During his State of the Union Address, President Donald Trump restated his desire to replace income taxes with tariffs. “As time goes by, I believe the tariffs paid for by foreign countries will, like in the past, substantially replace the modern-day system of income tax.” While tariffs could replace a portion of the income tax, replacing it entirely would be impossible. The income tax raises too much revenue, and the tariff base is too narrow and elastic to make it work.

The individual and corporate income tax raises a significant amount of revenue. Under current law, the Congressional Budget Office (CBO) projects that the individual income tax will raise $2.8 trillion in 2026 and the corporate income tax will raise another $400 billion for a total of $3.2 trillion. This accounts for a little more than 50 percent of total federal revenue.

The problem with using tariffs is that they apply to a narrow base. The CBO projects that total imports of goods and services will reach $4.2 trillion in 2026. However, tariffs generally apply only to goods, which make up about 78 percent of total imports, or roughly $3.3 trillion. This is small compared to the $21.7 trillion in personal consumption expenditures.

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