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A truck drives past shipping containers at the Port of Philadelphia in Philadelphia, Pennsylvania, US, on Wednesday, Nov. 6, 2024.<\/p>\n
Bloomberg | Bloomberg | Getty Images<\/p>\n<\/div>\n<\/div>\n<\/div>\n
As President Donald Trump<\/a> begins imposing tariffs<\/a> on imported goods, some experts question revenue expectations \u2014 including the possibility of replacing the federal income tax<\/a>.\u00a0<\/p>\n During his presidential campaign, Trump floated an “all tariff policy” at a June meeting with Republican lawmakers, which he said would allow the U.S. to eliminate income tax<\/a>. However, some policy experts have been skeptical of the idea.\u00a0\u00a0<\/p>\n “It’s just not a realistic proposal,” said Alex Durante, senior economist at the Tax Foundation, which analyzed the idea<\/a> in June.\u00a0\u00a0<\/p>\n More from Personal Finance:<\/strong> While tariffs<\/a> were a major source of federal revenue during the 19th century, U.S. spending levels have since increased significantly, Durante said.<\/p>\n The U.S. federal government in 2023 spent 22.7% of its gross domestic product, which is about 10 times as much as a share of the economy, compared to when tariffs were a primary source of revenue, according to the Tax Foundation analysis.\u00a0<\/p>\n “You can’t have 21st-century government spending with a 19th-century tax system,” Durante said.<\/p>\n<\/div>\n Over the past 70 years, tariffs haven’t accounted for much more than 2% of total federal revenue<\/a> annually, according to the Congressional Research Service.<\/p>\n During fiscal year 2024, the U.S. Customs and Border Protection collected $77 billion in tariffs, which was roughly 1.57% of total federal revenue, the organization reported.\u00a0<\/p>\n However, the bigger issue is the relative size of the tax base from tariffs, compared to individuals paying income tax, according to the Tax Foundation analysis.\u00a0\u00a0<\/p>\n The Trump administration did not respond to CNBC’s request for comment.<\/p>\n<\/div>\n The math doesn’t work.<\/p>\n Erica York<\/p>\n Vice president of federal tax policy with Tax Foundation’s Center for Federal Tax Policy<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/blockquote>\n “The math doesn’t work,” wrote Erica York, vice president of federal tax policy with Tax Foundation’s Center for Federal Tax Policy.\u00a0\u00a0\u00a0<\/p>\n During tax year 2021, the IRS collected about $2.2 trillion<\/a> from individual taxpayers, the latest IRS data shows. Replacing that would require “astronomically high tariff rates,” York wrote.<\/p>\n Plus, several factors, including noncompliance and consumers’ behavioral changes<\/a> could reduce the amount of tariff revenue collected.\u00a0\u00a0<\/p>\n “Tariff rates would have to be implausibly high on such a small base of imports to replace the income tax,” wrote Peterson Institute for International Economics fellows Kimberly Clausing\u00a0and Maurice Obstfeld, who co-authored a June report<\/a> on the topic.\u00a0<\/p>\n “As tax rates rose, the base itself would shrink as imports fall, making Trump’s $2 trillion goal unattainable,” they wrote.\u00a0<\/p>\n<\/div>\n
Stockpiling ahead of higher tariffs is a big mistake, experts say<\/a>
As markets absorb tariff news, it’s a wake-up call for investors, experts say<\/a>
Tariffs ‘slammed shut’ the window for interest rate cuts in 2025, economist says<\/a><\/p>\n‘The math doesn’t work’<\/h2>\n
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