US President Donald Trump’s tariff pitch, as Lutnick framed it, involves replacing the IRS (Internal Revenue Service) with an “External Revenue Service” that leans on tariffs—think 10% across-the-board, 60% on China, or even 25% on Canada and Mexico—to fund the government. The ideas to raise $700 billion annually, ax income taxes, and shift the burden to foreign entities. So, what’s the impact look like?
Revenue Feasibility: The IRS collected $823 billion from individual income taxes in 2024, per Treasury data, and total federal revenue was around $4.9 trillion. Tariffs brought in $80 billion—peanuts by comparison. Scaling that to $700 billion means tariffs would need to jump nearly ninefold. The Tax Foundation estimates a 10% universal tariff could pull $2 trillion over a decade ($200 billion yearly), or $3.3 trillion at 20% ($330 billion yearly), before economic blowback.
A 60% China tariff plus 10% elsewhere might hit $400 billion annually, per some models, but even that’s half of income tax revenue. Historical tariffs topped out at 19.8% of imports in the 1930s, funding a government spending just 2% of GDP—today it’s 22.7%. The math’s tight; $700 billion’s optimistic without massive rate hikes or trade volume holding steady, which it won’t.
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Economic Effects: Tariffs are taxes on imports, so prices rise—simple as that. The 2018-2019 Trump tariffs on steel, aluminum, and Chinese goods added $80 billion in costs, mostly passed to U.S. consumers and firms, per the U.S. International Trade Commission. A 2024 Peterson Institute brief pegs a 10%-60% tariff combo at $200 billion yearly but warns of GDP shrinkage from retaliation and efficiency losses. Their high-end scenario (50% universal) could hit $780 billion—close to Lutnick’s number—but slashes GDP by 1.3% long-term, kills 142,000 jobs, and spikes inflation.
The Tax Policy Center says a 20%-60% plan cuts household income by $3,000 on average in 2025, hitting the bottom 80% hardest (up to 9% income loss) while the top 1% gains 12%. Retaliation’s a killer—Canada and Mexico, supplying 70% of U.S. oil imports, could tank Midwest gas prices by 50 cents a gallon if they slap back.
Consumer Impact: Take cars—Mexico’s auto parts feed U.S. plants. A 25% tariff could add $2,700 to a $45,000 vehicle, per Jefferies. Avocados? 90% from Mexico; guac’s pricier. China’s $450 billion in imports—electronics, toys—face a 10% hike, so your next phone or kid’s gift costs more. NPR’s analysis says Trump’s latest tariffs could mean $800-$1,100 extra per household in 2025. Inflation’s already stubborn; this could nudge it from 2.5% to 3.5%, per S&P Global, especially if trade wars escalate.
Trade and Jobs: Tariffs aim to boost U.S. production, but evidence is mixed. The 2023 ITC report says 2018 tariffs cut Chinese imports and nudged domestic steel output up, with “minor” price hikes. But broader studies—like Tax Foundation’s—show net job losses from higher costs and export hits. A 25% Canada-Mexico tariff could gut $680 billion in U.S. exports, per Brookings, disrupting supply chains (50% of North American trade). Globally, countries like Germany or India might snag market share if U.S.-China trade shrinks, per the OEC Tariff Simulator.
Feasibility Caveats: Lutnick’s $700 billion assumes foreign entities eat the cost, but econ 101 says importers—and thus U.S. buyers—pay most. Compliance is another snag; smuggling and evasion rise with rates (15% noncompliance is standard). And scrapping the IRS? That’s a 90,000-person machine—Congress would need to rewrite the tax code, facing a divided House and filibuster-happy Senate. Pre-1913 tariffs worked for a tiny government; today’s $6 trillion budget laughs at that.
Bottom Line: Tariffs could raise serious cash—maybe $300-$500 billion yearly with aggressive rates—but replacing income tax fully is a stretch without cratering trade or spiking deficits. You’d see higher prices (cars, food, tech), some job shifts (gains in protected sectors, losses elsewhere), and a GDP dip (0.5-1.4%, per The Budget Lab). Inflation ticks up, the dollar might flex short-term, and global trade takes a hit—China, Canada, Mexico feel it most. Lutnick’s vision sounds slick, but the numbers and fallout say it’s more disruption than deliverance.
