Given that April 15 is near, it’s a good time to consider President Trump’s proposal for replacing the Internal Revenue Service with an External Revenue Service.
A Trump executive order has tasked the secretaries of the Treasury, Commerce and Homeland Security with investigating “the feasibility of establishing and recommend the best methods for designing, building, and implementing an External Revenue Service (ERS) to collect tariffs, duties, and other foreign trade-related revenues.” As the president stated in his inaugural address, “Instead of taxing our citizens to enrich other countries, we will tariff and tax foreign countries to enrich our citizens.”
In his first term in office, Trump boasted in a tweet, “Billions of Dollars are pouring into the coffers of the U.S.A. because of the Tariffs being charged to China, and there is a long way to go.” The statement is at best misinformed, at worst laughable. The government did indeed collect tariffs, but they came from Americans, not China.
Trump is implying, whether seriously or not, that we could eliminate the individual income tax — and perhaps the corporate income tax — and replace that revenue with tariffs. The problem is the U.S. doesn’t collect anywhere near enough revenue from tariffs to offset the income tax.
According to the Congressional Research Service, “Over the past 70 years, tariffs have never accounted for much more than 2% of total federal revenue.” Tariffs brought in only $77 billion, or 1.57 percent of total revenue, in 2024. More importantly, that’s only 1.14 percent of that year’s $6.75 trillion in spending.
By contrast, federal revenue from the individual income tax was $2.43 trillion in 2024 — about 32 times the $77 billion the government received in tariffs. Including corporate income tax revenue of $0.53 trillion means the government received nearly $3 trillion for both income taxes.
Roughly 70 percent of products enter the U.S. duty free. Imposing tariffs on everything, even at higher rates, might net a few hundred billion dollars, but not $2.4 trillion.
And, importantly, it would still be U.S. companies and individuals paying those tariffs, not “foreign nations” as Trump suggests. As the Tax Foundation explains, “When the US imposes tariffs on imports, US businesses directly pay import taxes to the US government on their purchases from abroad.”
Let me reemphasize that: U.S. businesses, not the foreign country exporting the products, pay the import tariffs to the government. Trump’s tariffs are a tax on Americans, not foreign countries.
Trump has some good economists advising him who have surely told him who pays the tariffs. And some business leaders have reportedly explained it to the president. Whether the president can’t remember the truth or is willfully repeating a ...
