Trump Claims Tariffs Could Eliminate Income Taxes – Economists Say It’s “Pure Fantasy”
Trump Claims Tariffs Could Eliminate Income Taxes - Economists Say It’s “Pure Fantasy”
President Donald Trump again claimed that revenue from his trade policies along with investment commitments tied to them – could eventually eliminate the need for income taxes. Economists, however, say the idea is impossible even under the most optimistic projections.
Speaking during a Cabinet meeting on Tuesday, Trump said his administration could one day issue a “dividend,” pay down the national debt, and wipe out Americans’ primary tax burden using tariff revenue.
“I believe that at some point in the not-too-distant future, you won’t even have income tax to pay because the money we’re taking in is so great,” Trump said.
Why It Matters
The announcement comes as the administration faces questions about its handling of Americans’ affordability concerns and a looming Supreme Court decision on the legality of Trump’s tariffs. But the idea that the president could slash or even abolish the income tax is one he and his officials have repeated several times, both before and after his victory last November, to the bemusement of most economists.
What To Know
“It’s so enormous that you’re not going to have income tax to pay,” Trump said of the money being generated from tariffs on Tuesday, adding that the United States could “get rid of it or just keep it around for fun or have it really low.”
Trump made a similar announcement during a Thanksgiving broadcast last week, claiming that tariff revenues and pledged investments from countries and companies in the U.S. could ultimately eliminate the need for America’s most lucrative tax.
“Over the next couple of years, I think we’ll substantially be cutting—and maybe cutting out completely—income tax,” Trump said. “We could be almost completely cutting it because the money we’re taking in is going to be so large.”
Income tax currently accounts for over half of total government revenue, per the latest data from the Treasury Department. For the 2025 fiscal year, which ended September 30, the government collected $195 billion in customs duties, up more than 250 percent from the previous year, while bringing in nearly $2.7 trillion in income taxes.
And while administration officials have projected even higher annual tariff revenues—”over half a trillion, maybe towards a trillion-dollar number,” was Scott Bessent’s forecast in August—these would still fall significantly short of the amount brought in from income taxes.
Alan Wm. Wolff, a senior fellow at the Peterson Institute for International Economics, told Newsweek it is “literally impossible for tariffs to fully replace income taxes,” citing this disparity.
Daniel Shaviro, a professor of taxation at NYU Law, called it “not feasible at all” when speaking to Newsweek following the Thanksgiving Day announcement.
“We are talking complete fantasy here,” Shaviro said. “Tariffs probably can’t supply even as much as 10 percent of the revenues derived from U.S. individual income tax revenues alone.”
And economist Kimberly Clausing dubbed the idea a “mathematical impossibility,” directing Newsweek to her recent paper, which concluded that even a significant increase in tariff rates would still see their revenues dwarfed by income taxes.
“If you pushed tariffs to their revenue-maximizing limit—which would be very unwise for a host of considerations—they would bring in less than $400 billion a year, a small fraction (about one sixth) of what the income tax raises,” Clausing said.
Beyond pure revenue, Trump has also cited investment commitments from companies and foreign governments as a secondary benefit of tariffs, one he believes will free up trillions to reduce Americans’ tax burdens.
However, a Bloomberg Economics analysis found that the total investments secured are far smaller than the administration claims—$1.5 trillion, compared to $21 trillion. Additionally, many of these fall into the category of mutual trade commitments rather than direct cash transactions, and their multiyear terms mean very few funds would flow directly to the U.S. Treasury.
“The financial commitments from other countries do not provide federal revenue directly. They are instead pledges about future investment actions which may or may not take place,” said Clausing.
“Many countries are no doubt promising more than they will deliver to take off some of the negotiation heat, as that strategy has worked with the Trump administration in the past,” she said.
“I don’t have a total of new bilateral inward investment commitments,” Wolff told Newsweek. “It is very uncertain which of these are net additional, beyond the normal flow of investment, nor how long the process will take for the investment to take place.”
What People Are Saying
White House spokesman Kush Desai told CBS News that Trump “is set to raise trillions in revenue for the federal government in the coming years with his tariffs — whose costs will ultimately be paid by the foreign exporters who rely on the American economy, the world’s biggest and best consumer market.”
Kimberly Clausing, Eric M. Zolt Chair in Tax Law and Policy at the UCLA School of Law, previously told Newsweek: “Many countries are no doubt promising more than they will deliver to take off some of the negotiation heat, as that strategy has worked with the Trump Administration in the past. (For one example, consider Chinese import commitments during the first Trump Administration; wise or not, those were never fulfilled).”
Michael Graetz, a professor of Tax Law at Columbia Law School, told Newsweek: “Eliminating the income tax has been a Republican goal since the 1990s. It has never been feasible—if by feasible you mean producing a similar amount of revenue as the income tax. Tariff revenue will fall far short. And substituting tariffs, or even a national sales tax or value-added tax, for the income tax would shift the tax burden away from the top to people with less.”
“The idea that President Trump has attracted sufficient investment into the United States to create enough economic growth to make up the shortfall is laughable —even though he is probably not joking,” he added.
What Happens Next
The Supreme Court is assessing the constitutionality of his tariffs, and even the conservative justices expressed doubts about the president’s justifications during arguments heard in early November.
However, even if it sides with the lower court rulings, which found that Trump exceeded his authority in imposing these measures under the 1977 International Emergency Economic Powers Act, the administration has said it has other legal means to carry out the president’s trade agenda.
