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Trump said tariffs could someday 'substantially replace' income taxes. What policy experts say
During his State of the Union address, President Donald Trump said tariffs could someday "substantially replace" the federal income tax system.
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Trump said tariffs could someday 'substantially replace' income taxes. What policy experts say
Kate Dore, CFP®, EA@in/katedore/
WATCH LIVE
Key Points
- During his State of the Union address, President Donald Trump said tariffs could someday "substantially replace the modern-day system of income tax."
- He previously floated the idea during his 2024 presidential campaign and has revisited while in office. But Congress must approve federal income tax changes.
- Some policy experts remain skeptical of the idea, based on the potential tax base and other factors.
U.S. President Donald J. Trump delivers the first State of the Union address of his second term to a joint session of Congress in the House Chamber of the United States Capitol in Washington, D.C., U.S.,on Tuesday, Feb. 24, 2026.
Kenny Holston | The New York Times | Via Reuters
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.
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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.
How tariff revenue compares to income taxes
"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."
[...]