US President Donald J. Trump delivers the first State of the Union address of his second term during a joint session of Congress in the House Chamber of the United States Capitol on Tuesday, February 24, 2026 in Washington, DC, US.
Kenny Halston | The New York Times | via Reuters
Amid tariff uncertainty, President Donald Trump this week revisited the idea of using tariff revenue to offset income taxes.
“I believe that over time, tariffs paid by foreign countries will substantially replace the modern income tax system, as it has in the past,” Trump said in his State of the Union address.
Trump previously floated it during his 2024 presidential campaign and revisited it while in office. Federal income tax changes require congressional action.
Meanwhile, some policy experts are skeptical.
“Simply put, the math doesn’t work,” said Alex Durante, senior economist at the Tax Foundation, a nonprofit tax policy think tank. The agency analyzed Trump’s tariff policy, including whether it could replace the income tax.
Although tariffs were the main source of US revenue in the 19th century, according to Durante, “the government was too small”.
During that period, federal government spending rose to just over 2% of gross domestic product, compared to about 23% in 2023, according to a 2025 analysis by the Tax Foundation.
White House spokesman Kush Desai told CNBC in an email, “President Trump did not say that the current tariff regime could replace federal income taxes. He reiterated his belief that a strong tariff policy — as it has done for much of American history — can fully fund the federal government.”
Trump’s remarks came days after the Supreme Court struck down a large part of his tariff agenda. The Trump administration’s Justice Department faces a big tariff refund court deadline on Friday. But it’s unclear whether importers will see a refund from billions in levies collected through Trump’s higher tariffs.
How do tariff revenues compare to income taxes?
“It’s completely unlikely that tariffs can replace the modern income tax system,” said Kimberly Clausing, a non-resident senior fellow at the Peterson Institute for International Economics, a nonprofit think tank. “They’re too young.”
Clausing co-authored a 2024 report on the topic, which compared the tax base from both types of income. In 2023, the US imported $3.1 trillion in goods and taxed more than $20 trillion in revenue, he wrote.
In fiscal year 2025, the federal government collected about $2.66 trillion from personal income taxes, which was about 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 had received about $924 billion in personal income taxes for fiscal year 2026, which began Oct. 1, compared with roughly $118 billion in customs duties, according to the Treasury.
Clausing told CNBC that even if Trump’s tariffs reach a “revenue-raising level” of more than 40%, the taxes would raise less than one-fifth of the personal income taxes collected.
He said higher tariffs would “damage the economy,” including lower imports with other negative effects that would affect incomes.
(tags to be translated)Taxes
