Trump said tariffs could ‘substantially replace’ income taxes

Amid tariff uncertainty, President Donald Trump this week revisited the idea of using tariff revenue to help offset income taxes.

“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,” Trump said during his State of the Union address. 

It’s an idea Trump previously floated during his 2024 presidential campaign and has revisited while in office. Federal income tax changes would require Congressional action.

Meanwhile, some policy experts say they are skeptical.

“To put it simply, the math just doesn’t work,” said Alex Durante, a senior economist at the Tax Foundation, a nonprofit tax policy think tank. The organization has analyzed Trump’s tariff policy, including whether it could replace income tax.

While tariffs were the main source of U.S. revenue during the 19th century, “the government was much smaller,” according to Durante.

During that period, federal government spending was slightly above 2% of gross domestic product, compared to nearly 23% in 2023, according to the Tax Foundation’s 2025 analysis.

White House spokesman Kush Desai told CNBC in an email that “President Trump did not say that the current tariff regime can replace federal income taxes. He simply reiterated his belief that a robust tariff policy could — as it did for much of American history — fully fund the federal government.”

Trump’s remarks came days after the Supreme Court struck down a large chunk of his tariff agenda. The Trump administration Department of Justice faces a big tariff refund court deadline on Friday. But it’s unclear whether importers could see refunds from the billions in levies collected via Trump’s higher rates.

“It’s completely implausible that tariffs can replace the modern system of income tax,” said Kimberly Clausing, a nonresident senior fellow at the Peterson Institute for International Economics, a nonprofit think tank. “They’re way too small.” 

Clausing co-authored a 2024 report on the topic, which compared the tax base from both types of revenue. In 2023, the U.S. imported $3.1 trillion of goods and levied tax on more than $20 trillion in income, she wrote.

During fiscal year 2025, the federal government collected roughly $2.66 trillion from individual income taxes, which was nearly 51% of total revenue, according to Treasury data. By comparison, customs duties were about $195 billion the same year, the Treasury reported.

As of Jan. 31, the federal government has received about $924 billion in individual income taxes during fiscal year 2026, which began Oct. 1, compared to roughly $118 billion from customs duties, according to the Treasury.

Even if Trump’s tariffs reached a “revenue maximizing level” of more than 40%, the levies would raise less than one-fifth of individual income taxes collected, Clausing told CNBC.

Tariffs that high would be “ruinous for the economy,” with other negative effects, including fewer imports, which would impact that revenue, she said.