Former President Donald Trump has suggested eliminating federal income taxes in favor of a tariff-based economic system, drawing inspiration from the U.S. economy between 1870 and 1913. He proposes establishing a new agency, the External Revenue Service (ERS), to oversee tariffs and foreign trade revenues, aiming to shift the tax burden away from American citizens.
Trump’s Vision for a Tariff-Based Economy
At the 2025 Republican Issues Conference at Trump National Doral Miami on January 27, Trump presented his economic plan to GOP leaders. Citing historical precedent, he argued that before 1913, the U.S. prospered without an income tax, relying solely on tariffs.
“You know, from 1870 to 1913, the U.S. operated entirely on tariffs—and that was the richest period in American history, relatively speaking,” he stated. He referenced the Tariff Commission of 1887, claiming it struggled to manage the vast sums of money collected.
“It was so enormous that they had no idea what to do with all of the money. Teddy Roosevelt, as a beneficiary, was able to fund national parks and other projects—all through tariffs. There was no income tax; that only came in 1913,” Trump added.
‘Tax Foreign Nations, Not Our Citizens’
Trump advocates for taxing foreign countries instead of American citizens, believing that a tariff-based system would quickly restore national wealth. He has consistently supported replacing income taxes with tariffs throughout his political career.
Could Tariffs Replace Income Tax?
Tariffs, typically charged as a percentage of imported goods’ prices, are collected by U.S. Customs and Border Protection at ports of entry. However, many economists argue that relying on tariffs for revenue is inefficient and could lead to higher consumer prices.
Critics warn that tariffs function as indirect taxes on consumers, as businesses pass increased costs onto buyers. This could disproportionately impact lower- and middle-income households, potentially offsetting the benefits of eliminating income taxes.
Another major concern is whether tariffs could generate sufficient revenue to sustain government operations. Estimates suggest that a 10% tariff could raise $350–$400 billion annually, which falls short of covering the $4 trillion needed to extend current tax cuts over a decade. To balance the budget, significant cuts to programs like Social Security and Medicare might be necessary.
The External Revenue Service Proposal
Trump’s plan includes forming the External Revenue Service (ERS) to manage tariffs and foreign trade revenue, though its creation would require congressional approval. With Republicans in control of both the House and Senate, the proposal could gain momentum.
However, this raises questions about government expansion. Trump has pledged to shrink federal bureaucracy, yet the ERS would take on duties already handled by agencies like the Commerce Department and U.S. Customs and Border Protection. Unlike the Internal Revenue Service, which manages domestic taxes, the ERS would focus exclusively on foreign revenue collection.
Major Tariffs as the Core of Trump’s Economic Plan
A key aspect of Trump’s proposal includes imposing steep tariffs, such as a 25% tax on imports from allies like Canada and Mexico and a 60% tariff on Chinese goods. These measures aim to increase domestic revenue and reduce tax burdens on American citizens.
Economists caution that such tariffs could drive up consumer prices as companies adjust for higher costs. Many experts remain skeptical, arguing that tariffs are not an effective long-term strategy for funding government programs or stimulating economic growth.
Conclusion
Trump’s proposal seeks to replace income taxes with tariffs, shifting the financial burden to foreign entities. While it aims to boost national wealth and reduce taxes for Americans, concerns remain about feasibility, economic impact, and potential consequences for consumers and government programs.
