Washington, D.C. – July 19, 2025, 09:30 AM CDT – The Trump administration has unveiled an ambitious plan to leverage tariffs to dismantle the Internal Revenue Service (IRS) and replace federal income taxes with a tariff-based revenue system, marking a seismic shift in U.S. fiscal policy. Commerce Secretary Howard Lutnick confirmed the initiative, framing it as a cornerstone of President Donald Trump’s economic agenda to eliminate income taxes for millions of Americans and redirect funding through an External Revenue Service (ERS).The proposal hinges on aggressive tariff increases, with rates already set at a historic 22.8% on imported goods, according to Fitch Ratings. Trump has hinted at further hikes, suggesting tariffs could reach 50% or higher, generating substantial revenue to offset the $3 trillion annually collected from income taxes. Lutnick, in a recent Fox News interview, asserted that this revenue—potentially $700 billion annually from reciprocal tariffs—could eliminate the IRS and reduce the deficit, aligning with Trump’s promise to cut taxes for those earning under $200,000.The plan builds on an executive order signed on January 20, 2025, directing Treasury, Commerce, and Homeland Security to explore establishing the ERS to collect tariffs and trade-related revenues. Proponents argue this echoes the 19th-century model when tariffs funded the government before the 1913 income tax amendment. However, economists warn of significant hurdles. Torsten Slok of Apollo Global Management notes that replacing income tax revenue would require tariffs exceeding 100% on $3 trillion in annual imports, a level likely to shrink demand and imports, undermining the revenue base. Critics, including the Tax Foundation, highlight that even with current tariffs projected to raise $167 billion in 2025, this falls far short of the $2.4 trillion from individual income taxes. They caution that such high tariffs could trigger inflation, recession, and trade wars, disproportionately burdening lower-income households who rely on imported goods. The administration counters that incentivizing domestic production will offset losses, though details remain vague. Congress must approve any IRS abolition, and no bill currently exists, casting doubt on the timeline. Public sentiment on X reflects optimism among supporters, with some hailing it as a tax relief breakthrough, while skeptics question its feasibility. As the August 1 tariff escalation looms, the plan’s success—or failure—will test the administration’s economic vision.
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