Tariffs as Revenue

Tariffs as Revenue

Thomas Allen

Some people, like President Trump, suggest replacing the federal income tax with tariffs. Tariffs are heralded as a means to increase employment and wages and to reduce, if not eliminate, dependency on foreign sources.

The primary benefit of replacing income tax with tariffs is that the federal government's size would need to be reduced by 80 to 90 percent. That is about the size of the federal government that tariffs could support without exploding debt that would dwarf the current federal debt — this assumes that the tariff is for revenue and not protectionism. 

Replacing the income tax with tariffs will, at least in the short run, result in a large-scale loss of jobs. More than a million federal employees will lose their jobs. Likewise, a much larger number of people whose livelihoods depend on federal contracts will lose theirs. Also, many State and local employees will lose their jobs because these jobs depend on federal grant money. Many people whose jobs depend on the federal government will become unemployed.

Additionally, if the goal of the tariff is to promote and protect domestic companies, the federal government will collect even less revenue. The more effective that a tariff is at protecting domestic companies, the less the country imports. Fewer imports result in less revenue for the federal government.

Exports buy imports. The less the country imports, the less it can export. Conversely, the less the country exports, the less it can import. If the country imports less, the federal government collects less revenue. As the country approaches autarky, the federal government becomes smaller for want of revenue — if tariffs are the primary source of revenue. By then, most of the federal government’s budget will be used to prevent smuggling.

Also, many people believe that the exporters pay the tariffs. They do not. Consumers of the importing country pay the tariffs. In this respect, tariffs are like sales taxes; the buyer pays the tax; the seller does not.

One great advantage resulting from abandoning the income tax is that it frees the slaves from the largest slave owner in the country, the US government. Slavery is defined as one party or person owning the labor of another. The income tax is a tax on labor; that is, the amount of labor that it takes a person to pay his taxes is the amount of labor owned by the US government.

If the purpose of tariffs is revenue, then the same percentage should be levied on all imported goods without considering the product imported or the country of origin. Thus, the federal government does not pick favorites or winners and losers by levying higher tariffs on some imports than on others.

Appendix 1. Reciprocal Tariffs

President Trump has implemented reciprocal tariffs on countries that levy tariffs on imports from the United States. His goal is for these countries to eliminate their tariffs on imports from the United States in exchange for the United States eliminating their tariffs on imports from their countries. However, such reciprocal tariffs are unconstitutional — at least under the Constitution that the Founding Fathers gave the United States.

The Constitution delegates to Congress the authority to levy tariffs. It does not delegate the President such power. Consequently, Congress would have to levy the reciprocal tariffs and give the President the authority to implement them. Even if Congress enacted such a law, it would be unconstitutional. According to Article 1, Section 8, Clause 1, the Constitution authorizes Congress to levy tariffs for revenue and for no other reasons, such as protectionism or reciprocity. The goal of Trump’s reciprocal tariffs is to eliminate tariffs and, consequently, eliminate raising revenue from tariffs.

Appendix 2. Replacing the Income Tax with a National Sales Tax

For years, some people have been promoting replacing the federal income tax with a national sales tax. If a sales tax is to replace the income tax, it needs to be done by constitutional amendment. This amendment must clearly prohibit all taxes on income from whatever source (wages, salaries, tips, dividends, interest, capital gains, etc.). Also, it must fix the maximum tax rate. Further, it must clearly define in great detail what can be taxed and what cannot be taxed. Moreover, it must not provide any outs, such as national or economic emergencies or war. Most importantly, the amendment needs to be written so that someone with an IQ of 70, which is about the average IQ of federal judges, can understand it.

Appendix 3. Eliminating the Corporate Income Tax

The North Carolina General Assembly is moving toward eliminating the corporate income tax. If it retains an income tax, it should eliminate the personal income tax instead of the corporate income tax. Why? Corporations (C corporations, S corporations, B corporations, limited liability companies, nonprofits, closed corporations, professional corporations, etc.), unlike a natural person, are creatures of the government and have privileges that individuals do not have. Moreover, the personal income tax enslaves people. Corporate income taxes do not because corporations are not living beings (contrary to what the US Supreme Court and many libertarians believe).

Moreover, a natural person has a natural law right to privacy. The income tax is a massive invasion of privacy. On the other hand, being creatures of the government, corporations have no right to privacy; the government has every right to know what its creatures are doing. (If we have a government of, by, and for the people, and if the people are the masters and the government is the servant — as our politicians continuously remind us — then the people have the right to know everything about the government, including information classified as top secret; the government has no right to secrecy. By extension, the people also have a right to know everything that a corporation does.)

Proprietaries, partnerships, and associations that do not have a charter from a government should be treated as individuals. Likewise, churches that are not incorporated should be exempt from income taxes. Individuals and organizations exempt from income tax should not report any kind of income to the government.

Copyright © 2025 by Thomas Coley Allen.

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