President Donald Trump has proposed using revenue from tariffs to reduce or potentially eliminate income taxes for individuals earning less than $200,000 annually, as stated in various sources including a Truth Social post on April 27, 2025. He suggested this could be a “BONANZA FOR AMERICA,” with a focus on creating jobs and establishing an “External Revenue Service” to collect tariff revenues. However, economic analyses and expert opinions cast significant doubt on the feasibility of this plan.
Key Points of Trump’s Proposal
Trump claims that tariffs, such as a 10% universal tariff on most imports and higher tariffs on specific countries (e.g., 145% on China), could generate enough revenue to offset income taxes for those earning under $200,000. A Council on Foreign Relations study estimates that tax revenue from individuals earning less than $150,000 is approximately $576 billion annually. For those under $200,000, the figure would be higher but still a fraction of the total $2.2–$3 trillion collected from individual income taxes each year.
Trump references the late 19th century, when the U.S. relied heavily on tariffs for federal revenue, suggesting a return to this model. The U.S. imported $3.3 trillion in goods in 2024. Even with a 70% across-the-board tariff, revenue might reach $560–$600 billion annually, far short of the $2.2 trillion from individual income taxes. Replacing taxes for just those under $200,000 (e.g., $576 billion for under $150,000) is still challenging.
Register for Tekedia Mini-MBA edition 17 (June 9 – Sept 6, 2025) today for early bird discounts. Do annual for access to Blucera.com.
Tekedia AI in Business Masterclass opens registrations.
Join Tekedia Capital Syndicate and co-invest in great global startups.
Register to become a better CEO or Director with Tekedia CEO & Director Program.
Higher tariffs reduce import volumes as prices rise, shrinking the tax base. For example, a 145% tariff on Chinese goods has nearly halted trade, yielding little revenue. The Tax Foundation estimates that a 10% universal tariff would raise $2.2 trillion over a decade, and a 20% tariff $3.3 trillion, but this is still insufficient to replace income taxes entirely.
Trump’s Tariffs increase consumer prices, disproportionately affecting low- and middle-income households. The Tax Policy Center estimates a 20% worldwide tariff plus a 60% tariff on Chinese goods would reduce household incomes by nearly $3,000 on average in 2025. Retaliatory tariffs from trading partners could further reduce U.S. exports, employment, and economic output, lowering overall tax revenues.
The Penn Wharton Budget Model projects Trump’s tariffs could reduce GDP by 6–8% and wages by 5–7%, with middle-income households facing a $22,000–$58,000 lifetime loss. Replacing income taxes with tariffs shifts the tax burden to lower-income households, as tariffs act like a consumption tax. The top 50% of earners pay 98% of income taxes, while tariffs would impact all consumers evenly, increasing costs for essentials.
For example, the bottom quintile could lose 8.5% of after-tax income, while the top quintile might gain from tax cuts. Experts, including those from the Tax Foundation and Peterson Institute, call the plan “mathematically impossible” due to the smaller tax base of imports ($3.3 trillion) compared to taxable income ($15 trillion in 2021).
Historical reliance on tariffs worked when federal spending was 2.5% of GDP in 1912, not the current 22.7%. Erica York (Tax Foundation): “It’s mathematically impossible” to replace income taxes with tariffs due to the llimited import base. Kimberly Clausing (Peterson Institute): Tariff rates would need to be “implausibly high” (e.g., 100–200%) to match income tax revenue, but higher rates shrink imports, reducing revenue.
Mark Zandi (Moody’s): Tariff revenue is unlikely to exceed $100–$200 billion annually, far below Trump’s claims of $600 billion or more. David M. Walker (Former Comptroller General): Moving entirely to tariffs is “not feasible” given the scale of modern federal spending. If tariffs generate $150–$300 billion annually (as estimated by Goldman Sachs or the Committee for a Responsible Federal Budget), they could fund partial tax cuts but not eliminate income taxes for those under $200,000.
Higher tariffs could lead to inflation, reduced consumer spending, and trade wars, offsetting any tax relief with higher living costs. Ongoing tariff negotiations and pauses (e.g., on Canada and Mexico) add uncertainty to revenue projections. While Trump’s proposal to use tariff revenue to eliminate income taxes for those earning under $200,000 is appealing to some, it is widely regarded as unfeasible by economists.
The revenue from tariffs, even at high rates, cannot match the income tax base, and the economic fallout—higher prices, reduced imports, and retaliation—would likely outweigh any tax relief. A more realistic outcome might be modest tax reductions funded by tariffs, but this would still increase costs for consumers, particularly lower-income households.