During a Thanksgiving address to U.S. troops stationed overseas, President Donald Trump suggested that his administration might eliminate income taxes entirely in the coming years, citing tariff revenues as a potential replacement. This bold proposal has sent shockwaves through economic circles.

In a video call with military personnel, Trump stated, "Over the next few years, I believe we could significantly reduce or even completely eliminate income taxes because the revenue we’re collecting is so substantial that we might nearly abolish income taxes altogether." This is not the first time Trump has floated this idea. During his campaign, he repeatedly expressed admiration for the 19th-century U.S. fiscal model—before the introduction of income taxes in 1913, tariffs were the federal government’s primary revenue source.

For Trump, tariffs are not just a tool for geopolitical leverage but also a potential solution to America’s deficit woes. However, from a purely fiscal standpoint, replacing income taxes with tariffs appears nearly impossible.

According to data from the Congressional Budget Office (CBO) and the Treasury Department, the U.S. federal government’s total revenue in fiscal year 2024 is projected at $4.9 trillion. Of this, individual income taxes contribute approximately $2.43 trillion—nearly half of total revenue. In contrast, current tariff revenues stand at just $80 billion, barely enough to cover a fraction of interest payments on national debt.

To bridge the $2.4 trillion gap, another set of figures comes into play: the U.S. imports roughly $3.1 trillion worth of goods annually. This means the Trump administration would need to impose an average tariff rate of 70% to 80% on every imported item—from avocados and semiconductors to cheap toys and high-end medical equipment. This calculation assumes no decline in import volumes due to such steep tariffs.

In reality, such high tariffs would likely trigger a sharp drop in import demand, shrinking the tariff base and ultimately failing to generate sufficient revenue. Morris Obstfeld, a senior fellow at the Peterson Institute for International Economics (PIIE), bluntly remarked, "Arithmetically, this simply doesn’t add up. You can’t replace income tax revenues with tariffs without devastating global trade and the U.S. economy."