Editors at Issues and Insights ponder a potential seismic shift in federal tax policy.
The federal income tax is abusive. It is inconsistent with liberty. It has, as Chief Justice John Marshall noted, the power to destroy. There is nothing positive to be said about it. It cannot even raise government revenues efficiently. As we said a year ago, of all the good Donald Trump could do in his second term, eliminating the federal income tax would be one of his greatest achievements.
It’s clearly one of his goals.
“As time goes by, I believe the tariffs paid for by foreign countries will, like in the past, substantially replace the modern-day system of income tax,” Trump said during his State of the Union address.
It’s unlikely, though, that there will be a one-for-one swap between the two.
“To put it simply, the math just doesn’t work,” said Alex Durante, Tax Foundation senior economist.
Just as Trump pointed out, tariffs were at one time the primary source of federal revenues. But the government was smaller then (and should be far smaller now), not only in nominal terms but in relative terms, as well.
In 1900, federal revenues as a portion of the gross domestic product were a mere 3%. The portion shot sky high to almost 20% in 1945 to fund the war effort. The peace dividend that followed was both meager and brief. From 1952 to the present, it has bounced around in tight neighborhood bounded by a low of 14.4% in 2010 and a high of 19.8% in 2000. Last year, it was roughly 17%.
Feeding the rapacious federal Leviathan today would require either a significant bump in tariff receipts (not a good idea) or a sharp shrinking of the size and scope of Washington (a beautiful idea).
Neither, of course, is likely.
But our friends at the Committee to Unleash Prosperity point out that a national sales tax of 18% “could replace the federal personal income tax, the capital gains tax, the corporate tax and the dividend tax.”
