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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Indirect Taxes and Direct Taxes

Indirect Taxes and Direct Taxes

Thomas Allen

In Out of Step: The Autobiography of an Individualist (New York: The Devin-Adair Company, 1962), Frank Chodorov gives a good comparison of indirect taxation with direct taxation, pages 219–227. A summary of that comparison follows.

Taxes fall into two categories: indirect taxes and direct taxes. Indirect taxes are levied on goods and services before they reach the consumer. Examples of indirect taxes are sales taxes, excise taxes, value-added taxes, and tariffs. Direct taxes are mostly levied on the accumulation of wealth. Examples of direct taxes are property taxes, income taxes, social security taxes, inheritance taxes, and poll taxes.

Chodorov describes indirect taxation as “a permission-to-live price.” Numerous indirect taxes are hidden in the price of every good and service that is for sale. People can only avoid these taxes by refusing to buy and, thus, depriving themselves of the meaning of life and even life itself. Consequently, they pay the tax to survive and to give their life meaning. “The inevitability of this charge on existence is expressed in the popular association of death and taxes.” For most products, taxation is the largest single item in the cost.

Indirect taxes impact the poor much more than the rich. Because there are more low-income people than high-income people, low-income people consume more overall and, therefore, pay a greater share of the indirect taxes.

The state prefers indirect taxes to direct taxes because they are usually hidden. “It is taking, so to speak, while the victim is not looking.” About people who justify taxation as moral, Chodorov writes, “Those who strain themselves to give taxation a moral character are under obligation to explain the State’s preoccupation with hiding taxes in the price of goods. Is there a confession of guilt in that?”

Unlike indirect taxes, the taxpayer cannot pass direct taxes onto others. Direct taxation taxes people on what they have instead of something that they buy. It taxes people “on the proceeds of enterprise or the returns from services already rendered, not on anticipated revenue.” Consequently, the taxpayer has no way of shifting the burden of a direct tax.

The envious have always supported direct taxes because they believe the “soak-the-rich propaganda.” Also, among the adherents of direct taxation are the promoters of democracy; they see it, along with universal suffrage, as necessary to the achievement of democracy.

As history has shown, the greed of the state does not stop with taxing the rich. Its direct taxation spreads to cover the lowest-paid workers. Because in the aggregate, the poor generally have more to be taken than the rich; consequently, the state soon goes after the poor. As with indirect taxes, low-income people bear a much higher burden under direct taxation than do the rich. A small tax on the income of a low-income earner causes more hardship than a larger tax on a high-income earner.

Because direct taxes directly deny “the sanctity of private property,” they are more vicious than indirect taxes. “By its very surreptition the indirect tax is a back-handed recognition of the right of the individual to his earnings.” Thus, the state covertly takes what it needs, “but it does not have the temerity to question the right of the owner to his goods.” However, with direct taxation, the state claims, without embarrassment or shame, the right to all property. Thus, with direct taxation, “private ownership becomes a temporary and revocable stewardship.” Direct taxation leads to the Marxist concept of state supremacy replacing the Jeffersonian ideal of inalienable rights.

About taxation, Chodorov writes:

Taxes of all kinds discourage production. Man works to satisfy his desires, not to support the State. When the results of his labors are taken from him, whether by brigands or organized society, his inclination is to limit his production to the amount he can keep and enjoy.

Replacing the Federal Income Tax with a National Sales Tax
Some tax reformers are proposing to replace the federal income tax with a national sales tax. Typically, they propose a rate of 20-some percent to make the revenue from the sales tax to be approximately equal to that from the income tax. Further, they provide an out for war, national emergencies, etc. Congress can use these outs to raise the tax rate, apparently without limit. Most of these proposals do not prevent Congress from reimposing the income tax other than the integrity of Congress.

These proposals are highly flawed and do not improve the tax situation. Worst, most fail to prevent the return of the income tax. Consequently, Americans end up paying the new sales tax along with an income tax.

If a sales tax is to replace the income tax, it needs to be done by a constitutional amendment, which includes repealing the income tax amendment. Moreover, the repeal amendment or the sales tax amendment should specifically prohibit an income tax and any other similar taxes. Also, the tax amendment should cap the sales tax at a low rate, say 2 percent. It should have no outs; Congress could not exceed the cap even because of war or a national emergency. Another provision should prohibit the federal government from borrowing so that it cannot avoid the tax restrictions with the inflation tax. (This provision must also prevent the issuance of government notes, such as US notes, which is borrowing with noninterest paying loans.)

How could the federal government survive under such revenue restraint? It would have to eliminate all unconstitutional programs that it is currently administrating. This would include the elimination of nearly all the programs that the Departments of Agriculture, Commerce, Education, Energy, Health and Human Services, Homeland Security, Housing and Urban Development, Interior, Labor, and Transportation administer. It would also require ending the undeclared wars that the United States are involved in and ending the American Empire.

Copyright © 2020 by Thomas Coley Allen.

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