Trump claims tariffs could replace income tax

The US president insists his trade policy could generate billions in revenue

US President Donald Trump has suggested that revenue from his so-called “Liberation Day” tariffs could potentially replace the federal income tax.

This month, Trump announced “reciprocal” tariffs on nearly 90 countries, citing what he described as unfair trade practices. Following a sharp global market decline, he declared a 90-day pause on the duties, reducing them to a 10% baseline. China was one of the few exceptions, with tariffs on its goods raised even further.

Speaking to Fox News’ Rachel Campos-Duffy on Tuesday, Trump was asked whether his tariffs could eventually replace the income tax.

He praised the question, noting that the TV host was the only one who had ever posed it to him – despite frequently engaging with “top financial minds” who had never brought it up.

“There is a chance that the money from tariffs could be so great that it would replace – you know, in the old days, about 1870 to 1913, the tariffs were the only form of money,” Trump said, referring to the Gilded Age – a period of rapid industrial growth and rising national wealth, though marked by stark income inequality and widespread poverty.

“That’s when our nation was relatively the richest. We were the richest,” he added.

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Trump, who has dubbed himself “a tariff man,” argues that his trade policies could raise over $1 trillion in the next year or so – helping to reduce the national debt and potentially offset or replace income taxes. He maintains that tariffs are strengthening the US economy, bringing “billions of dollars a day” into federal coffers.

Economists, however, are skeptical that tariffs could generate revenue on the scale Trump claims, warning that higher import prices could reduce consumer spending and dampen overall demand.

According to the Congressional Research Service, over the past 70 years, tariffs have accounted for no more than 2% of total federal revenue annually. In 2024, US tariff collections on imports represented just 1.7% of the more than $4.9 trillion in total federal revenue.

Financial analysts at ING said Tuesday that broad tariffs on trading partners – particularly China – may yield long-term benefits for the US economy and American workers. However, they cautioned that the transition could be “very challenging and likely economically damaging” in the short term.

If trade deals are reached and tariffs are scaled back, ING noted, the government could lose fiscal room for broader tax cuts.