5 reasons why Trump’s tariffs will never replace the income tax
President Donald Trump recently floated the idea of eliminating the income tax and subsidizing the government with taxes on foreign assets.
Sounds good, right? Zero taxes would be great. But before we start throwing our W-2s into the shredder, we need a reality check.
The business income tax is not just a heavy lift; Economists and tax experts across the country say it’s impossible. That’s why this idea will always be a political talking point rather than a reality in your wallet.
1. The numbers don’t add up
The US government spends a lot of money. In 2022, the government collected approximately $2.14 billion in per capita taxes. Meanwhile, the total US tax revenue in 2026 is expected to be reached $418 billion.
To replace the $2 trillion in tariffs, you would have to tax $3 trillion worth of goods every year at astronomically high rates. As Erica York, vice president of federal tax policy at the Tax Foundation, pointedly noted when reviewing the proposal, “The numbers don’t add up.”
2. Taxes are hidden national sales tax
Politicians like foreign countries to pay taxes. That is not true now, and it never has been. If the US imposes tariffs on imported goods, the exporter does not incur costs. The US business importing the goods pays the fee at the border, and passes that fee on to you directly at the checkout counter.
You may have heard lawmakers put in place a “Fair Tax” or a large national sales tax to replace the IRS. A cross-the-board tariff does exactly the same thing, with a different coat of paint. Whether Washington calls it a tax or a national sales tax, the result is the same: the tax burden moves from your paycheck to your shopping cart.
We covered this in more detail in The Tariff Trap: How to Foot the Bill for Global Trade Wars. If we replaced income taxes with tariffs, you wouldn’t pay less to the government; you will be paying your taxes every time you buy groceries, clothing, or electronics.
3. It punishes the middle class
The current federal income tax system is progressive, meaning that the wealthiest Americans pay the lion’s share. In fact, the top 1% of earners pay nearly 40% of all federal income taxes.
Payments, on the other hand, are deferred. A 50% price increase on imported shoes hurts a middle-class family trying to dress their kids for school more than it hurts a millionaire. Replacing income taxes with taxes would effectively act as a huge tax cut for the very rich, while shifting the financial burden to working families who spend a large percentage of their income on basic goods.
4. High taxes destroy the revenue base
There is a big flaw in the system of using prices as our capital cow. If you raise prices high enough to take away trillions in income tax, imported goods will become so outrageously expensive that Americans will simply stop buying them.
If we stop buying goods from other countries, the government stops collecting tax money. It’s a catch-22. You cannot rely on a tax system that destroys the very things it needs to survive.
5. Hello, global trade war
If the US imposes crushing tariffs on every product that enters the country, the rest of the world will not just sit back and watch. They will retaliate by imposing similar tariffs on American exports.
This would hurt US farmers, manufacturers, and technology companies that rely on selling their products overseas. The resulting economic downturn could lead to significant job losses here at home.
What’s important in your budget
While the idea of a zero-percent income tax sounds good on paper, the negative effects of replacing it with taxes can be dangerous for the average consumer. In the meantime, you should expect to continue filing your tax returns every April.
Instead of dreaming about the end of the IRS, focus on what you can control. Since trade policies are constantly changing, learning how to adjust your budget is your best defense. Here’s How Much Taxes Cost Americans Last Year – and What to Expect in 2026 to start fixing your wallet.
