rump, of course, is busy explaining away the negative effects of his tariffs, which are starting to bite as importers pay higher taxes on incoming goods or simply stop buying them. Trump has raised the average tax rate on imports from 2.5% to about 25%, with frequent changes that are giving businesses whiplash. His tariffs on most Chinese imports, including toy dolls, are a stratospheric 145%.
Economists have warned of widespread consequences, which are just now starting to materialize. First quarter GDP shrank for the first time in three years because imports surged as American businesses rushed to beat the tariffs. Imports detract from GDP in the traditional way it’s calculated, which leaves the GDP report a confusing muddle that may or may not mean the real economy is shrinking.
Back in the glory days of the 1800s, tariffs on imported products generated 50% to 90% of federal revenue. There was no income tax. The federal bureaucracy was tiny.
President Trump thinks we can get there again. While campaigning last year, he suggested replacing income taxes with tariffs, as if one can simply substitute for the other. Budget analysts laughed off the idea as a campaign fever dream.
But Trump is still pushing the idea. In a recent interview with the Atlantic, Trump insisted that the United States was “most successful” from 1870 to 1913, until the income tax went into effect and everything went downhill.
Trump is already pushing America back to the past. He has imposed a slew of new import taxes that raised the average tariff rate from 2.5% when he took office to around 25% now. That’s the highest since the early 1900s. If those tariffs stay in effect, they will amount to a tax hike on American businesses and consumers of more than $500 billion per year.
Part 2, for Trump, is an offsetting cut in income taxes. In an April 27 social media post, Trump said, “When tariffs cut in, many people’s Income taxes will be substantially reduced, maybe even completely eliminated. Focus will be on people making less than $200,000 a year.”
It’s not as easy as Trump wishes it were. While the US president does have the authority to levy tariffs, he cannot cut income taxes on his own. Congress would have to do that. And while Congress may trim taxes here or there by the end of 2025, the idea of lopping off a major portion of the income tax at a time of soaring federal debt is economically and politically ludicrous.