Former President Donald Trump is once again pushing tariffs as a major revenue source, suggesting they could generate over $1 trillion in a year, help pay down the national debt, and even reduce or eliminate income taxes. But economists and budget experts say that idea doesn’t hold up to scrutiny.
Although tariffs can bring in money for the U.S. government, analysts across the board agree on one key point: they can’t replace income taxes — not even close.
What Are Tariffs and Who Pays Them?
Tariffs are taxes placed on goods imported from other countries. They’re not paid by foreign governments. Instead, U.S. companies importing these products pay the tariffs, and in most cases, they pass those costs on to American consumers through higher prices.
So, while the government collects money at the border, it’s American businesses and families that ultimately foot the bill — either directly or indirectly.
Trump’s Trillion-Dollar Claim
Trump recently claimed that his new tariff policies, especially a 25% tax on imported cars and parts, could raise between $600 billion to $1 trillion in one year. He also suggested that these funds could help cut, or even replace, income taxes.
However, even his own White House aide, Will Sharf, offered a more modest estimate: about $100 billion from auto tariffs. A massive gap from Trump’s $1 trillion prediction.
What Economists Actually Say
Independent experts and think tanks have run the numbers — and they paint a very different picture.
The Yale Budget Lab, a nonpartisan research group, estimates that Trump’s 25% auto tariff would bring in about $600 billion to $650 billion over 10 years, or $60 to $65 billion per year. That’s only 6% of Trump’s highest estimate.
The Peterson Institute looked at an extreme scenario — applying a 50% tariff on all U.S. imports — and concluded it would still only raise about $780 billion per year at most. That’s not even half of what income taxes generate.
In comparison, income taxes bring in more than $2 trillion every year, according to the U.S. Department of the Treasury.
The Real Cost to American Families
Tariffs don’t just increase government revenue — they also increase prices for consumers. The Yale Budget Lab found that Trump’s proposed auto tariffs could raise the cost of a new car by 13.5%, or $6,400 on average.
Combined with other tariffs on imports from Canada, Mexico, and China, the average household could lose $1,600 to $2,000 per year in purchasing power due to inflation and higher product costs.
Could Tariffs Replace Income Taxes?
Simply put: No. Even in the most aggressive scenario, tariff revenue would still fall far short.
According to Scott Lincicome from the libertarian Cato Institute, “The problem is it can’t raise anywhere near the amount of revenue you’d need to scuttle the income tax. And that’s the really ironclad point.”
Historically, tariffs were a key part of federal revenue before 1913, when the income tax was introduced. But since then, tariffs have made up only around 1–2% of total federal income, according to the Congressional Research Service.
In 2024, customs duties added up to $88 billion, which is just 1.7% of the government’s $4.9 trillion in total revenue.