Trump’s Plan to Replace the IRS with a Tariff-Based Revenue System
The Trump administration has often boasted about its proposed plan to eliminate the Internal Revenue Service (IRS) and replace it with a tariff-based revenue system designed to boost the economy. Recently, some officials have provided more details on how this ambitious plan would unfold.
Commerce Secretary Howard Lutnick told Fox News, “His (Trump) goal is to abolish the IRS and make outsiders pay.” Lutnick claimed that through this strategy, the U.S. could generate an impressive $700 billion per year. He elaborated, “As the president said, reciprocal tariffs—either you bring yours down, or we bring ours up. If we match their levels, we’ll generate $700 billion a year. That wipes out our deficit, brings interest rates crashing down, and sends the economy soaring.
In a significant announcement last month, President Donald Trump revealed plans to establish an “External Revenue Service,” which would collect funds from tariffs, potentially replacing the IRS altogether. He argued that the U.S. has been “taxing ourselves” unnecessarily, referencing a time before 1913, when the federal income tax was introduced and tariffs primarily funded the government. However, many economists have cast doubt on the viability of this system in today’s economic landscape.
Lutnick highlighted several areas where tariffs could generate substantial revenue, stating, “Cruise ships—have you ever seen one with an American flag? They fly flags from Liberia or Panama and pay no taxes. Supertankers? No taxes. Foreign alcohol? No taxes. Under Donald Trump, this is going to end.”
He further emphasized the overarching goals of the plan: “Americans’ tax rates will go down. Trump wants to balance the budget and cut taxes.”
How Would Tariffs Work?
Tariffs are taxes imposed on imported goods, typically paid by U.S. importers to Customs and Border Protection (CBP). The U.S. has already implemented broad tariffs on Chinese exports and reached agreements with Canada and Mexico to prevent a 25% tariff from taking effect.
Lutnick insisted that tariffs are a powerful tool, stating, “We’ve got to use tariffs and the External Revenue Service to protect America, cut scams, eliminate waste, and make America great. ‘Great’ means no deficit, lower taxes, and reducing the IRS’s role—if not eliminating it entirely.
While Trump’s proposal seeks a return to a tariff-driven economy, critics warn that relying on import taxes could lead to higher consumer prices and increased trade tensions. As the 2024 election approaches, the feasibility of such a significant economic shift continues to be a major topic of debate.