Trump said tariffs could ‘substantially replace’ income taxes
U.S. President Donald J. Trump delivered the first State of the Union address of his second term to a joint session of Congress in the House Chamber of the U.S. Capitol Building in Washington, DC, USA, on Tuesday, February 24, 2026.
Kenny Holston | New York Times | via Reuters
Amid tariff uncertainty, President Donald Trump this week reconsidered the idea of using tariff revenues to offset income taxes.
“I believe that as time goes on, tariffs paid by foreign countries will largely replace today’s income tax system, as they have in the past,” Trump said. State of the Union address.
It’s an idea Trump previously floated during the 2024 presidential campaign and revisited while in office. Federal income tax changes will require Congressional action.
Meanwhile, some policy experts say they are skeptical.
“Simply put, the math doesn’t work,” said Alex Durante, senior economist at the Tax Foundation, a nonprofit tax policy think tank. The organization analyzed Trump’s tariff policyincluding whether or not change income tax.
While the main source of U.S. revenue in the 19th century was tariffs, “the government was much smaller,” according to Durante.
During this period, federal government spending It amounted to just over 2% of gross domestic product, compared to about 23% in 2023, according to the Tax Foundation’s 2025 analysis.
“President Trump did not say that the current tariff regime could replace federal income taxes. He simply reiterated his belief that a sound tariff policy could fully fund the federal government — as it has for much of American history,” White House spokesman Kush Desai told CNBC in an email.
Trump’s remarks came just days after the Supreme Court struck down much of his tariff agenda. The Trump administration Justice Department faces a major tariff reversal court deadline on Friday. But it’s unclear whether importers will get refunds on the billions of dollars in taxes collected through Trump’s higher rates.
Comparison of tariff revenues with income taxes
“It is completely implausible that tariffs would replace the modern income tax system,” said Kimberly Clausing, a nonresident senior fellow at the Peterson Institute for International Economics, a nonprofit think tank. “They’re too small.”
Clausing co-authored a 2024 report on the subject. I compared the tax base He wrote that in 2023, the United States imported $3.1 trillion in goods and imposed taxes on more than $20 trillion in income.
federal government in fiscal year 2025 raised approximately $2.66 trillion From individual income taxes, which account for about 51% of total income, according to Treasury data. In comparison, customs duties are approx. $195 billion The same year, the Treasury reported.
As of January 31, the federal government is approx. $924 billion in individual income taxes According to the Treasury, approximately $118 billion from customs duties reached this figure in the 2026 fiscal year, which started on October 1.
Even if Trump’s tariffs reached a “revenue maximization level” of more than 40 percent, the taxes would raise less than a fifth of the individual income tax collected, Clausing told CNBC.
He said such high tariffs would be “devastating for the economy” and other negative effects, including fewer imports, could also affect revenue.
