Light Read: Could Tariffs Really Replace Income Taxes?

When I first mapped out the logic of the April 2 tariff escalation, the case was strategic. Tariffs, as deployed by President Trump, served as leverage—an instrument of fiscal signaling and geopolitical pressure. But the conversation has since moved into new territory. In his latest remarks, the president has proposed something far more ambitious: that tariffs could replace the income tax altogether.

It’s a compelling idea. It sounds like returning to something simpler, more sovereign, even more American. And in fact, it’s not entirely without precedent. But the deeper you go into the numbers and mechanics, the more this vision begins to shift—from a fiscal liberation fantasy to something that would require fundamental economic and institutional rewiring.

In the 19th century, tariffs weren’t a footnote—they were the revenue engine. As historian Douglas Irwin outlines in Clashing Over Commerce, customs duties financed up to 90% of federal revenue in some decades. It was a lean era of federal governance: no Social Security, no Medicare, no sprawling regulatory state. In that context, tariffs weren’t a loophole—they were sound policy.

They also had ideological coherence. Protectionist thinking—especially of the Hamiltonian variety—was not just tolerated but embraced as a means to develop domestic industry and reduce dependence on European capital. For a young, industrializing republic, it made sense.

But by the early 20th century, the equation changed. With the ratification of the 16th Amendment in 1913, the United States moved decisively toward income taxation. War mobilization, infrastructure, and the expansion of federal programs stretched well beyond what tariff revenues could sustain.

Today, the fiscal scale is an order of magnitude beyond that transition point. The federal government spends around $6 trillion annually. Individual income taxes alone contribute roughly $2 trillion to that total. That’s the number any tariff system would have to replace. By contrast, the peak annual revenue from the tariff regime during the President Trump’s first term—when duties were imposed on steel, aluminum, and over $350 billion in Chinese goods—never exceeded $70 billion.

Even if you accept some revenue leakage in the current tax system, we’re still looking at a multiplier problem. Tariffs would need to generate 25 to 30 times more revenue than they did at their peak last time. That means applying far higher duties, across far more categories of imports, and doing so in ways that risk consumer backlash, legal challenge, and retaliation.

And here’s where the economic rubber hits the road. The political narrative often frames tariffs as a tax on other countries—money clawed back from unfair trading partners. But the empirical consensus is clear: tariffs are paid at the port by U.S. importers, and the costs are passed down supply chains to American consumers. The National Bureau of Economic Research and Brookings both confirm that the 2018–2020 tariffs led to measurable increases in the price of goods ranging from appliances to electronics.

Moreover, tariffs don’t occur in a vacuum. Trade partners retaliate. During the last round, China responded by targeting politically sensitive exports like soybeans and pork, prompting Washington to authorize $28 billion in farm bailouts. Much of the revenue collected at the border was rerouted into subsidies—fiscally necessary, but a far cry from clean surplus.

That’s not to say tariffs lack utility. Certain industries—particularly those central to MAGA economic policy like steel and semiconductors—do stand to benefit from targeted protections. Domestic production has seen real boosts. But as AEI and CBO both outline, those gains often come with diffuse costs—higher prices, lost efficiency, and suppressed consumption.

If we were to actually finance the government through tariffs alone, it would require more than just trade policy tweaks. It would mean recalibrating the size and ambition of the federal government itself. Entitlement programs, defense outlays, discretionary spending—these would all have to shrink dramatically. It would mean moving toward a pre-New Deal conception of the state. Whether that’s desirable is one question. Whether it’s achievable is another.

It might also raise more foundational questions: could the U.S. remain the issuer of the world’s reserve currency while funding itself primarily through border taxes? Could it sustain its global financial leadership while retreating from the structures that underpin it?

What’s clear is that the idea of tariffs replacing income taxes is not inherently unserious. It is grounded in history. It reflects real frustrations with a bloated and opaque tax code. But it is not a plug-and-play solution. It is a proposition that would, if followed through, change not just how America trades—but how it governs.

And if that’s where we’re heading, then the conversation must go deeper. A future America funded by tariffs is not just one with higher prices at the store—it’s one with a smaller state, a leaner global role, and perhaps a different kind of dollar.