Trump’s Impossible Tax Cut

The New York Times today devotes a little over 1,100 words by reporter Andrew Duehren to examining a policy idea floated vaguely by former President Donald Trump: eliminating federal income taxes and replacing the lost revenue via tariffs.

Under a headline that reads “Trump Flirts With the Ultimate Tax Cut: No Income Taxes at All,” Duehren notes — as we did the other day — that Trump has spoken approvingly of the economic and tariff policies of the 1890s and Republican President William McKinley, and has floated or expressed openness to the idea of returning to such policies, when there was no federal income tax.

“Mr. Trump has not provided specific details of how that would work, and it is unclear if he wants to eliminate all federal taxes, including corporate income taxes and payroll taxes, or only end the individual income tax,” Duehren points out. “Either way, both liberal and conservative experts have dismissed his idea as mathematically impossible and economically destructive. Even if Republicans control Congress, lawmakers are unlikely to dismantle the income tax system.”

Duehren adds that the federal income tax system arose after the high tariffs of the 1890s that funded the federal government were criticized by Democrats of that era as a burden on poor Americans. It was meant to have the rich pay more, addressing concerns about inequality, and to help fund a larger federal government.

The result: “Tariffs dwindled as a source of federal revenue while income taxes expanded,” Duehren writes. “Today, tariffs make up just 2 percent of federal revenue, while income and payroll taxes make up about 94 percent. Overall, the tax system is progressive: In 2020, the top 20 percent of earners in the United States paid about 80 percent of all federal taxes, according to the Congressional Budget Office.”

It would now be essentially impossible to replace all income tax revenue with money from tariffs given that the U.S. imports about $3 trillion worth of goods a year, but the Treasury took in some $4.2 trillion in income taxes and payroll taxes in fiscal year 2024 — and astronomically high tariffs could lead to damaging trade wars that dry up global trade with the United States, producing little tariff revenue.

The bottom line: Trump hasn’t detailed how this idea might work — because it wouldn’t.

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