Nobody enjoys paying taxes, and let’s face it; most people aren’t exactly fond of the IRS either. But we’ve always heard that the only certainties in life are death and taxes. So, the IRS is here to stay, right?
Well, not necessarily, according to Commerce Secretary Howard Lutnick.
Lutnick recently revealed that Donald Trump’s idea of an “External Revenue Service” could replace the IRS entirely by relying on tariffs to fund the government. This would mean Americans wouldn’t need to pay income taxes anymore.
It sounds appealing at first, but there are some major complications.
The U.S. collects around $3 trillion a year from income taxes and we also import about the same amount in goods. So, to replace income taxes with tariffs, the U.S. would have to impose a 100% tariff on all imports.
But that’s just the beginning of the problem. If tariffs cause prices to double, people won’t buy as much.
In order to make up for this drop in demand, tariffs might have to increase to 200%. That means prices for everyday items; cars, electronics, clothing, medicine; could skyrocket.
And if tariffs push more companies to bring manufacturing to the U.S., imports could drop even further. So, where would the revenue come from? Corporate taxes might fill in some of the gap, but those only account for 6% of total tax revenue. Plus, Trump wants to lower those rates, too.
So, is this idea really going to work? It’s not looking likely. But that hasn’t stopped Trump from moving ahead.
Could this mark the end of the IRS? Or is it just another tax proposal that won’t quite add up?
We’d love to hear your thoughts, and as always if you have any questions, contact Paragon today.
