US President Donald Trump’s proposal to replace income taxes with tariffs on imported goods has sparked debate among economists. In the early 20th century, before the US had an income tax, tariffs were a significant source of government revenue.
According to President Trump, his plan would generate “a BONANZA” and eliminate income taxes for individuals earning less than $200,000 per year. However, experts have questioned the feasibility of this approach.
Critics argue that while tariffs could bring in billions of dollars, they might not be enough to replace the lost revenue from income taxes. The US has a massive population, and even small increases in tariffs would likely lead to significant losses for certain industries.
In reality, the revenue generated by tariffs is often offset by retaliatory measures taken by other countries. This could lead to a trade war that benefits no one. Furthermore, relying solely on tariffs as a source of revenue would put pressure on American businesses and consumers, particularly in industries that rely heavily on imports.
It’s unclear how President Trump’s plan would fare in practice, but it’s likely that he will be surprised by the complexities of the issue. The reality may not live up to his optimistic predictions, and experts caution against relying solely on tariffs as a means of generating revenue.
Source: https://www.economist.com/finance-and-economics/2025/05/18/trump-will-be-unpleasantly-surprised-by-americas-tariff-revenues