No, Tariffs Can't Replace Income Taxes

[Kamaji]

No, Tariffs Can't Replace Income Taxes
They are among the worst taxes imaginable—narrow, arbitrary, unstable, and regressive.

Veronique de Rugy
8.21.2025

After more deadlines and deals, another round of President Donald Trump's tariffs has arrived. With higher prices again needing to be justified—and on the heels of the "Big Beautiful Bill," which didn't exactly balance the budget—protectionists are positioned to once again play the revenue hawk's card. There are multiple problems with this story.

The idea is that tariffs—which some believe function like the consumption taxes that economists generally view favorably—can raise money more efficiently than income taxes.

First, how can tariffs both protect American producers and reliably raise tax revenue? Think about it: Any tariff high enough to keep out lots of foreign products will not be levied on very many. Conversely, any tariff low enough to generate steady revenue would need to let trade continue by skimming off just a small portion in duties, offering only token protectionism.

History shows this tradeoff clearly. For much of the 19th century, when tariffs were the federal government's main source of revenue, rates were set to maximize collections, not to wall off our economy. When tariffs turn protective, revenue falls.

Tariffs also fail the tax efficiency test. It's true that taxes distort behavior, and that America's income-based taxes—especially the corporate tax—are among the most damaging varieties. Economists prefer consumption taxes, which leave income alone until it's spent, sparing savings and investment from double (or triple) taxation.

Leaving aside their protectionist nature, if tariffs did that, it might make sense to think about substituting them for other, worse forms of taxation. But they don't.

Take an actual consumption tax—the value-added-tax—which is applied uniformly to domestic and imported goods, rebated at the border for exports, and structured to avoid double-taxing investment. Tariffs, on the other hand, single out imports, which account for only about 15 percent of U.S. consumption. Different goods from different countries also face different rates. Thus, they are neither broad-based, nor neutral or transparent. They're just an additional tax that tries to push buyers toward less-preferred products.

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Source:  https://reason.com/2025/08/21/no-tariffs-cant-replace-income-taxes/

[Hoodat]

We don't have a revenue problem.  We have a spending problem.

It is simply unsustainable for government to spend more than 19% of GDP no matter what your tax rates are.

[Smokin Joe]

We don't have a revenue problem.  We have a spending problem.

It is simply unsustainable for government to spend more than 19% of GDP no matter what your tax rates are.

THIS!

[Right_in_Virginia]

Trump’s Whirlwind Week: Peace Talks, D.C. Cleanup, and a CBO Win
American Greatness, Aug 24, 2025, Roger Kimball

[...]

Tariffs were supposed to be the stupid Trump idea that was going to eviscerate the stock market and crash the U.S. economy. A couple of days ago, Canada joined the long list of countries to drop its retaliatory tariffs in order to curry favor with Trump. Friday, the DOW logged an 840-point gain, closing above 45,600.

[...]

What else? Well, just as I sat down to write this column, the news came from the Congressional Budget Office that Trump’s tariffs are projected to “reduce total deficits by $4.0 trillion altogether.”

As the commentator Hugh Hewitt observed, “Wherever you are on the ‘Trump Spectrum,’ the CBO analysis not only validates the president’s belief in tariffs as an essential tool of economic renewal and statecraft, but it also exposes the fundamental misapprehension of the topic by pretty much everyone on the left and the right.” I think this is correct. And Hewitt is also correct that “The fact that the report is an enormous political win for President Trump will distort coverage of it, of course, but the best economists will be indifferent to that.”


https://amgreatness.com/2025/08/24/trumps-whirlwind-week-peace-talks-d-c-cleanup-and-a-cbo-win/

[Bigun]

Adam Smith’s Canons of Taxation

1. Canon of Ability:

According to this principle of taxation, the people in a country should contribute towards the government expenditure. Their contribution should be according to the ability to pay of each individual. A rich man should contribute more and the poor either should contribute less  or can be exempted. This principle of taxation will ensure that the cost of public expenditure is shared by the people in accordance with their individual ability.

2. Canon of Certainty:

Adam Smith insisted that the government should know in advance the amount of revenue that it could raise and the time when it could mobilize the revenue. On the part of individual tax payers, they must know clearly the amount of tax that they have to pay, the time when they should pay and the method of paying the tax. Adam smith felt that it is necessary that the people should be certain about their tax commitment, so that there cannot be any exploitation of the tax payers either by the government or by the tax collectors.   This implies, once the people are clear about the amount of lax, they will plan their expenditure accordingly so that tax payment will not be felt a penalty.

3. Canon of Convenience:

According to this canon, the tax should be such that it is levied at the time when it is convenient for the people to pay. Similarly the manner in which the tax has to be paid should also be convenient for the tax payers. For example, the sales tax paid on any commodity is included in the price and the consumer does not feel when he pays the tax. At the same time, the government is able to collect the tax effectively without any possibility of evasion or avoidance.

4. Canon of Economy:

This is a very important principle of taxation stating that the cost of collection of tax should be less than the tax revenue. In other words, the purpose of imposing tax will be defeated if the government has to spend more money to collect less tax revenue. Only when there is economy in tax collection, that the tax revenue realized can be spent usefully. For example, in the case of direct tax like income tax, the government may organize tax raids on people who evade tax. If the cost of these raids is greater than the amount of tax recoverable, then it is not wise. On this ground, indirect tax like sales tax is more economical than income tax.  ...

Rest at headline link

[Bigun]

..."the oppression arising from taxation, is not from the amount but, from the mode -- a thorough acquaintance with the condition of the people, is necessary to a just distribution of taxes. The whole wisdom of the science of Government, with respect to taxation, consists in selecting the mode of collection which will best accommodate to the convenience of the people."

Patrick Henry, Virginia Ratifying Convention June 12, 1788