariffs could lead to a decrease in employment rates and output, potentially causing a recession.

While some propose replacing income taxes with a consumption tax, economists argue that tariffs alone cannot replace income taxes. The scale of revenue generated from tariffs is insufficient compared to income taxes. Critics warn that a consumption tax could disproportionately affect lower-income households.

Lawmakers have considered replacing income taxes with a national sales tax, a form of consumption tax. This proposal, along with broader consumption taxes, has its proponents and critics. Economists argue that a consumption tax could be more efficient but would need careful design to protect lower-earning households.

Read more: Trump says tariff revenue could replace income taxes. Why economists disagree.