Donald Trump claims tariffs could someday replace federal income taxes, but experts call idea ‘nonsensical’ — here's why

United States President Donald Trump has multiple times claimed that revenues from his global tariffs could in the future replace need for federal income taxes in America, but experts are singing a different song.

According to an AP report citing multiple economic experts, Donald Trump's “idealised” Gilded Age policies were a precursor to income taxes — which were imposed because the tariffs did not work.

Donald Trump claims that revenues from his global tariffs have the ability to replace revenues from federal income taxes in the US. He has repeated this idea since his presidential campaign in 2024, and even as recently as a Cabinet meet on 2 December.

At the meeting, which lasted two hours, he claimed: “I believe that at some point in the not-too-distant future, you won't even have income tax to pay. Because the money we're taking in is so great, it's so enormous, that you're not going to have income tax to pay.”

The White House did not immediately respond to queries, the report added.

Can tariffs completely replace income tax for Americans? The numbers say no

However, experts dispute Donald Trump's claims idea as unfeasible, stating that the tariff revenues “don't even come close” to levels that could completely replace federal income taxes. Steve Wamhoff, federal policy director at the Institute on Taxation and Economic Policy told AP the idea is “nonsensical.”

Brandon DeBot, senior attorney adviser and policy director at New York University's Tax Law Center told AP such a move is “not possible” and not feasible, “mathematically or economically”. He added: “Analysts from a range of different perspectives agree with that conclusion. Even the very substantial tariffs imposed this year, which are at the highest levels in the postwar era, raise nowhere near the revenue that income tax does.”

What are the numbers?

• As per an AP fact check, individual income taxes brought in trillions more dollars than tariffs in the last fiscal.
• In fact, Treasury Department data showed that income tax revenue accounted for over 50% of total US revenue, while tariffs made up only 3.7% of the total.
• In October (only the first month of the current fiscal in US cycle), Treasury data showed that individual income taxes comprised 54% of total revenue, against 7.75% generated from tariffs.
• As per Treasury Department data for last fiscal, individual income tax revenues comprised around $2.66 trillion of the nearly $5.23 trillion total revenue.
• Even corporation income taxes and custom duties did not come close — at around $452 billion and nearly $195 billion, respectively. The difference is in the trillions — around $2.8 trillion, it added.
• In the current fiscal year so far, the scenario is similar. Individual income taxes were around $217 billion of the close to $404 billion total revenue in October, while corporation taxes were near $15 billion, and tariffs earned about $31 billion.

Forget revenue share, why else do experts dispute Trump's claims?

According to experts, it not only about how much revenue is generated from income taxes, but earnings from tariffs is also simply unreliable and its adverse impact on the US economy is too big to ignore.

There are also uncertainties surrounding Donald Trump's constant changes to tariffs — in terms of rates, impacted countries, etc. And there is the looming US Supreme Court verdict on the constitutionality of his move in imposing the tariffs in the first place. If overturned — and if companies file for refunds — that's a pandora's box in itself.

Adverse impacts on US economy, low-income households

• For one, it is the importers (American companies) that pay tariffs and usually pass on the cost to the consumers (also Americans), which means that prices rise. It did note that foreign companies are impacted too and would likely sacrifice margins in order to remain competitive in the US market.
• Secondly, lower-income households are being hit hard. Tariffs high enough to completely replace income tax would invite retaliation from other economies and curtail imports into the US. This means supply constraints and hike in prices, which would burden lower-income households, already in a tough economic situation. Plus, tariffs lack the flexibility of income taxes, which can be set at desired rates, and also wouldn't allow for incentives such as charitable donations or child tax credits.

Michael Graetz, a professor of tax law at Yale University told AP, “Inequality is very highly skewed toward the top. We've got more billionaires than we've ever had. We've got more millionaires than we've ever had. So, it's a strange time to be reducing the tax burden on the top and increasing it on the middle.”

(With inputs from AP)