The likelihood of Trump abolishing the income tax and the IRS is low, but the ongoing debate highlights the need for tax reform.
Donald Trump has once again stirred up debate over tax policy, recently advocating for abolishing the income tax and returning to a tariff-based revenue system.
“We’re going back to the old days. No income tax, just tariffs. It worked before, and it will work again,” Trump said during an event in Las Vegas, Nevada, on January 25. He further emphasized his point by saying, “The IRS is a disaster. We don’t need it. Tariffs will get us everything we need and more.”
The comments, which come shortly after a Republican lawmaker proposed abolishing the IRS and rewriting the tax code that would allow it, have reignited discussions about fundamental changes to the US tax system. (It’s worth noting that critics argue that a heavy reliance on tariffs could lead to trade wars, rising consumer prices, and potentially economic instability.) …
The idea of eliminating the income tax isn’t new, but Trump has thrust it into the spotlight just as the U.S. faces the expiration of the Tax Cuts and Jobs Act (TCJA, aka the “Trump tax cuts”) later this year.
It also comes as the new Trump administration has issued a flurry of executive orders that could significantly impact the functioning of federal agencies, including the IRS.
Tariffs over income taxes?
The concept of relying primarily on tariffs for federal revenue dates back to the early days of the United States (more than 150 years ago), when customs duties were the government’s primary source of income. (The U.S. income tax was enacted in 1913.)
Trump argues that eliminating the income tax would simplify the tax code, reduce taxpayer burden, and boost economic growth. They argue that a tariff-based system would protect American industries and provide a more level playing field in international trade.
However, the viability of a tariff-only revenue system in today’s economy is questionable. Some economists warn that a transition to such a system would be incredibly disruptive.
The federal government relies heavily on income tax revenue, and replacing it entirely with tariffs would require massive changes to the U.S. fiscal structure.
Significant tariff hikes could potentially violate international trade agreements and lead to retaliatory measures from trading partners.
And don’t forget: American consumers would bear the brunt of tariffs through increased costs on many products.
Interestingly, Trump’s comments coincide with recent legislative proposals, such as the Fair Tax Act reintroduced by Rep. Buddy Carter (R-GA).
As Kiplinger reports, that bill proposes replacing the current tax code with a national consumption tax and eliminating the IRS.
Final Conclusion of the Trump Income Tax
While Trump’s vision of a tariff-based system and similar ideas such as the Fair Tax Act proposal may be appealing to some, implementing such drastic changes (which require congressional approval) would be complex and challenging to say the least.
But stay informed and connected during the tax discussions. The decisions that Congress and the White House make in the days, months, and years ahead will have far-reaching effects on individual taxpayers, businesses, and the economy.
