In his 2026 State of the Union Address, President Donald Trump said, “I believe the tariffs, paid for by foreign countries, will, like in the past, substantially replace the modern-day system of income tax, taking a great financial burden off the people that I love.”
Unfortunately, things are not that simple. While it might be nice to fantasize about tariffs as a free lunch that provides hundreds of billions of dollars paid for by foreign countries, in reality, tariffs are mostly paid by Americans. Replacing the income tax with tariffs would just replace one form of taxation on Americans—income taxes—with another—tariffs.
Replacing income taxes with tariffs would also require massive cuts in federal spending. Before the income tax was imposed in 1913, the average U.S. tariff rate was roughly 20%. Suppose the federal government increased the average tariff rate to this level.
For FY 2026, an across-the-board 20% tariff rate would raise $516.4 billion. At the same time, eliminating income taxes would reduce revenues by $3.155 trillion. Therefore, replacing income taxes with tariffs would require the government to cut spending by $2.64 trillion or else the federal budget deficit would explode from $1.85 trillion to $4.49 trillion.
The most straightforward way to prevent an explosion in the deficit would be to institute a 41.1% across-the-board cut in non-interest federal spending. The federal government could also opt to terminate all spending on national defense and Social Security, saving $2.65 trillion. Or it could maintain that spending and end Medicare, health care, and veterans benefits, saving $2.5 trillion.
The budgetary challenges would remain daunting if the government decided to keep the corporate income tax and only replace the individual income tax. The government could forego spending cuts and more than double U.S. deficit spending. Or it could finance the replacement of the personal income tax with tariffs by cutting all non-interest spending by 34.8%. Alternatively, it could end all national defense spending and cut Social Security by 75%.
While spending cuts are very much needed in Washington, good luck getting any of those proposals enacted into law.
It is even less likely that the government could keep spending at current levels, entirely paid for by tariffs. Based on 2025 imports of $3.394 trillion, the government could theoretically replace $3.155 trillion in income tax revenue by imposing an across-the-board tariff of 93%.
That would never work in practice. Americans would respond to a prohibitive 93% tariff by drastically reducing their spending on imports. As a result, the money generated by tariffs would fail to offset the amount needed to replace lost income tax revenues.
High tariff rates might help to achieve the goal of reducing imports and making more products domestically. But the more successful that policy is, the fewer dollars the government will collect to fund its activities.
President Trump's vision of tariffs as a painless substitute for income taxes suffers from an inherent contradiction: push tariff rates high enough to replace trillions of dollars in income tax revenue, and imports collapse—taking the revenue with them. Successfully pulling off such a monumental switch would require massive cuts in federal spending. Based on recent federal budgets, that appears to be a policy that neither President Trump nor his allies in Congress are likely to embrace.
Cutting spending and cutting taxes are worthy goals, but tariffs aren’t the way to get there.